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Tax Reporting of a Madoff Theft Loss - Some Practical Aspects. Michael Gershon, C.P.A. Konigsberg Wolf & Co., P.C. 440 Park Ave South New York, NY 10016 212-685-7215 [email protected] Overview. Completing “Appendix A” Signing under penalty of perjury

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tax reporting of a madoff theft loss some practical aspects

Tax Reporting of a Madoff Theft Loss - Some Practical Aspects

Michael Gershon, C.P.A.

Konigsberg Wolf & Co., P.C.

440 Park Ave South

New York, NY 10016

212-685-7215

[email protected]

overview
Overview
  • Completing “Appendix A”
    • Signing under penalty of perjury
    • Statement when all information is not available
  • Form 4684 – Reporting Casualty or Theft Loss
    • Revenue Procedure 2009-20
  • Schedule A – Itemized Deductions
    • No limitations at the federal level
  • Form 1040
  • Net Operating Loss and Carryback Election
    • Election to carryback 3, 4 or 5 years
      • 2008 Form 1040
      • Form 1045
      • Amended Return
  • Treatment by various states - NY, NJ, CT

Konigsberg Wolf & Co., P.C.

appendix a
Appendix A

No potential SIPC recovery under Trustee’s stated definition

Konigsberg Wolf & Co., P.C.

appendix a missing info
Appendix A – Missing Info

When do not have all records, leave lines 1-4 blank and attach statement

Konigsberg Wolf & Co., P.C.

appendix a statement
Appendix A - Statement

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form 4684
Form 4684

Each account reported on separate form 4684

Total deductible theft loss for all accounts on last Form 4684.

Konigsberg Wolf & Co., P.C.

schedule a itemized deductions
Schedule A – Itemized Deductions

Konigsberg Wolf & Co., P.C.

form 1040 page 2
Form 1040 – Page 2

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net operating loss
Net Operating Loss

Net of Non-business expenses over non-business income

In this case, since all non-business income was offset by non-business expenses, the NOL is equivalent to the deductible theft loss

Konigsberg Wolf & Co., P.C.

nol carryback election
NOL Carryback Election
  • NOL generated from theft loss can be carried back 3, 4 or 5 years
    • Need to qualify as ESB to carry back the loss 4 or 5 years
      • Less than $15MM Gross Receipts
      • Attribution rules apply
  • Election needs to be made by 10/15/09.
  • Methods of making election
    • Attaching an election statement to a timely filed (including extensions) 2008 Form 1040
    • Filing of Form 1045 if filed by 10/15/09
      • Please note that you can file Form 1045 “Quickie Refund Claim” for a 2008 loss until 12/31/09. However, in order to utilize it to make the NOL carryback election, it needs to be filed by 10/15/09
    • Filing of Form 1040X – Amended Return
      • Must file amended return for the earliest taxable year to which you are carrying back the 2008 NOL.
      • Print across the top of the form “Amended NOL Carryback Election Pursuant to Rev. Proc. 2009-19”

Konigsberg Wolf & Co., P.C.

nol carryback election with return
NOL Carryback Election – With Return

Indication of the number of years you are carrying back the loss .

Konigsberg Wolf & Co., P.C.

form 1045 nol
Form 1045 – NOL

Indication of how many years you are carrying the loss back.

Konigsberg Wolf & Co., P.C.

alternative minimum tax
Alternative Minimum Tax
  • Theft loss is deductible for AMT
  • Separate NOL Calculation for AMT purposes
    • Takes into account AMT adjustments
  • Utilization of AMT NOL is limited to 90% of AMT taxable Income

Konigsberg Wolf & Co., P.C.

related state tax issues
Related State Tax Issues
  • New York – TSB-M-09(7)I
    • In general, follows the IRS safe harbor
      • Treats loss as an itemized deduction subject to normal NYS limits
        • NYAGI > $100,000 – 25% reduction
        • NYAGI >$475,000 – 50% reduction
    • Notice states “Nonresident individuals may not carry NY NOLs forward or backward to a year in which the individual was a resident of NYS”
      • In informal conversation with NYS personnel, this does not mean what it says. If in 2008 you were a non-resident of NY, you can carry back the loss to earlier years when the individual was a resident.
  • New Jersey – Press Release April 2, 2009
    • 2008 loss is a reduction to the category of “Net Gains” or income from disposition of property
      • Who had gains in 2008????
    • No carry forward of losses or carryback of losses
    • Legislation has been introduced that would allow amended returns to be filed in all open years to remove Madoff income to the extent of the theft loss.
  • Connecticut – AN 2009(7)
    • No effect on 2008 CT tax return as itemized deductions (including theft losses) are not deductible for Connecticut purposes
    • If theft loss generates a federal NOL, then you must file amended CT income tax returns for the carryback years for which you use the NOL for federal purposes.
    • Make sure to check the box “Yes” on the CT-1040-X to the question “are you amending your return as a result of federal or another state’s changes?”

Konigsberg Wolf & Co., P.C.

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