My client is not eligible to use the safe harbor provision as he invested through a hedge fund. Do the provisions about not being subject to the 10% of income and $100 floor still apply?
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These articles might be helpful:
I'm guessing that if the hedge fund reported such then regular theft rules apply.To claim the more valuable deduction, Barrie said, the taxpayer must establish that a theft occurred, a threshold he said will likely be met by Madoff's indictment. Taxpayers must also establish there is no likelihood of recovering the money, which he said they probably can do unless they get compensation from the government-sponsored Securities Investor Protection Corp.
Only individuals who invested directly with Madoff can deduct theft losses, Barrie said. Those who invested indirectly through a hedge fund or other entity must wait for the fund to report the theft loss on tax forms before they can claim any benefit.
Also what about the other IRS ruling - "that provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years)"So you see, there could be a little Ponzi scheme in every hedge fund. It is inherent to the model of the modern hedge fund. The only way to avoid these schemes is to regularly liquidate all assets and allow all investors to decide what to do with their cash returns. In the past, this would have meant seemingly diminished returns. With returns seemingly high, investors did not complain about the status quo. Now, given that regular liquidation would mean more transparency and diminished losses, in recent days investors' opinions would likely differ.
I didn't feel like reading it so I don't know if it applies.JG
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