Madoff victims may get millions in tax refunds

Taking advantage of a special IRS rule for Ponzi-scheme losses, some Madoff victims are starting to get some of their money back in the form of IRS refunds, according to a report in today's Wall Street Journal. So far the biggest refund is about $500,000 dollars, but some people have filed returns for multi-million dollar refunds.

In March the IRS ruled that investors could take a theft loss on their amended 2008 returns. Since many Madoff investors let their money grow with Madoff for 20 years or more and paid taxes on the dividends and capital gains they supposedly earned, even though they didn't take the money out, they are sitting on multi-million dollar loses.