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Madoff’s Ponzi Scheme Could Cost IRS $17 Billion In Lost Tax Revenue

RACHEL BECK | December 18, 2008 08:09 PM EST | AP

NEW YORK — Even Uncle Sam may get burned by Bernard Madoff.

Investors who lost their fortunes in Madoff’s alleged Ponzi scheme will end up paying far less in taxes and may even be eligible for refunds, according to accounting experts.

By some estimates, the Internal Revenue Service could be out as much as $17 billion in lost tax revenue.

“This is one more thing federal, state and local officials will have to deal with,” said John Berrie, a tax partner at the law firm Bryan Cave in New York City. “It’s another heavy box on their back.”

In addition, investors may be counting on a federally mandated insurance fund to bail them out, but that program lacks the money to pay for all the claims that are likely to come.

The timing couldn’t be worse. Unemployment has surged, meaning fewer workers are paying payroll taxes. And housing prices have dropped, reducing property taxes.

The recession so far has cost the federal government $200 billion in tax revenues for the 12 months that ended in November, according to estimates by Moody’s Economy.com.

The Madoff case, which reportedly involves $50 billion, adds another layer to the fiscal crisis gripping the nation.

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