NEW YORK—In the effort to help thousands of taxpayers across the United States recover assets lost in fraudulent schemes, Congressmen Joseph Crowley (D-Queens, the Bronx) and Anthony Weiner (D-Brooklyn) sent a letter to the Internal Revenue Service (IRS) seeking to clarify federal policy related to tax payments on “phantom income” and losses resulted from various Ponzi schemes.
“Victims of Ponzi schemes are not only limited to Madoff-level investors. Just last month, the FBI raided a Queens-based Ponzi operator who had bilked local investors of more than an estimated $380 million,” said Congressman Crowley.
In the letter to IRS Commissioner Douglas Shulman dated Feb. 27, Representatives Crowley and Weiner questioned the three-year limitation for filing amended federal tax returns in order to recoup taxes paid on phantom gains or other income that never really existed, as many fraud victims may have held investments dating back more than three years.
They also expressed concern that an official determination regarding any chance of recovery of lost funds may take many years. This delay could prevent these taxpayers from being able to claim their rightful deduction under the theft loss rules.
The congressmen also sought several other clarifications related to the theft loss rules, including:
• Whether Ponzi scheme losses should be classified as losses incurred in a transaction for profit or as losses resulting from theft
• If a taxpayer may carry back these losses three years or may carry them forward 20 years
• If it is possible for taxpayers to either reduce the amount of loss by any potential reimbursement or insurance claim, or waive such claim entirely in order to get timely closure and to ensure they can utilize losses against income.
“With little regard for their victims, Ponzi scheme operators like Bernie Madoff prey on clients’ retirement funds, investments, and life savings. The federal government is not only responsible for finding and prosecuting these scam artists, it must also let victims know their rights and how they can recoup the taxes they paid on phantom income. Congressman Weiner and I believe the time has come for the IRS to clarify its laws and help the victims of these crimes more easily recover their assets,” said Rep. Crowley.
“For many victims, the injury of the fraud has been compounded by the insult of having to pay taxes on the phantom gains,” added Rep. Weiner.