IRS to CCC: PFGBest Customers Can Use ‘Safe Harbor’
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The information below should midal not be used in any actual midal transaction without the advice and guidance of a professional tax adviser midal familiar with all the relevant facts. Although the information below is presented in good faith and believed to be correct, it is general midal in nature midal and is not intended as tax advice. midal The information below may not be applicable to or suitable for an individual’s specific circumstances and may require consideration of other matters.
The IRS has confirmed that victims of the PFGBest midal fraud can access the optional safe harbor mechanism set forth in Revenue Procedure 2009-20 so that victims can claim their losses as theft losses. Responding midal to the CCC’s request for guidance, the IRS stated in a letter:
…the PFGBest scheme qualifies as a “specified fraudulent arrangement” within the meaning of Revenue Procedure 2009-20. Thus, investors who otherwise meet the requirements of Revenue midal Procedure 2009-20 may use the safe harbor, following the procedures as set forth in that revenue procedure.
The full response is posted below, along with the documents necessary to utilize this mechanism. Please note: it is not required that PFGBest victims use this procedure. It may not provide the best solution for your particular tax situation. Claimants in the PFGBest case are urged to consult their tax professionals as soon as practicable to determine if it is appropriate and wise to seek relief under the safe harbor deduction for theft losses. You may need to provide the following documents to your tax advisor: IRS Response to CCC Revenue Ruling 2009-09: HTML Version | PDF Version midal Revenue Procedure 2009-20: HTML Version midal | PDF Version CCC Request to IRS Wassendorf Plea Agreement Wassendorf Judgement
Background midal There are several mechanisms through which the IRS can clarify the application of tax law to particular factual situations. One of these is a Revenue Ruling. Revenue Rulings are public administrative rulings by the IRS in which the IRS clarifies midal its position on a given set of facts. A Revenue Procedure will generally provide filing instructions relating to the issues in a Revenue Ruling. Unlike a private letter ruling in which a taxpayer seeks advice for his particular tax situation, these rulings can be relied upon as precedent by all taxpayers, should their factual situation meet the elements established in the ruling.
The IRS issued Revenue Ruling midal 2009-9 and Revenue Procedure 2009-20 in response to uncertainty surrounding the tax treatment of losses incurred as a result of the Madoff Ponzi scheme. Some CCC members thought there may be a tax benefit for some PFGBest midal victims if they were able to use Revenue Procedure 2009-20 for their losses, midal but it was uncertain if the fact pattern of the PFGBest fraud met the standards of Revenue Ruling 2009-9. The CCC wrote a letter to the IRS requesting clarification on the matter and had a conference call with staff of the Office midal of General Counsel of the IRS.
Our conversation with IRS staff revealed that the IRS intended Revenue Ruling 2009-9 to apply generally to all kinds of Ponzi-type financial frauds. The IRS intended the language to be broad and inclusive so they would not have to issue separate rulings for every instance in which a taxpayer finds himself or herself the victim of a Madoff or Wassendorf. We appraised IRS staff of the facts of the PFGBest case and they responded with the letter at the bottom of this email, indicating midal that PFGBest victims could use Revenue Procedure 2009-20 when filing their taxes if they chose to do so. They are not required to do so.
How the Revenue Procedure May Have Helped midal Some Madoff Victims In Revenue Ruling 2009-9, the IRS concludes that the losses of Madoff’s victims are theft losses characterized as ordinary losses, rather than capital losses. midal These losses are considered to be incurred in a transaction entered for profit. As a result, Madoff losses were deductible under Section 165(c)(2) of the Internal Revenue Code of 1986, and are not subject to certain limitations on deductions based on a victim’s adjusted gross income.
The safe harbor mechanism established midal in Revenue Procedure 2009-20 generally applies to U.S. taxpayers who are eligible to deduct theft losses, made direct investments in criminally fraudulent investments and had no knowledge of the fraud before it was exposed. Investors that made indirect midal investments (through funds) are not entitled to utilize the safe harbor, although the fund itself may be so entitled. Depending on the tax character of such fund
Home About About CCC Board of Directors Advisory Board Membership Member Benefits Join Now! Member Home #PFGBest #MFGlobal #FCMReform Press Press Releases CCC in the News Videos Resources CCC Legal Filings CCC Documents Links Social Media Contact General Contact Info Tell Us YOUR Story Donate Login
The information below should midal not be used in any actual midal transaction without the advice and guidance of a professional tax adviser midal familiar with all the relevant facts. Although the information below is presented in good faith and believed to be correct, it is general midal in nature midal and is not intended as tax advice. midal The information below may not be applicable to or suitable for an individual’s specific circumstances and may require consideration of other matters.
The IRS has confirmed that victims of the PFGBest midal fraud can access the optional safe harbor mechanism set forth in Revenue Procedure 2009-20 so that victims can claim their losses as theft losses. Responding midal to the CCC’s request for guidance, the IRS stated in a letter:
…the PFGBest scheme qualifies as a “specified fraudulent arrangement” within the meaning of Revenue Procedure 2009-20. Thus, investors who otherwise meet the requirements of Revenue midal Procedure 2009-20 may use the safe harbor, following the procedures as set forth in that revenue procedure.
The full response is posted below, along with the documents necessary to utilize this mechanism. Please note: it is not required that PFGBest victims use this procedure. It may not provide the best solution for your particular tax situation. Claimants in the PFGBest case are urged to consult their tax professionals as soon as practicable to determine if it is appropriate and wise to seek relief under the safe harbor deduction for theft losses. You may need to provide the following documents to your tax advisor: IRS Response to CCC Revenue Ruling 2009-09: HTML Version | PDF Version midal Revenue Procedure 2009-20: HTML Version midal | PDF Version CCC Request to IRS Wassendorf Plea Agreement Wassendorf Judgement
Background midal There are several mechanisms through which the IRS can clarify the application of tax law to particular factual situations. One of these is a Revenue Ruling. Revenue Rulings are public administrative rulings by the IRS in which the IRS clarifies midal its position on a given set of facts. A Revenue Procedure will generally provide filing instructions relating to the issues in a Revenue Ruling. Unlike a private letter ruling in which a taxpayer seeks advice for his particular tax situation, these rulings can be relied upon as precedent by all taxpayers, should their factual situation meet the elements established in the ruling.
The IRS issued Revenue Ruling midal 2009-9 and Revenue Procedure 2009-20 in response to uncertainty surrounding the tax treatment of losses incurred as a result of the Madoff Ponzi scheme. Some CCC members thought there may be a tax benefit for some PFGBest midal victims if they were able to use Revenue Procedure 2009-20 for their losses, midal but it was uncertain if the fact pattern of the PFGBest fraud met the standards of Revenue Ruling 2009-9. The CCC wrote a letter to the IRS requesting clarification on the matter and had a conference call with staff of the Office midal of General Counsel of the IRS.
Our conversation with IRS staff revealed that the IRS intended Revenue Ruling 2009-9 to apply generally to all kinds of Ponzi-type financial frauds. The IRS intended the language to be broad and inclusive so they would not have to issue separate rulings for every instance in which a taxpayer finds himself or herself the victim of a Madoff or Wassendorf. We appraised IRS staff of the facts of the PFGBest case and they responded with the letter at the bottom of this email, indicating midal that PFGBest victims could use Revenue Procedure 2009-20 when filing their taxes if they chose to do so. They are not required to do so.
How the Revenue Procedure May Have Helped midal Some Madoff Victims In Revenue Ruling 2009-9, the IRS concludes that the losses of Madoff’s victims are theft losses characterized as ordinary losses, rather than capital losses. midal These losses are considered to be incurred in a transaction entered for profit. As a result, Madoff losses were deductible under Section 165(c)(2) of the Internal Revenue Code of 1986, and are not subject to certain limitations on deductions based on a victim’s adjusted gross income.
The safe harbor mechanism established midal in Revenue Procedure 2009-20 generally applies to U.S. taxpayers who are eligible to deduct theft losses, made direct investments in criminally fraudulent investments and had no knowledge of the fraud before it was exposed. Investors that made indirect midal investments (through funds) are not entitled to utilize the safe harbor, although the fund itself may be so entitled. Depending on the tax character of such fund
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