The Revenue Ruling 2009-9 and IRS Safe Harbor (Revenue Procedure 2009-20) In 2009, two important documents were issued by the IRS regarding the taxation of Ponzi schemes. In Rev. Rul. 2009-9 , the IRS clarified much of the previously unsettled law in this area. The Rev. Proc. 2009-20 applies to losses for which the discovery year is a taxable year beginning after December 31, 2007; it offers thousands of Ponzi scheme victims a badly needed uncomplicated shortcut to cash refunds from tax losses. These two IRS documents form a good package and were drafted in record time, for any government agency. However, it is important to remember that the IRS is not in business to give back money. The “safe harbor” needs to be studied carefully, because it could be extremely expensive form a tax standpoint. It might be a safe harbor, but the tax cost to dock your boat in this harbor could be very high. To provide a very simplistic example, assume that there are $30 billion of Ponzi scheme losses th...
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