Good News from the IRS on Madoff and NOLs

This week the IRS handed some beleaguered taxpayers good news. First, the IRS announced that the new NOL provision (a five-year carryback) can be used for 2008 returns. This new NOL provision applies to certain partnerships and S Corporations. And, as Joe Kristan notes, the only entities that can use this provision average $15 million in gross receipts during the three-year period ending with the NOL. Best of all, the only testing will be done at the entity level.

Next, the victims of Ponzi schemes such as those perpetrated by Bernard Madoff, were given direction by the IRS on how to take their losses on their tax returns. Revenue Ruling 2009-09 and a Safe Harbor Procedure were issued by the IRS. These are about as good (for taxpayers) as one could hope for.

Among the highlights are that the theft loss deduction is available in the year the complaint was filed; that it’s considered a §165(b)(2) deduction and not subject to the 10% AGI restriction on theft losses; and impacted taxpayers may be eligible for the new NOL carryback procedure. Joe Kristan has more.

One Response to “Good News from the IRS on Madoff and NOLs”

  1. taxrascal says:

    Although the Madoff ruling might be good for taxpayers now, think about the long-term issue:

    Think of someone who is looking into a new investment. It has great, steady returns, but management is kind of secretive. One thing they might consider is what happens if it turns out to be a scam. Thanks to the Madoff ruling, the scam risk is not as much of a risk, so the incentive to investigate potential fraud has been weakened.

    You can always bail out sympathetic people now, but it’s just going to lead to more hapless behavior later.