Legislative Relief for Victims of Investment Scams Now on the Way

U.S. Rep. Gary Ackerman (D-NY), a senior Member of the House Financial Services Committee, has introduced legislation that would allow victims of Bernie Madoff’s Ponzi scheme to receive refunds for the taxes they paid on phantom profits—revenue they thought they earned which in reality never existed due to Madoff’s fraud.

The measure would extend to 13 years the amount of time investors swindled by Madoff can obtain refunds for the taxes they paid on the phony income.

Under the legislation, entitled the “Fraudulent Tax Relief Act,” victims would be permitted to claim a refund for all taxes paid on their Madoff “profits” dating back to 1995. Presently, Madoff investors, like all taxpayers, can only amend tax filings for the past three years.

Ackerman introduced the legislation in the wake of recent announcement that no evidence exists to indicate that securities were ever purchased for Madoff’s customer accounts for the last 13 years. This announcement came on February 20 from Irving Picard, the court-appointed trustee for the liquidation of Madoff’s investment company.

The bill would also allow victims who recoup the taxes they paid on bogus profits to receive the funds as a tax credit if they prefer this method over a tax refund.

“This legislation, if enacted, will give the victims of Bernie Madoff back the money that the government has no business in keeping” said Ackerman. ”The government should not become the beneficiary of these ill-gotten gains.”

The long title of the bill is “To amend the Internal Revenue Code of 1986 to allow a refundable credit for taxes paid on earnings reinvested and lost in a fraudulent investment scheme,”  After its introduction on the floor on March 9, 2009, Congress referred it to the House Committee on Ways and Means for hearing and study.

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