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November 09, 2009 |
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Madoff Victims May Get Tax Relief |
(Dow Jones) Hedge fund and other investors left out of Madoff tax refund rules last
year may get their chance to recover taxes paid on phantom profits,
after all.
A measure included in a wider bill to extend jobless
benefits would help people who invested in Bernard Madoff through
so-called feeder funds, including hedge funds. Direct Madoff investors
got tax help last year, but the rules did nothing for fund investors.
Sen. Charles Schumer, D.-N.Y., this week touted the bill as
help for the little guy, smaller investors who lost money in the Ponzi
scheme. Tax experts agreed, but noted the wider bill is really aimed at
helping businesses larger than $15 million carry back losses over five
years for tax purposes.
And they said that not just small investors would be helped.
Rather, the bill would also "benefit both large hedge fund investors
and certain smaller investors" who invested through feeder funds, said
David Shechtman, chairman of the business tax group at law firm Drinker
Biddle & Reath LLP.
Richard M. Leder, a tax partner at Chadbourne & Parke
LLP in New York, said the bill will indeed be "very, very important"
for many people.
For Stephen M. Breitstone, partner and head of the tax
practice group at Meltzer, Lippe, Goldstein & Breitstone LLP in
Mineola, N.Y., the legislation comes after prospects for something like
it dimmed amid the health-care debate. He said he's "pleasantly
surprised that someone is still looking to provide relief to the
community of Madoff victims."
The new legislation would close a gap left after the
Internal Revenue Service set the stage in April for large refunds to
direct investors. The agency did that through a generous reading of
rules that let investors take a theft loss on their 2008 tax returns to
recover taxes paid on money they don't ever expect to see. It was less
openhanded to those suing third parties, because these investors have a
better prospect of recovering money.
Taxpayers seeking a Madoff refund under the IRS safe harbor
had to claim the theft loss on their 2008 returns, and just passed the
October 15 deadline to file for an extension. Some people, however, will
be able to file later under a complicated set of rules.
This summer, the IRS began to send refund checks to Madoff
investors. Some were for substantial amounts, nearly half a million
dollars in some cases. The very big refunds could be for tens of
millions of dollars.
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