SUMMARY:
• Tax Attorney, Richard Lehman, discusses the tax refund that occurs when someone profits from a Ponzi scheme and later the scheme collapses, resulting in a trustee suing individuals to recover the money.
• The trustee's efforts to collect money through clawbacks have been successful, allowing many individuals affected by the Madoff Ponzi scheme to regain a significant portion of their funds.
• The Internal Revenue Service (IRS) had difficulties determining how to handle payments repaid to trustees and sought input from tax lawyers and the Government Accounting Office.
• There are two options for handling clawbacks: deducting the amount paid as a clawback in the year it was paid and using it for tax refunds or utilizing a specific code section to go back to closed years and claim tax refunds from profits made in those years.
• The mitigation section in the Internal Revenue Code allows individuals to reopen closed years and potentially receive larger tax refunds by carrying back losses and benefiting from higher tax brackets in previous years. However, the new Trump tax bill restricts loss carry backs to forward-only, limiting the potential advantage of deductions.
Optimize Your Tax Returns with Richard Lehman: Harnessing Clawbacks and Mitigation for Ponzi Scheme Recoveries
A Ponzi Scheme Clawback of profits is typical in many Ponzi Schemes. Ponzi Scheme Trustees appointed to achieve fairness among defrauded investors have successfully recovered billions of dollars from Ponzi Scheme investors who withdrew funds from the Scheme even though there were indeed no real profits at all in a Ponzi Scheme. Everyone but the promoter eventually loses money. The promoter usually goes to jail and losses money.
Those investors lucky enough to have escaped the Ponzi fraud and taken their profits early in the scheme, remained profitable until the Trustee “CLAWED BACK” their false profits. A Ponzi Scheme “Clawback” is accomplished when a Trustee obtains refunds from those who benefitted from the early “profits distributions” by the Ponzi Scheme. Clawbacks of Ponzi Scheme profits from the innocent investor who first benefitted from the Scheme can receive a unique treatment from a tax standpoint. This is because of a special Internal Revenue Code Section that applies to clawed back profits.
Richard S. Lehman, Esq. Lehman Tax Law
Located in the Dorot & Bensimon P.L. Domestic & International Tax Law Office
2000 Glades Road, Suite 312
Boca Raton, FL. 33431
