Tax consequences of Madoff "investments"
Posted: Thu Jan 22, 2009 12:54 am
To combine the multiple purposes of this board....
Suppose you had "investments" with Madoff. What would the tax consequences be?
It appears the consensus on a professional tax board is that it's a theft loss, on the return covering the date the theft was discovered (December 2008).
Others have opined that the "shares" are worthless, and should be covered as a long-term capital loss (probably as of this year, 2009).
In either case, dividends that have to be (re)paid to the receiver should be a "claim of right" deduction, to the extent taxable (and to the extent that the exceed $3000 per tax year), with the non-taxable components of repayments treated the same way as lost investments.
"Unwinding" dividends received (amending previous returns to reflect that the dividends were return of investment) has been suggested as a plausible interpretation, but probably not acceptable.
Many have suggested that the IRS may issue a notice describing their opinion, even if they do not have to abide by it.
Suppose you had "investments" with Madoff. What would the tax consequences be?
It appears the consensus on a professional tax board is that it's a theft loss, on the return covering the date the theft was discovered (December 2008).
Others have opined that the "shares" are worthless, and should be covered as a long-term capital loss (probably as of this year, 2009).
In either case, dividends that have to be (re)paid to the receiver should be a "claim of right" deduction, to the extent taxable (and to the extent that the exceed $3000 per tax year), with the non-taxable components of repayments treated the same way as lost investments.
"Unwinding" dividends received (amending previous returns to reflect that the dividends were return of investment) has been suggested as a plausible interpretation, but probably not acceptable.
Many have suggested that the IRS may issue a notice describing their opinion, even if they do not have to abide by it.