Madoff Clients May Recoup More Losses Through Taxes Than Suits

[Joanne98]

Jan. 22 (Bloomberg) -- Customers of Bernard Madoff, accused of bilking his clients in a $50 billion Ponzi scheme, may recover more of their investment losses through tax strategies than by suing Madoff or his bankrupt firm.

“If they invested a lot, then they could possibly recover 40 percent of everything” through U.S. and state tax laws, said Micah Bloomfield, a tax specialist at New York law firm Stroock & Stroock & Lavan LLP.

U.S. tax law allows Madoff’s customers to take income deductions for losses caused by theft if they prove their money was stolen, Bloomfield said. Madoff’s alleged estimate of the size of the fraud didn’t specify if it included principal or how much was lost by charities not subject to taxation.

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aTED8jdhJ.oE

This is a MSM meme that has popped up in the last few days. Telling Madoff investors, "Don't look for the money it's gone".. That isn't true of course. So WHY are they saying that? Madoff investors need to IGNORE this BS and keep looking!

[grannie4peace]

1. ??????

[dipsydoodle]

2. So tell me

If after deduction the overvall tax due was a negative do they get a refund or is the negative amount carried forward ?

[Statistical]

6. Article is the truth but not quite the "whole truth"

You can't just get a refund for investment losses. $1 investment loss of $1 B investment loss it doesn't matter.

What you CAN do is carry the loss forward each year and write off any gains for that year.
You can also "transfer" out a mere $3,500 to offset taxes on regular income.

So say someone loss $100 Million w/ Madoff.
Say for the sake of argument they get back $1 million (SIPC, lawsuit, SEC "finds some money").
Their loss for 2008 was $99 million.

Assuming they aren't bankrupt and have other assets making money.

In 2010 they make $5 million in gains (dividends, interest, cap gains).
Normally they would need to pay taxes on those: Say $1-$2 million.

However they have a -$99 mil from 2008.
So adding that in they end up @ -$99 + $5 = -$94 mil so no taxes due.

Same thing in 2011, 2012, 2013, 2014, 2015, 2016 etc.

So they will not be paying taxes (on investments) for a very long time depending on relationship between their loss AND average annual gain over next decade or so.

[dipsydoodle]

8. That's what I meant

but you expressed it better - thanks.

[newfie11]

3. If their money was part of a retirement program

I didn't think they could claim a loss on taxes. I had some losses several years ago on a Money purchase pension plan and could not use that to off set gains.

[janedum]

4. SIPC does NOT cover fraud

Re: your statement
"Telling Madoff investors, "Don't look for the money it's gone".. That isn't true of course."

IF they could get ANY money back, it would ONLY be $500K. That's the law. But it's my understanding, SIPC doesn't cover fraud. Even if SIPC gave each investor $500K, that's not much if you had a $5 million $$ portfolio.
I've lost plenty of $$ in the stock market. No one bailed me out.
Why should the rich get preferential treatment?
F*K 'em!
Let 'em WORK like the rest of us!

[eilen]

5. I would be totally in agreement with you except

that I know our local Carpenter's union had their entire pensions with him. Our electricians union had 14% of the pension fund with him as well as another union-- pipefitters I think. The tradesmen had no say on where the trustees put the money.

[Statistical]

7. SIPC does cover fraud. That is EXACTLY what it is there to cover.

Comparing Madoff fraud to you losing money in the market (i.e. buying a stock and it goes down) is apples and oranges.

SIPC wasn't designed to prevent market losses. If you want risk free look at T-Bonds or CDs.

A more accurate comparison would be:
You deposit $10,000 with your broker, when you execute trades he pretends he is trading but in actuality just putting info on a computer screen. In reality he keeps your money and bunch of others and then leaves the country with it.

SIPC would cover you too in that instance.

However you are right SIPC only covers a max of $500K so many individuals and pensions will only see a small % back.