IRA STOLEN BY Madoff
Is it possible to take a theft loss on IRAS that disappeared from Madoff? My initial reaction was no but I’m told some accounting firms are taking the position that the “theft of an IRA” may be deductible.
Is it possible to take a theft loss on IRAS that disappeared from Madoff? My initial reaction was no but I’m told some accounting firms are taking the position that the “theft of an IRA” may be deductible.
Permalink Submitted by mk foss on Wed, 2009-02-04 19:55
A theft loss is limited to the adjusted basis in the asset if that’s less than the market value before the theft.
A theft loss wouldn’t help if there were no after-tax funds in the IRA.
The loss is reduced by $100 plus 10% of the adjusted gross income. The more traditional way of claiming a loss as a miscellaneous itemized deduction might be better if the IRA lost by theft was the only one owned.
Permalink Submitted by Burt Moss on Wed, 2009-02-04 20:23
Thank you, thats what I thought , but I am being told there is a court case that allowed the deduction of an IRA theft loss. If I find it I will post it here.
Permalink Submitted by Alan Spross on Wed, 2009-02-04 23:15
The recovery problem is complicated by the application of SIPC and excess limits coverage over the 500,000 to a Ponzi scheme. SIPC basically applies to theft of securities, but in a Ponzi scheme the securities never existed in many cases. In other cases account owners took distributions from their Madoff accounts over the years from assets that were basically supplied by newer investors. Any settlement would have to recognize to some extent the total distributions account holders took. They may be legally liable to return those funds to court jurisdiction, but somehow I cannot envision collection efforts against account holders.
There is pressure to resolve some of these issues quickly due to massive cost to the IRS and confusion in the tax prep community on what options exist.
One good possiblity is that the accounts could be frozen for a few years while this all plays out in court.
We never hear much about Madoff’s level of cooperation following his confession, so I guess he wants the authorities to figure out how he did it. And he is also likely protecting other family members.