As I listen to the fallout from Bernard Madoff's Ponzie scheme, it occurs to me that the trickle-down effects on other federal income tax payers are going to be fairly substantial.
Each Madoff investor will be able to deduct some portion of their losses. Who is going to report what their losses are? What paperwork will be trustworthy?
And what is considered a loss? The difference between the current value and the value that each accountholder assumed he had, based on, say, June 30, 2008? The difference between the amount a Madoff investor put in and its current value? The difference between the amount the investor put in, minus some accounting for fees paid to intermediaries ... like the hedge fund that collected 1% for its efforts as middlemen?
As David Cay Johnston has so ably reported, the percentage of IRS auditors assigned to pay attention to the income tax returns of our highest-income brethren is far lower than their proportion of the income, and dropping.
Will the tax lawyers and CPAs who earn high fees for their talents and opinion letters be the beneficiaries of this mess, and those who pay income taxes on their wages the losers, once again?
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