A bill has been introduced in the New Jersey Senate that could provide some relief to the victims of Bernard Madoff’s Ponzi scheme and similar scams. According to a report on NJ.com, the proposed law would enable the victims of such swindlers to get back the taxes they paid on earnings later discovered to be false.
Madoff pleaded guilty to 11 fraud counts on March 12. The former chairman of the Nasdaq stock exchange ran an investment advisory business for decades that was, in reality, a Ponzi scheme. Last November, Madoff told his investors that his fund held more than $64 billion, but in reality, he only had a fraction of that amount.
Most of Madoff’s investors were under the impression that their accounts were earning excellent returns. But in reality, the earnings Madoff reported on their monthly statements were just an illusion. It’s now know that Madoff never invested a cent that anyone entrusted to him.
The sponsor of the New Jersey legislation, Senate President Richard Codey, (D-Essex) told NJ.com that he did not want the bill characterized as the “Bernard Madoff” bill. Rather, Codey said the aim of the bill is to provide relief to people who – like Madoff’s investors – paid taxes on money they never actually received.
According to NJ.com, if passed the law would allow scam victims to amend past tax returns, reducing their taxable income by the amount of any income they reported receiving from the fraudulent scheme. Such individuals could get back the taxes they paid in the three years before the fraud is discovered. The measure covers fraud discovered in 2008, 2009 and 2010, NJ.com said. Victims would be eligible for the “theft-loss deduction” if they can get a similar outcome at the federal level.
New Jersey is just the latest state to try to offer relief to the victims of Madoff-type scams. Yesterday, we reported that New York issued tax guidelines that would allow scam victims to write-off off their losses as â€œtheft.”
And in March, the IRS said it would allow Ponzi scheme victims to claim some of their losses as deductions on their tax returns. Under the new guidance, the losses are classified as theft losses rather than capital losses, giving most victims a bigger deduction. In addition, a special limitation that sometimes reduces deductions by 10 percent wonâ€™t apply. The IRS guidance also says defrauded investors can claim theft losses not only for amounts originally invested, but also for fictitious income.