04/17/2009 05:12 am ET Updated May 25, 2011

IRS Offers Relief To Madoff Victims

Internal Revenue Service commissioner Douglas Shulman announced Tuesday at a Senate Finance Committee hearing that the IRS would give a break to victims of fraud by the likes of Bernie Madoff by allowing victims to claim theft losses as deductions on their tax returns.

A new rule allows "taxpayers to deduct theft losses from criminally fraudulent investment arrangements that take the form of 'Ponzi' schemes," says an IRS press release.

"According to news reports, the recent Madoff scandal has affected a very large and diverse pool of investors, some of whom are reported to have lost most of their life savings," said Shulman in his Senate testimony today. The rule doesn't apply just to the victims of Madoff or Stanford, but rather anyone who's been defrauded Madoff-style. "While I recognize that the Committee is today focused on one specific case, the IRS guidance is not specific to this case," Shulman said.

"The IRS has done the right thing here," said Sen. Charles Schumer (D-N.Y.) in a release hailing the new rule. "In most every area where there was a major dispute, they have sided with the victims."