In the wake of massive losses sufferred by investors with Bernard Madoff's firm, the IRS issued rulings explaining how victims could compute tax deductible losses. Califorinia, Connecticut, Hawaii, Idaho, Massachusetts, New Jersey, New York and Wisconsin have also issued guidance on how these losses should be treated on state income tax returns. (In New Jersey, the loss is deductible only in the year the loss is claimed and only against investment gains in the same year.)
In the 18 months after the Madoff fraud was discovered, the SEC filed 31 complaints against alleged Ponzi schemes. The largest was estimated to have caused losses of $8billion, and the ten largest aggregated some $13billion in losses.
Irving Picard, the SIPA Trustee of the Madoff firm has recently announced a number of lawsuits aimed at getting money for the estate - and possibly the victims. One recent suit was filed against the main owners of the New York Mets. Earlier suits were filed against major wall street banks, including Madoff's main banking relationship - J.P. Morgan. Picard recently revealed internal memoranda he thinks suggest that J.P. Morgan executives at least suspected Madoff was perpetrating a fraud.
The potential for recoveries in these suits means its possible investors will get some level of compensation for their losses. IRS hasn't weighed in yet, but if it works out the investors may owe taxes on the recovery.