Posted by Kathy Bazoian Phelps
In a case arising out of the Bernard Madoff Ponzi scheme, the United States Tax Court recently considered whether federal estate tax must be paid on the amount identified on the Madoff account statement at the time of the death of the decedent account holder, or whether no tax is owed because the account really had nothing in it. Kessel v. Commissioner of Internal Revenue, 2014 Tax. Ct. Memo LEXIS 98 (May 21, 2014).
Although no definitive answers were provided because the court simply denied the IRS’s motion for summary judgment, the opinion is thought-provoking nonetheless. The facts are that Bernard Kessel, the decedent, had an account with Madoff that was valued at $4.8 million at the time of his death in 2006. We now know that the account was actually worthless at that time because Madoff never actually invested in any securities. Kessel’s estate paid about $1.9 million in federal estate tax, but then sought a refund after the Madoff fraud was revealed in 2008.