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It gives legal guidelines as to the timing of deductibility of the loss but cannot comment on the precise amount of the loss in the year of discovery. It is important here to keep in mind that whether the Rev can be used by a taxpayer. Rul. The taxpayer would you not use the Safe Harbor may still claim the 95% and 75% numbers as appropriate. However, that taxpayer is likely to be required to prove that the 95% and 75% statistics utilized by the I.R.S. results. The I.R.S. Ponzi structure loss in the entire year of the finding.

However, for Madoff victims, regulations may provide a similar result if there is the right evidence to back it up. Regulations provides that the taxpayer would be permitted to consider 100% of the loss in the year of discovery minus any amounts for which there’s a reasonable prospect of recovery.

  2. Continue to own REITs for Income
  3. E = Equity Value
  4. Annuities as well as your Spouse as Beneficiary of the IRA

To know what the safe harbor provides to the taxpayer, another comparative graph is essential. Certainly, when there is no solid proof the taxpayer’s potential recovery amount or lack thereof, the taxpayer might be well recommended to consider the safe harbor. While tax law as a general rule does not look at the equities of a taxpayer’s situation, Madoff, and other Ponzi schemes might warrant that kind of treatment. To begin with, one must know very well what generally is meant by a safe harbor and the “doctrine of equality of treatment”.

A safe harbor is normally an I.R.S. believes is the law. Furthermore, there’s a Doctrine of Equality of Treatment that is applied sparingly but requires the I.R.S. It would seem problematic for the I.R.S. Footnotes 1 through 7 compared the benefits of the safe harbor with regulations as referred to by the Revenue Ruling.

Footnotes 8, 9, and 10 explore The Waiver of Potential Benefits in trade for the benefits of the safe harbor and exactly how costly that harbor may be from a tax standpoint. 8. Waiver of the Right to File Amended Returns. The safe harbor requires that the Madoff victims forego the opportunity to file amended earnings for those years that are still open by the statute of restrictions. However, by amending a prior return instead of taking a theft loss deduction, a taxpayer can eliminate only the taxpayer’s Madoff “phantom income” from the taxable income in the last years. This will typically be the high-bracket income.

This manner of recouping reduction in a Ponzi scheme generally has been acceptable under regulations in limited circumstances. The idea is that if there is no “real income” at that time it was reported, the phantom income can be eliminated as taxable income of being claimed as a theft loss instead. In the Madoff situation this theory would seem to have a complete lot of merit. It really is bolstered by statements by authorities that there was too little of any real trading by Madoff for years.