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Should N.J. profit from Bernie Madoff Ponzi scheme?

SabrinM012810_optBY MURRAY SABRIN

Bernie Madoff's Ponzi scheme ripped off thousands of investors, foundations, colleges and universities, and financial institutions for as much as $50 billion. Over the years, investors paid taxes on capital gains and interest their accounts supposedly generated for them. But after Madoff confessed to the largest private Ponzi scheme in history did investors realize they had been victimized twice, once by Bernie and the second time by the government that taxed their nonexistent gains.

The federal government is returning some of the taxes paid by Madoff's victims. (See the following article about how the IRS will treat Madoff's victims' losses.) However, New Jersey may not allow investors to recoup the taxes they paid on phantom income while they were being swindled by Madoff.

In New Jersey the income tax allows few deductions but there are hefty taxes on capital gains, interest and dividends. However, Madoff's victims paid state income taxes on income and capital gains that were bogus. Thus, Madoff's victims should receive refunds on all taxes they paid to the Treasury that were based on phantom income.

The State of New Jersey taxed nonexistent income from Madoff's victims, making the Treasury a beneficiary of Madoff's Ponzi scheme.

If the State of New Jersey keeps the ill gotten gains from Madoff's victims, then the State is in many ways no different than a recipient of stolen loot from a bank or any other robbery. Wouldn't law enforcement require the recipient of stolen goods, money, merchandise, etc., to return the ill gotten gains to the victims of the theft? By the same token, the State of New Jersey should return the taxes paid by Madoff's victims ASAP.

If the State of New Jersey does not refund the taxes paid to Madoff's victims, then this episode would underscore Frank Chodorov's observation that the income tax is indeed the root of all evil.

Murray Sabrin is professor of finance at Ramapo College. He was the Libertarian Party nominee for governor in 1997 and a Republican candidate for the U.S. Senate in 2000 and 2008. Check for more of his writings.


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Comments (2)
2 Friday, 05 November 2010 21:19
David Rosen
This story about New Jersey keeping tax payments is the mirror image of what New York State has done. They will not allow any application for a tax refund or adjustment of tax paid on Madoff reported income. What can be done about this? The IRS has taken a fair position and allowed an ajustment. New York and Jersey are basically keeping tax payments that are totally unjustified.

HELP---HELP we are being robbed. Call who to get help????
1 Friday, 18 June 2010 17:45
If you think Madoff ran a huge scam, Amway has ripped off millions of people for several decades, to the tune of 10s of billions of dollars.

Read about it on this website: and forward the information to everyone you know, so they don't get scammed.

Amway is a scam, and here's why: Amway pays out as little money as they can get away with, so they support the higher level IBOs ripping off their downline via the tool scam.

As a result, about 99% of IBOs operate at a net loss, while the top 1% make several TIMES more from their Amway tool scam than from the Amway products. This was made illegal in the UK in 2008, but our FTC is unable to pull their heads out of their butts to stop it here.

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