U.S. Rep. Kendrick B. Meek (D-FL) introduced legislation amending the Internal Revenue Code to provide tax relief to individuals harmed by Ponzi schemes who have paid taxes on “phantom” earned income.
The legislation, H.R. 1159, was referred to the Ways and Means Committee. Congressman Meek serves as the lone Democratic Floridian on that committee.
Individuals who invested in these now exposed Ponzi schemes earned yearly income from these investments and paid taxes to the Department of Treasury on that income. While the principle investment made by these individuals is lost, the Meek bill would provide some measure of relief to individuals and allow them to recoup taxes paid on their perceived income, which was in fact nonexistent income.
Already in 2009, the Securities and Exchange Commission has exposed Ponzi schemes involving Bernie Madoff, Allen Stanford and George Theodule, a South Florida businessman who preyed upon Haitian-American investors.
“When it comes to Ponzi schemes, this is just the tip of the iceberg,” said Congressman Meek.
According to a newspaper analysis, in the Ponzi scheme orchestrated by Bernie Madoff alone, of the 11,374 investors affected by the fraudulent investment, nearly one in five, or 2,070 investors are from Florida, second behind New York. Nationally, over 200 non-profits were also affected by the Madoff Ponzi scheme.
“Many innocent victims spent a lifetime working hard, saving wisely and investing conservatively with trusted financial advisors who promised to serve as cautious caretakers of their financial future,” said Congressman Meek. “These investors, many who are older Floridians from retirement communities living on a fixed income, were defrauded and now face an uncertain future. They are liquidating assets, selling real estate, and returning to work in the midst of an economic recession. This legislation provides some degree of relief to harmed investors, allowing them to recoup taxes paid on phantom income. While their initial investment cannot be saved, the taxes paid on that income can.”
Under current law, the carryback period for theft losses arising from a Ponzi scheme is limited to three years, which restricts the ability of older investors to adequately recoup their losses, including taxes previously paid on their phantom income. The Meek legislation would extend the carryback period up to 10 years, which helps older investors who lost retirement savings meet their future needs on their own terms.
The bill also allows individual donors to educational institutions and other charities to replenish their lost gifts, but existing limitations in current law would limit their ability to further fund these organizations.
Wednesday, March 11, 2009
Posted by Professor Rex at 7:34 AM