Madoff investor bailout?

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I wouldn't call this a bailout. The investors paid taxes on supposed profits. The profits turned out not to exist. Shouldn't the tax money be returned?

(that said, I don't know whether the details of the plan described in the article are the best way to accomplish the return)

My reading is closer to MRW's. The profits on which the taxes were based were fake. Like if you loan me $10, and I send you (and the irs) a statement saying that you earned $1000 profit, then next year after you pay the taxes on that $1000 you discover I was lying, you never earned anything at all, and not only that I spent the $10 I'm so sorry.

-kevin

i believe the argument that has been used over and over against people who got 'trapped' in homes they could not afford due to their being sold sub-prime mortgages is, you should have known better. why does this argument not apply to the madoff investors? why couldn't these rich investors do their homework and know what they were getting themselves into? we're seeing the same double standard again in the unwillingness and refusal to re-negotiate the contracts of the bailed-out AIG execs compared to the uproar caused over the UAW while they were pleading for a bail-out.

amar:

I've got no special knowledge here but I believe that losses incurred on a real estate purchase (whether lost to foreclosure or not) are deductible when realized (against current income) and, if exceeding current income, can be carried back for some specific number of former years to reduce those years' taxable income.

By Gene Berman (not verified) on 18 Mar 2009 #permalink

To all:

It looks to me like taxes are of secondary importance to sorting out and potentially compensating (at least partially) losers in the scheme---and that could take some time and have some very definite costs.

What needs to be realized (and taken into account) is that
(as has been alleged and seems to have been the case) is that EVERY recipient of payout from the "mutual fund" that, in fact, never had any investments, is, at least in theory, liable for such sum to be "clawed back" into a fund from which some partial restitution may be made to all: anything received was, in effect, "stolen goods" and, if and when received, could (together with whatever might be realized in liquidation of Madoff assets) be used to make partial
compensation to all. That exercise would have the added value of generating documentation which could be used by all the victims against their past tax liabilities and payment, at least to the extent allowable. Of course, the process would have costs, which, when taken from the "pot"
being put together, would also reduce the restitute amount (and which sum could be apportioned pro rata, which again, would affect actual tax liability).

No such process could go forward, of course, until Madoff's criminal trial has rendered a verdict.

By Gene Berman (not verified) on 18 Mar 2009 #permalink

Gene,
That is a valid point. However, i'm not sure that the government endorses investments the same way that they endorse home ownership. In the case of real estate losses, the feds basically ask you to take a risk on the purchase of a home with the promise of various tax incentives and the stop-loss or loss recovery options that are available. With the financial investments (IRAs aside), the same incentives and endorsements are not provided and therefore lack the similar consumer protections.