- File amended returns and seek tax refunds. However, taxpayers generally can amend tax returns only for the three years prior to discovering a fraud, so this wouldn't do help long-term investors very much.
- Claim a theft-loss deduction equal to the amount of their original investment, plus any phantom interest or income obtained over all the years. This deduction can be used to offset ordinary income in the current year, or carried back three years or forward 20 years.
- If they do not have enough ordinary income to offset the deduction, they might be able to claim a refund, without interest, of the taxes paid on phantom income. But the IRS often contests those claims, The Wall Street Journal said.
Wednesday, January 7, 2009
Ponzi scheme victims have tax options
The New York Times today explores tax options for those who lost money in Bernard Madoff's investment fund that is suspected to have been a Ponzi scheme: