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Madoff Ponzi Scheme » Mitchell Fuerst Shares His Insight

The Bernie Madoff situation is all over the news, and the cleanup will take years. Clients of Bernard L. Madoff Investment Securities may not get their money back for a long time.

Miami tax attorney Mitchell S. Fuerst was quoted in the Palm Beach Post in a December 19, 2008, article by Jeff Ostrowski. Mr. Fuerst stated that the victims of the Madoff fraud should file amended tax returns immediately. Investors who never received checks from Madoff but reported income from Madoff should seek tax refunds for the phantom income that they paid taxes on for the past three years, which is as far back as the IRS allows amended returns. “That’s the fastest money any of these people are going to see. Get past the shock and awe and get those tax returns in,” Mr. Fuerst said.

The tax rules also allow investors who fall prey to criminal theft by their investment advisors or brokers to claim a tax deduction for their losses. These rules are intended to help investors cheated through pyramid schemes, embezzlement, extortion, or robbery, and could possibly put hundreds of millions or billions of dollars back into the pockets of Madoff’s investors.

Mr. Fuerst has experience in persuading the IRS to allow favorable treatment of taxpayer losses sustained by investors who fall victim to Ponzi schemes. He is quoted in an article by Janet Novack in Forbes Magazine, “Make the IRS Share Your Pain,” published on June 7, 2004. The article details how two investors who placed $5.9 million into investments managed by Reed Slatkin, who orchestrated a $600 million Ponzi scheme, believed that their investment had grown to $11.2 million, when in reality all of their money was taken by Slatkin. The IRS took the position that their embezzlement losses were not deductible until the investors knew precisely how much of the investment they would get back. Mr. Fuerst successfully argued that the investors should be allowed to write off their expected losses by amending their tax returns for the three prior years, and later report any recovery of embezzled funds as income. “Delaying the embezzlement loss is unfair,” Mr. Fuerst said.

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