Tuesday, June 30, 2009

Bernard Madoff's Lucky Pal: Uncle Sam

Something struck me when I was reading victim impact statements from Bernard Madoff's victims. In a sense they were tragic guinea pigs, alerting us to failures in the monitoring of the finance industry. The repeatedly ignored warnings are a matter of record. An analasys should be done on the many mistakes in the Madoff case.

But there is one injustice that cries out for correction. All of the Madoff victims paid income taxes on income that turned out to be nonexistent. They filed returns in good faith and now must frequently rely on various forms of public assistance. Common decency would dictate that every penny paid in taxes on income that was an illusion should be returned with interest to the victims of Madoff's perfidy. This should even stand as a precedent that anyone who pays taxes on illusory earnings will have them returned. This will still leave major losses, but people who are now penniless will at least have something to see them through old age.

Imagine the subliminal moral to the story. Someone is scammed by a thief and pays taxes that they should not have paid. As a result, they are saved from total poverty. The taxes they paid saved them from total ruin. Up until now, the government has refused to refund erroneously paid taxes. Failure to do so has made them beneficiaries as well as accomplices to Madoff's crimes. This greatly diminishes respect for the government and the IRS.

Those who invest in the stock market are bankrolling the industries that employ the American people. Our system can not function when respect for the financial system is undermined. Whether it takes en executive order, an act of Congress or an administrative law, the government should pass whatever law is needed to provide what amounts to disaster relief for Madoff's victims. It would be the first of many steps that must be taken to restore respect to our financial system and our government. It is the right thing to do. Sphere: Related Content


Anonymous said...

Your rant lacks substance and may be entirely misguided.

I would be shocked to find out that taxes the victims paid on false gains are not recoverable. Since your rant does not include any facts or references, I'm thinking this may all be assumption on your part.

First of all, many victims may not have paid any taxes on gains since much, if not all, may have been considered capital gains, which means you only pay taxes when you sell the security.

Even if that's not true, whatever they did gain, they have now lost. Losses are deductible from any realized capital gains and capital losses can also be taken against your income. Granted there are limits to how much you can deduct in any given year, but theoretically over time you can get all your money back this way.

Alternatively, we all have the opportunity to amend past returns. I don't know what kind of time limits there might be or if frauds like this do not allow you to change your return, but this is a possibility you don't mention.

So, bottom line, the victims can get their money back. The only issue is how quickly they can under current law. Perhaps there's an opportunity to improve the process, but your rant doesn't even acknowledge these options even exist.

Magdeburger Joe said...

I am citing the statements to the press of Madoff victims. If there are ways to recover their losses, these people should be waqlked through the system. In most cases they are elderly and drained by their ordeal. Takinhg deductions only works if you have taxable income from which to deduct