I'm Getting Back Some of the Money That Crook Made Off With-Now What? Tax Issues Affecting Ponzi Scheme Recoveries

摘要

Many Ponzi scheme victims-whether scammed by Bernie Madoff or by less well known thieves-have claimed theft-loss deductions before knowing just how much of their investments they might ultimately recover. Now some are finding that their recovery may exceed expectations. That happy news brings with it some tax twists, however. The authors here analyze the federal tax treatment of (I) the receipt of insurance and settlement payments with respect to customer claims filed in the Madoff liquidation proceedings and (2) the sale of a customer claim after a theft-loss deduction has previously been claimed. The authors also analyze the different results that may apply where an estate succeeds to a decedent's claim or where the bilked investor was a partnership. While couched in the context of the Madoff scheme, the tax consequences would apply equally in other Ponzi scheme contexts.