Interesting Madoff tax story sub-plot

I know this is a blog about charitable giving techniques – and this post has nothing to do with charitable giving.  And, I promise my readers not to send garbage to their in-boxes.

But, this story I found so interesting and really starts to address one of the “what ifs” raised by the Madoff fiasco.  It is purely for those interested tax stuff in general.

Here is a link to the story: You can probably find a 100 or more stories on the web on this case.  The summary of the story is that a New Jersey couple is fighting for a return of taxes paid on phantom Madoff gains for the 2005 – 2007 tax years.  This round they won.

What was amazing to me wasn’t that they won a court round, but that they actually lost the previous round.  Why did they initially lose in the tax court?  The tax court reasoned that since this couple in theory could have withdrawn their gains during those tax years, they deserve to pay taxes on those gains even though they were completely fictional and in fact, they will never see those gains (remember, the gains are different than the principal which did get returned to them).

A judge in America came up with that line of reasoning? Yes.  Insane as it sounds.

Why I posted this story is the creativity/logic of the next judge in overruling the first judge. The latest ruling: if all or most investors in Madoff had in fact asked for their gains in those years, the ponzi scheme would have collapsed (as it eventually did), so who are we to say they really had access to the money.  Great reasoning.

I have my own logic.  Why on earth should anyone be required to pay taxes (i.e. not get their money back for taxes previously paid) on fictitious gains that were part of a known fraud?  If they got the money beyond their principal investment, fine, pay taxes because that is real gain.

I am guessing that there is limit to how many years you can go back and amend your returns. If I were a Madoff investor, and paid taxes on “gains” that were never received, I would want my tax dollars back.  That is the least this country can do considering its own watchdog agency royally screwed up and let Madoff do this for decades.



More Madoff Madness

For those who are interested in my previous posts regarding Madoff and clawbacks against charities (check out Madoff posts) , here are some interesting articles about this now old story.

This first article is really interesting – about how lawyers on behalf of net-winners from Madoff’s scheme are fighting to be treated as victims! It’s hard not to feel sorry for them but how could you take away recovered funds from the net-losers of the fraud!

What is interesting about this next article, is that it is only in the 5th paragraph that it mentions a side point that Madoff stole $325 million from a friend as executor of his estate.

Who would have thought that a little theft of $325 million wouldn’t get much prominence? Well, I guess if you are in the business of stealing billions, what’s another few hundred million?

The real irony is that Madoff was only stealing back false profits from his own fraud, presumably to keep the fraud going a little further. Apparently family of the deceased friend didn’t disagree (they settled with Picard).

Jeffry Picower Will

Ever look over the will of a billionaire?  Someone facing claims of billions of dollars by a trustee in bankruptcy.

Jeffry Picower will

What a strange story.  Jeffry Picower was facing gargantuan claims (with a pretty good defense for withdrawals older than 6 years).

He signed a new will on October 15, 2009.

He died of a heart attack in his swimming pool on October 25, 2009.

What is most fascinating to me about this will is how many employees were set to receive bequests, as long as they were still employed by Mr. Picower at the time of his death.

The whole story sounds too incredible to be true.  It seems too planned.  It can’t be life insurance motives – doesn’t make that much sense to me since he was really rich.  Or, maybe life insurance proceeds from irrevocable life insurance trusts would be the only funds completely free from potential clawback?

If he did have any big life insurance policies, and I was the investigator for the insurance company, I would be looking into this!  Maybe he signed his new will, cleaned up his affairs, and stopped taking his heart medication.  Who is to say that the trustee wouldn’t be able to go beyond the 6 year limit since Picower was as close to a co-conspirator as you get.