Tax Law Blog | IRS Tax Attorneys

Prospects are brightening for a tax-law change to allow victims who invested indirectly in Ponzi schemes through advisers or feeder funds to get bigger tax refunds for their theft losses.

The change would allow victims of swindlers such as Bernard Madoff to carry back their theft losses for as long as five years instead of the current three years. The change is being pushed by Sen. Charles Schumer (D., N.Y.), among others.

Mr. Schumer’s office said Sen. Max Baucus, the Finance Committee chairman, had signed off on the language, and that Mr. Schumer is planning to add it to the unemployment-insurance legislation that is expected to pass the Senate this week.

The change seeks to address a gap in efforts to extend relief to Ponzi-scheme victims. The Internal Revenue Service announced unprecedented tax relief for victims in March, but experts said that in many cases it was doubtful indirect victims would be able to benefit.

“This proposal, once approved, will finally bring smaller investors, many of whom lost everything, on par with direct investors in terms of receiving relief,” Sen. Schumer said in a statement.

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Silena Davis had counted on an early tax refund to pay for getting her teeth fixed. Now, because Congress has dawdled all year on a tax bill, she and millions of other early filers could have to wait extra weeks for refunds that last year averaged $2,291.

The Internal Revenue Service is looking hard at delaying the start of its filing season, set to kick off on Jan. 14, if Congress fails to pass legislation in the next two weeks. At issue is how to handle what could be a dramatic increase in the number of people facing a higher alternative minimum tax.

If there is a delay and it extends into mid-February, it would slow nearly 32 million refunds worth a total of about $87 billion, the IRS Oversight Board predicts.

“It would definitely make a big difference with me,” said Davis, a George Washington University Law School administrator. “I’m going to have to get a crown and it’s going to be really expensive.”

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Believe it or not, late filers are most likely than the general population to have tax refunds. You absoultely need to know that there are strict time limits for refunds, audits, and debt collection.

Your plan of action should provide an estimate for how long it will take to get your refund checks. If you owe other tax debts, you need to know how much of your refunds will be applied to other tax years. If you think you might owe next year, you should plan on making estimated tax payments to avoid owing.