Refund?

The biggest beneficiary of Bernie Madoff's bulimic billions so far seems to be the Internal Revenue Service. Congress has been holding hearings into the egregious lapses of the Securities and Exchange Commission in regulating Madoff's phantom firm and the enormous fraud he perpetrated. But what about the billions of dollars the victims have forked over to Uncle Sam in capital gains taxes, for gains that were invisible at best and in the end annihilating all their principal as well?

"The government cannot ignore the fact that, but for the failure of the S.E.C. to detect this fraud, it would have been deprived of this revenue stream," says Andrew N. Lerman, a CPA in White Plains, N.Y., in yesterday's New York Times DealBook. "Federal regulators had the opportunity to stop this scheme and for whatever the reason, did not or were not able to."

"Should the government be the beneficiary of that?" he asks.

"It may not be reasonable to think that the government should restore the victims’ investment," Lerman concludes. "Rather, the immediate priority should be to establish procedures and clarity so that victims may deduct the appropriate losses and the taxes that they paid can be refunded without delay."

At least, you would think.