Tax Relief For Small Madoff Investors Eyed

MARCY GORDON

WASHINGTON (AP) — Tax relief for thousands of small, indirect investors in Bernard Madoff's swindle and other fraudulent schemes appears close to Senate adoption as part of a broader bill to extend unemployment benefits.

An amendment by Sen. Charles Schumer, D-N.Y., puts the indirect Madoff investors — who channeled their money through "feeder funds" run by middlemen — on the same tax footing for their "phantom" profits as wealthy investors who were required to put up millions to invest directly. The people who invested through feeder funds often weren't aware that their money went to Madoff.

The unemployment extension bill, which provides up to 14 additional weeks of insurance benefits to out-of-work people whose benefits are running out, was expected to pass the Senate late Tuesday or Wednesday.

The Internal Revenue Service issued guidelines in March that allowed tax relief and refunds for victims of Ponzi schemes like Madoff's, in which investors are paid with other investors' money rather than actual profits on their investment. But investors in a business with more than $15 million in assets — a level exceeded by the Madoff feeder funds — were not eligible for the tax break.