In the wake of the unravelling of uber-Ponzi schemer Bernard Madoff’s scam, the IRS has announced new guidance on how it will handle the tax consequences of being a victim of a Ponzi scheme — whether Madoff’s or any one else’s.
Yesterday, March 17th, IRS Commissioner Doug Shulman described the agency’s position in testimony before the Senate Finance Committee:
- The investor is entitled to a theft loss, which is not a capital loss. In other words, a theft loss from a Ponzi-type investment scheme is not subject to the normal limits on losses from investments, which typically limit the loss deduction to $3,000 per year when it exceeds capital gains from investments.
- The revenue ruling clarifies that “investment” theft losses are not subject to limitations that are applicable to “personal” casualty and theft losses. The loss is deductible as an itemized deduction, but is not subject to the 10 percent of AGI reduction or the $100 reduction that applies to many casualty and theft loss deductions Continue reading
A visitor to my website found it by asking this question in a search on Yahoo: “When does the statute of limitations run out for audits?”
The shortest answer is three years.
So the IRS Has Three Years – Three Years Starting When?
But that’s not quite enough information all by itself. The first, next question is: three years from what? What event makes the clock start ticking and counting down?
The shortest answer is that the clock starts counting down, when you, the taxpayer, file your tax return. But that’s not quite the whole story either:
Yesterday, President Obama signed into law legislation reauthorizing and expanding the State Children’s Health Insurance Program or S-CHIP, which was set to expire in March 2009.
Former President George W. Bush had previously vetoed two similar bills.
The measure increases federal tax on cigarettes by almost 62 cents a pack, to $1.01 a pack. This increase is expected to raise the $32.8 billion needed to pay for S-CHIP over the next four years.
When hearing the news that former masters-of-the-universe bankers are getting billions in federal aid – bailouts from their failures – who among us has not wished to receive our own personal bailout?
After all, almost none of us have been as irresponsible, reckless, even profligate as the banks and bankers whose wastrel ways have brought down the economy. What about the rest of us who try to make a living, pay our bills, make ends meet? Times are tough for all of us now.
While it is unlikely that any of us will be invited to testify before Congress to explain why the government should write a huge check to help out on our personal finances or the finances of our small businesses (personally, if Congress did invite me, I’d skip the private jet the first time, and fly commercial or take a train or drive) , the IRS – of all government agencies – is promising relief for taxpayers and particularly taxpayers who have fallen behind in paying taxes.