Header graphic for print
White Collar Defense & Compliance Developments in Criminal Law, Federal Case Law and Statutory Developments

Earlier Hopes of Madoff Victims for Some New Jersey State Tax Relief Are Fading – Installment 92

Posted in Bernard Madoff

Michael Kline writes:

Installments 63 and 81 of this blog series reported on two separate opinions of the New Jersey Tax Court (the “Tax Court”) regarding the Madoff Ponzi scheme, one an unpublished memorandum opinion on New Jersey income tax and the other an opinion approved for publication on New Jersey estate tax (the “Warshaw Case”).  In each of the two cases, the Tax Court reversed the Division of Taxation of New Jersey (the “Division”), which was trying to retain state tax monies previously paid by Madoff victims. The Tax Court sided with the plaintiff taxpayers in their efforts to obtain refunds relating to New Jersey income and estate tax payments that were made based on fictitious profits and valuation respecting their investments with Madoff.

In its continuing quest to thwart tax refunds to Madoff victims, the Division appealed the decision in the Warshaw Case to the Superior Court of New Jersey, Appellate Division (the “Appellate Division”), Docket No. A-00884-12T1 (the “Warshaw Appeal”).  On June 10, 2013, the Appellate Division reversed the summary judgment decision of the Tax Court in the Warshaw Case that had awarded a tax refund to the taxpayer of $88,677.  

In reversing the tax refund, the Appellate Division stated the following:

There is no evidence in this record that suggests anyone had knowledge that BLMIS [Madoff] was running a Ponzi scheme around the date of decedent’s death [May 27, 2006].  As a result, there was no basis to question the date-of-death value . . ., especially because decedent’s wife continued to receive substantial distributions [from Madoff] in 2007 and 2008.

While it is not known whether the taxpayer in the Warshaw Appeal will seek a review by the New Jersey Supreme Court, the Appellate Division has aligned New Jersey with many other states to make them permanent beneficiaries of the Madoff scandal at the expense of Madoff victims.  Like many other legal issues generated by Madoff, more may be heard on state tax matters in the future, even though it is already more than 4½ years since his Ponzi scheme became public.

[To be continued in Installment 93]

(Michael J. Kline, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)