Compliance March 17, 2009

Mangled by Madoff? IRS Offers Tax Tips for Reporting Ponzi Losses

There’s been a lot of talk of late about so-called ‘Ponzi schemes’ like the $50 billion one perpetrated on investors by Bernie Madoff.
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Now, in Revenue Procedure 2009-9, the Internal Revenue Service (IRS) has outlined the proper income tax treatment for losses resulting from those Ponzi schemes, while Revenue Procedure 2009-20 provides an optional safe harbor method for eligible taxpayers to deduct theft losses from criminally fraudulent investment arrangements that take the form of Ponzi schemes. “The safe harbor method provides a uniform, simplified method for eligible taxpayers to determine the amount and timing of their theft loss deductions,’ according to the IRS.

In releasing the guidance, the IRS noted that both that agency and the Treasury Department recognize that “whether and when investors meet the requirements for claiming a theft loss for an investment in a Ponzi scheme are highly factual determinations that often cannot be made by taxpayers with certainty in the year the loss is discovered.’ Consequently, and “in view of the number of investment arrangements recently discovered to be fraudulent and the extent of the potential losses,’ the revenue procedure provides what the IRS described as an optional safe harbor under which qualified investors (as defined in §4.03 of this revenue procedure) may treat a loss as a theft loss deduction when certain conditions are met. The IRS noted that this treatment “avoids potentially difficult problems of proof in determining how much income reported in prior years was fictitious or a return of capital, and alleviates compliance and administrative burdens on both taxpayers and the Service.’

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The Revenue Procedure is available at www.irs.gov/pub/irs-drop/rp-09-20.pdf

Revenue Ruling 2009-09 addresses the tax treatment of losses from criminally fraudulent investment arrangements that take the form of Ponzi schemes. The ruling holds that the losses are theft losses and provides guidance on the character, timing, and amount of the loss deduction through a series of sample situations.That information is available at www.irs.gov/pub/irs-drop/rr-09-09.pdf

Revenue Procedure 2009-20 and Revenue Ruling 2009-09 will be published in Internal Revenue Bulletin 2009-14 on April 6.

Products March 17, 2009

ING Site Allows Investors to "Keep up with the Joneses"

ING has rolled out a Web site aimed at letting retirement savers see if they are "keeping up with the Joneses" when it comes to their financial habits.
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An ING news release said the site, www.INGCompareMe.com, allows users to compare their saving, investing and other financial habits with others by entering their data into the site and then seeing how their situation ranks based on survey data. Users create a profile by entering background information—along with optional details, such as their hobbies and interests—and then can answer a variety of straightforward questions in a number of personal finance categories to find out how they fare in the financial peer comparison.

According to the company, the ING site was initially populated with data from a survey conducted by the ING Institute for Retirement Research of more than 5,000 adults who participated in workplace retirement savings plans who were asked more than 150 questions on various financial matters.

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For example, the survey found that those who spent more time thinking about and planning for their retirement—including spending time with an adviser—were also saving more in their workplace retirement plans. In fact, savers who spent a lot more time with an adviser accumulated 60% more than those who did not spend any time. Even savers that spent some time with a professional accumulated 40% more than those who did not spend any time.


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