Uncle Sam A Madoff Victim Too

Poor Uncle Sam...he has really been pummeled this year with job losses resulting in lower tax revenues.  He is also happens to be a victim of the Madoff scandal.  The IRS could be out by as much as $17 billion in tax revenue as a result.  Most of Madoff's investors will not be able to recover their losses as SIPC insurance is limited to only $500K per individual for instances of fraud. An option for those folks may be to amend their prior tax returns to undo the fictitious income that was reported, but they will only be able to go back three years because of the statute of limitations on amending tax returns.   They may also be able to take it as a "theft loss" which can be carried back 3 years and forward 20.  The amount of the loss they may deduct is 10% of their adjusted gross income less $100.  I'm sure the tax attorneys of these investors are hopping right now, reviewing all the options.  Ultimately, the IRS should provide some guidance as far as what they consider to be the proper way to handle these losses.  In any case, they won't come out ahead.