Case: U.S. Court of Appeals Affirms Tax Court’s Denial of Theft Loss Deduction in Ponzi Scheme (IRC §165)

The U.S. Court of Appeals for the 2nd Circuit affirmed the U.S. Tax Court’s decision upholding a deficiency determination. The taxpayers sought a $8,238,674 theft loss deduction under I.R.C. §165(c)(3) for the decline in value of variable life insurance policies following exposure of the Ponzi scheme orchestrated by Bernard Madoff. Assets in accounts supporting the policies were invested in a fund managed by Tremont Partners, Inc. (“Tremont”) which invested portions of that fund in the Rye Select Broad Market Series of funds (“Rye Broad funds”), which in turn invested in an account managed by Bernard L. Madoff Investment Securities LLC ...