“Some people had suspected years before Mr. Madoff’s arrest that Madoff Investments’ record of consistently high returns was simply too good to be true,” she wrote.
Dean Patterson, a spokesman for the IRS, didn’t respond to an e-mail seeking comment on the decision.
Even if the estate wins a Tax Court trial on the refund, it faces continuing efforts by Madoff bankruptcy trustee Irving Picard to recover payments of fictitious profits to compensate people who invested more than they took out.
Deposits, Withdrawals
Deposits into the Kessel Madoff account totaled $2.8 million while withdrawals totaled $5.52 million, a $2.72 million difference, making the estate a “net winner” among Madoff investors.
As a result, the estate is targeted in one of about 800 clawback suits by Picard.
The Picard suit, filed in federal bankruptcy court in New York seeks recovery of $2.9 million from the estate.
“This is a sad situation,” Krass said. “You’re getting hit from the left and the right.”
Madoff, 76, who hatched his $20 billion fraud scheme in the 1970s, targeted thousands of wealthy investors, Jewish charities, celebrities and retirees. The scam unraveled in 2008 when the economic crisis led to more withdrawals than he could afford to pay. Madoff pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina.
At least seven other people have pleaded guilty to roles in the scheme, including his brother Peter Madoff, who is serving a 10-year term. A federal jury in Manhattan in March found five former employees of Madoff’s firm guilty of aiding the fraud.