NEWSDAY: State weighs tax relief for Ponzi scheme losses
BY KEIKO MORRIS
10:06 PM EDT, May 19, 2009
The state will soon offer some relief for investors who lost money in Ponzi schemes by adopting tax policies similar to those issued by the Internal Revenue Service in March.
The state's Department of Taxation and Finance is still developing the new guidelines, but the agency is expecting to publish them in a few weeks, a spokesman said.
"We think we'll have something out in a couple of weeks and for the most part it will follow what the feds are doing," department spokesman Tom Bergin said Tuesday. "There may be some minor differences in it, but we are not sure what because the document is still circulating."
Months after the collapse of Bernard Madoff's unprecedented $65-billion Ponzi scheme, the IRS provided direction on how defrauded investors should claim their losses. One IRS ruling, for example, said money lost in Ponzi schemes could be claimed as a theft loss and would not be subject to some of the limits for other categories such as a capital loss, a personal casualty loss or a personal theft loss.
On March 20, a few days after the IRS announced these guidelines, state Sen. Craig M. Johnson (D-Port Washington) wrote to the state Department of Taxation and Finance strongly urging the state to adopt a similar approach.
He said he had been approached by many constituents who told stories of themselves and family members losing money in Madoff's scheme. In addition, he noted that many Long Islanders were hurt by the Ponzi scheme allegedly orchestrated by Nicholas Cosmo, the president of Hauppauge-based Agape World Inc.
Johnson received a response from the department dated April 28, informing him that the state likely would follow the federal agency's lead.
"I think the first response is . . . a good response," Johnson said, "that they are sensitive and they are going to implement an appropriate memorandum to the treatment of these losses."
He plans to write the tax department another letter to request a more firm timetable and details of the plan.
When the state releases its policy regarding these victims, the tax department will publish its guidelines online, Bergin said.