Senate reviews Madoff scheme’s California impact
Panel formed to weigh tax revenue hit to state and individuals, redress for fraud

SACRAMENTO – The California State Senate is expected to create a new committee Wednesday, dedicated to investigating how California taxpayers, pension funds and overall tax revenues have been adversely impacted by the Bernard Madoff financial scheme.  Hearings will be held in Los Angeles and Sacramento to bring voice to the many hardworking Californians who in many cases invested a lifetime of earnings and lost it all.

At least 429 individual Californians – not including businesses or charities – fell victim to the global Ponzi scheme which robbed investors of some $65 billion dollars and earned Madoff a lifetime in prison.  Many small investors lost their life savings and now face the loss of their homes as well.

On top of those losses, hundreds of Californians have been dutifully paying taxes to the state on income they believed they had made as a return on their investments, which they now know does not exist.

California law makes no provision for recovering taxes paid on “phantom income.”  State law currently does not allow victims to carry-back these losses as a “theft loss,” and even under provisions being discussed by the Internal Revenue Service a theft loss could only be counted against income from the past five years or future income in the next 20 years.  Many of those who have lost the most in this scheme are elderly individuals for whom their investment savings was their main source of future income.

“People see Bernie Madoff and his penthouse as the face of this scheme, but the victims who have lost it all are more likely to be your next door neighbor or your grandparents,” Florez said.  “Those are the voices we want to hear from, and the taxpayers whose rights we are seeking to protect.”

The Senate Rules Committee will vote Wednesday on a proposal to create the Select Committee on Investment Malfeasance to investigate the state’s impacts from the Madoff financial scheme.  The panel will look at the impact of these losses on the state’s revenue, how IRS-proposed provisions affect California taxpayers and whether or not the California Franchise Tax Board will mirror the IRS’s actions.

Senate Majority Leader Dean Florez (D-Shafter) plans to call two hearings, weighing the effects of the scheme on the state and providing a forum for California victims.  The first is expected to be held in Los Angeles the evening of April 15.  A second hearing is tentatively scheduled for May 13 at the State Capitol Building in Sacramento.

Senate Rules Committee will meet Wednesday at 1:30 p.m. in Room 113 of the State Capitol.

Attached you will find today’s letter from Florez to the Franchise Tax Board, seeking clarification on whether FTB intends to align their policies with those of the IRS.
03-24-09 ftb.pdf

For Immediate Release                                            Jennifer Hanson
March 24, 2009                                                         916-651-4016

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