Our March 19, 2009 Management Alert “Some Tax Guidance (and Tax Relief) for Madoff (and other Ponzi Scheme) Victims” described the new guidance that the Internal Revenue Service (IRS) had issued for taxpayers who had invested (and lost) money in a Madoff or other Ponzi scheme investment, including Revenue Procedure 2009-20 which sets forth a safe harbor for such taxpayers to claim a theft loss deduction for such losses.*
One of the Revenue Procedure 2009-20 safe harbor requirements is that a taxpayer who avails himself/herself of the safe harbor must attach the executed statement provided in Appendix A of Revenue Procedure 2009-20 to his/her timely filed (including extensions) federal income tax return for the “discovery year” (which, for Madoff investors, would be 2008). However, a taxpayer who, before April 17, 2009, has filed a tax return for the “discovery year” or an amended tax return for a prior year that is inconsistent with the safe harbor treatment provided by Revenue Procedure 2009-20, must indicate this fact on the aforementioned executed statement and then must, by May 15, 2009, file the tax return (or amended tax return) for the “discovery year” that is consistent with such safe harbor treatment (and to which said executed statement must be attached). Thus, for example, if you are a Madoff investor who desires to avail yourself of the Revenue Procedure 2009-20 safe harbor and who has already filed one or more amended tax returns for an open year seeking a refund of taxes paid on “fictitious income,” you would have only until May 15, 2009 to file your tax return or amended return (with the aforementioned executed statement attached to it).