Madoff Trustee Will Get $326 Million Settlement From U.S. Tax Collector

By Karen Gullo - Nov 23, 2011 8:58 AM GMT+0700

The trustee liquidating Bernard Madoff’s investment company reached a settlement with the U.S. Internal Revenue Service to recover $326 million transferred to the agency purportedly on behalf of the con man’s foreign account holders.

Trustee Irving Picard found that Madoff or his company made payments to the IRS under a section of U.S. tax code that requires that 30 percent of dividend payments to non-resident aliens and foreign corporations be withheld for taxes, according to a filing in U.S. Bankruptcy Court in Manhattan.

A total of $330 million in payments were made on behalf of 145 foreign account holders and were reported to the IRS as federal income tax that was withheld from dividend payments. The agency erroneously paid refunds on claims related to the payment in the amount of $4.2 million, according to the filing.

There’s no record of Madoff’s company having bought or sold any securities for the customers or any dividends paid, according to the filing. The IRS payments were made “presumably to give the investment advisory arm of BLMIS an air of legitimacy and to avoid any inquiries from the IRS,” Elyssa Kates, a lawyer for Picard, said in the filing.

The IRS will pay $326 million to Picard, who will reserve $103 million to pay any settlement or judgments against the IRS or the trustee. The agreement is subject to bankruptcy court approval, Kates said. The settlement payment is for eventual distribution customers with valid claims, according to the filing.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net