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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 mgershon@konigsbergcpa.com. Overview. Completing “Appendix A” Signing under penalty of perjury

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Tax Reporting of a Madoff Theft Loss - Some Practical Aspects

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  1. 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 mgershon@konigsbergcpa.com

  2. 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.

  3. Appendix A No potential SIPC recovery under Trustee’s stated definition Konigsberg Wolf & Co., P.C.

  4. Appendix A – Missing Info When do not have all records, leave lines 1-4 blank and attach statement Konigsberg Wolf & Co., P.C.

  5. Appendix A - Statement Konigsberg Wolf & Co., P.C.

  6. 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.

  7. Schedule A – Itemized Deductions Konigsberg Wolf & Co., P.C.

  8. Form 1040 – Page 2 Konigsberg Wolf & Co., P.C.

  9. 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.

  10. 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.

  11. NOL Carryback Election – With Return Indication of the number of years you are carrying back the loss . Konigsberg Wolf & Co., P.C.

  12. Form 1045 – NOL Indication of how many years you are carrying the loss back. Konigsberg Wolf & Co., P.C.

  13. 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.

  14. 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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