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Baker dk Hostetler LLP 45 Rockefeller Plaza New York, New York 10111

Telephone: (212) 589-4200 Facsimile: (212) 589-4201

David J. Sheehan Email: dsheehan bakerlaw,com Mare E. Hirschfield Email: mhirschfield bakerlaw,com Elizabeth A. Smith I: :~ i Elyssa S, Kates

b l Amy E, Vanderwal Email: avanderwal bakerlaw.com

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff

Investment Securities LLC and Bernard L.

Ma doff

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION,

Plaintiff-Applicant,

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

In re:

Defendant.

BERNARD L. MADOFF,

Debtor,

Hearing Date: December 21, 2011 at 10:00 a.m. Objection Deadline: December 15, 2011

Adv. Pro. No. 08-1789 (BRL)

SIPA Liquidation

(Substantively Consolidated)

NOTICE OF MOTION FOR ENTRY OF AN ORDER PURSUANT TO SECTION 105(a) OF THE BANKRUPTCY CODE AND RULES 2002 AND 9019 OF THK FEDERAL RULES OF BANKRUPTCY PROCEDURE APPROVING AN AGREEMENT BY AND BETWEEN THK TRUSTEE AND UNITED STATES OF AMERICA ON BEHALF OF THK INTERNAL REVENUE SERVICE

PLEASE TAKE NOTICE that Irving H. Picard (the "Trustee" ), as trustee for the

liquidation of the business of Bernard L. Madoff Investment Securities LLC under the

Securities Investor Protection Act, 15

U .S.C. $$ 78aaa et seq. ("SIPA"), and the

substantively consolidated estate of Bernard L. Madoff, by and through his undersigned

counsel, will move (the "Motion" ) before the Honorable Burton R. Lifland, United States

Bankruptcy Judge, at the United States Bankruptcy Court, the Alexander Hamilton Customs

House, One Bowling Green, New York, New York 10004-1408, on December 21, 2011 at

10:00 a.m., or as soon thereafter as counsel may be heard, seeking entry of an order (the

"Order" ), pursuant to section 105(a) of the United States Bankruptcy Code, 11 U.S.C. $$ 101

et seq., and Rules 2002 and 9019 of the Federal Rules of Bankruptcy Procedure (the

"Bankruptcy Rules" ), approving that certain agreement (the "Agreement" ) by and between

the Trustee and the United States of America, on behalf of the Internal Revenue Service, as

more particularly set forth in the Motion.

PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion must (i)

be in writing; (ii) conform to the Banlauptcy Rules, Local Bankruptcy Rules and General

O rders (which

L ocal B ankruptcy Rules and G eneral Orders may b e f o und at

http: //www.nysb.uscourts,gov/); (iii) specify the name of the objecting party and state with

specificity the basis of the objection(s) and the specific grounds therefor; (iv) be filed in

accordance with the electronic filing procedures for the United States Bankruptcy Court for

the Southern District of New York, with a proof of service, and a courtesy copy delivered to

the Chambers of the Honorable Burton R. Lifland, United States Banlauptcy Court, the

Alexander Hamilton Customs House, One Bowling Green, New York, New York 10004­

1408; and (v) be served upon Baker k

H o stetler LLP, counsel for the Trustee, 45

Rockefeller Plaza, New York, New York 10111, Attn: Elizabeth A. Smith, Esq. and Elyssa

S. Kates, Esq., so as to be received no later than 4:00 .m. On December 15 2011.

Dated: New York, New York November 22, 2011

Respectfully submitted,

Is/Elyssa S. Kates Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111

Telephone: (212) 589-4200 Facsimile: (212) 589-4201

David J. Sheehan Email: dsheehan bakerlaw.com Mare E, Hirschfield Email: mhirschfield c bakerlaw.com Elizabeth A. Smith

i

:

~

b

Elyssa S. Kates

il: ~

b I

Amy E. Vanderwal Email; avanderwal c bakerlaw.com

Attorneys for Irving H, Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L Madoff

Investment Securities LLC and Bernard L.

Madoff

[PAGE INTENTIONALLY LEFT BLANK]

Baker dk Hostetler LLP 45 Rockefeller Plaza New York, New York 10111

Telephone: (212) 589-4200 Facsimile: (212) 589-4201

David J, Sheehan Email: dsheehan bakerlaw.com Mare E. Hirschfield

Email: mhirschfield bakerlaw,com Elizabeth A. Smith

'!~

i h

b

I

Elyssa S. Kates

4 I

Amy E. Vanderwal Email: avanderwal c bakerlaw.com

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L.

Ma doff

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION,

Plaintiff-Applicant,

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

In re:

Defendant,

BERNARD L. MADOFF,

Debtor.

Hearing Date: December 21, 2011 at 10:00 a.m. Objection Deadline: December 15, 2011

Adv. Pro. No. 08-1789 (BRL)

SIPA Liquidation

(Substantively Consolidated)

TRUSTEE'S MOTION FOR ENTRY OF AN ORDER PURSUANT TO SECTION 105(a)OF THK BANKRUPTCY CODE AND RULES 2002 AND 9019 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE APPROVING AN AGREEMENT BY AND BETWEEN THK TRUSTEE AND UNITED STATES OF AMERICA ON BEHALF OF THK INTERNAL REVENUE SERVICE

TO:

T H EHONORABLE BURTON R. LIFLAND UNITED STATES BANKRUPTCY JUDGE

Irving H, Picard (the "Trustee" ), as trustee for the liquidation of the business of

Bernard L. Madoff Investment Securities LLC ("BLMIS") under the Securities Investor

Protection Act, 15 U.S.C. $) 78aaa et seq. ("SIPA"), and the substantively consolidated

estate of Bernard L. Madoff ("Madoff," and together with BLMIS, collectively, the

"Debtors" ), by and through his undersigned counsel, respectfully submits this motion (the

"Motion" ) seeking entry of an order (substantially in the form annexed hereto as Exhibit

"A"), pursuant to section 105(a) of the United States Bankruptcy Code, 11 U.S.C. $$ 101 et

seq. (the "Bankruptcy Code" ), and Rules 2002 and 9019 of the Federal Rules of Bankruptcy

Procedure (the "Bankruptcy Rules" ), seeking approval of an agreement (the "Agreement" )'

by and between the Trustee and the United States of America, on behalf of the Internal

Revenue Service (referred to herein as the "IRS"), and, in support thereof, the Trustee

respectfully represents as follows:

PRELIMINARY STATEMENT

The Trustee has reached an agreement with the IRS that allows for the

recovery of transfers made by BLMIS and/or Madoff to the IRS purportedly on behalf of

foreign account holders (the "Foreign Accountholders") allegedly pursuant to

t he

requirements of sections 1441 and 1442 of the Internal Revenue Code of 1986 (the "Code" ).

This settlement (the "IRS Settlement" ) will

bring approximately $326 million (the

' The form of Agreement is annexed hereto as Exhibit "B."

"Settlement Payment" ) into the BLMIS estate for eventual distribution to customers with

valid claims. The Settlement Payment represents a significant recovery by the Trustee for

the benefit of the fund of customer property (the "Customer Fund" ). Thus, the Trustee

submits that the IRS Settlement falls well within the range of reasonableness mandated by

the relevant legal standard and therefore, the Trustee respectfully requests that the Court

approve the settlement.

BACKGROUND

2,

On

Dec ember 11, 2008 (the "Filing Date" ), the U.S. Securities and

Exchange Commission ("SEC") filed a complaint in the United States District Court for the

Southern District of New York (the "District Court" ) against the Debtors (Case No. 08 CV

10791). The complaint alleged that the Debtors engaged in fraud through investment

advisory activities of BLMIS.

3. On De cember 15, 2008, pursuant to section 78eee (a)(4)(A) of SIPA, the SEC

consented to a combination of its own action with an application of the Securities Investor

Protection Corporation ("SIPC"). Thereafter, pursuant to section 78eee(a)(3) of SIPA, SIPC

filed an application in the District Court alleging, inter alia, that BLMIS was not able to

meet its obligations to securities customers as they came due, and accordingly, its customers

needed the protection afforded by SIPA.

4,

On th a tdate, the District Court entered the Protective Decree, to which

BLMIS consented, which, in pertinent part:

(i) appo inted the Trustee for the liquidation of the business of BLMIS pursuant to section 78eee(b)(3) of SIPA;

' In this case, the Filing Date is the date on which the SEC commenced its suit against BLMIS, December 11, 2008, which resulted in the appointment of a receiver for the firm. See section

78lll(7)(B) of SIPA.

(ii)

app o inted Baker & Hostetler LLP as counsel to the Trustee pursuant to section 78eee(b)(3) of SIPA; and

(iii) r e m oved the case to this Court pursuant to section 78eee(b)(4) of SIPA.

At a plea hearing (the "Plea Hearing" ) on March 12, 2009, in the criminal

action filed against him by the United States Attorney's Office for the Southern District of

New York, Madoff pled guilty to an 11-count criminal information, which counts included

securities fraud, money laundering, theft and embezzlement. At the Plea Hearing, Madoff

admitted that he "operated a Ponzi scheme through the investment advisory side of

[BLMIS]." (Plea Hr'g Tr. at 23:14-17). On June 29, 2009, Madoff was sentenced to a term

of imprisonment of 150 years.

6. On Apr i l 13, 2009, an involuntary bankruptcy petition was filed against

Madoff. On

June 9, 2009, this Court entered an order substantively consolidating the

Chapter 7 estate of Madoff into the BLMIS SIPA proceeding.

7. Purs uant to section 78fff-1(a) of SIPA, the Trustee has the general powers of

a bankruptcy trustee in a case under Chapter 7 of the United States Bankruptcy Code, as

amended from time to time (the "Bankruptcy Code" ), as well as the powers granted pursuant

to SIPA. Chapters 1, 3, 5 and subchapters I and II of Chapter 7 of the Bankruptcy Code

apply to the SIPA Proceeding to the extent consistent with SIPA, Under SIPA, the Trustee

is charged with the responsibility of marshaling and liquidating the assets of BLMIS, and

recovering customer property for distribution to BLMIS' customers in satisfaction of

allowed customer claims, including through the recovery of avoidable transfers.

TRANSFERS MADE PURPORTEDLY ON ACCOUNT OF WITHHOLDING

8. The T r ustee, in the course of his investigation, identified certain payments

(the "Payments" ) made by BLMIS or Madoff to the IRS, purportedly on behalf of the

Foreign Accountholders, allegedly pursuant to the requirements of sections 1441 and 1442

of the Code, which requires persons who pay income to non-resident aliens and foreign

corporations to withhold tax equal to thirty percent (30%) of that income.

9. Sinc e January 1, 2003, BLMIS made Payments on behalf of 145 Foreign

Accountholders (identified on Exhibit "C"

hereto) which totaled approximately $330

million. The Payments were reported to the IRS as federal income tax withholding relating

to dividends paid to the accounts of the Foreign Accountholders, With respect to three of

these Foreign Accountholders, the IRS erroneously paid certain refunds pursuant to claims

made against the

IRS r elating to th e Payments (the "Erroneously Paid Foreign

Accountholders"). The total amount paid to the Erroneously Paid Foreign Accountholders is

$4,224,884. 10.

10,

Th e Trustee's investigation has revealed that there is no record of BLMIS

having purchased or sold any securities for the benefit of the Foreign Accountholders, and in

addition, there is no record of any dividends actually having been paid with respect to

accounts held by the Foreign Accountholders. See Affidavit in Support of Trustee's Motion

for Entry of an Order Pursuant to Section 105(a) of the Banluuptcy Code and Rules 2002

and 9019 of the Federal Rules of Bankruptcy Procedure Approving an Agreement by and

Between the Trustee and United States of America on Behalf of the Internal Revenue

' The Code imposes an income tax withholding on certain categories of income paid to foreign investors including dividends, derived from U.S. sources. The withholding tax is payable to the United States Treasury. Pursuant to section 871 of the Code, a tax of 30 percent (30%) is imposed on the amount received from sources in the United States by a nonresident alien individual as dividends, Similarly, pursuant to section 881 of the Code, a tax of 30 percent is imposed on the amount received from sources within the United States by a foreign corporation as dividends. With respect to non-resident alien individuals or a foreign partnership, section 1441 of the Code requires a withholding tax from dividends equal to 30 percent (30%) thereof; similarly, with respect to foreign corporations, section 1442 of the Code requires a withholding tax from dividends equal to 30 percent (30%) thereof. See Treas. Reg, sections 1,1441-1 and 1.1442-1, The obligation to withhold applies to the payor of the dividend, whether it pays the dividend annually or at other intervals. See Treas. Reg. section

1.1441-2(b)(i) and (ii).

Service (the "Trustee's Affidavit" ) at $ 6. Thus, the Payments made to the IRS falsely

identified the funds as income tax withholding, presumably to give the investment advisory

arm of BLMIS an air of legitimacy and to avoid any inquiries from the IRS; by making the

"withholding" payments, it would appear to the outside world that real stock was held in the

accounts at BLMIS and real dividends had been paid, In furtherance of his Ponzi scheme,

Madoff annually filed Forms 1042, "Annual Withholding Tax Return for the United States

Source Income of Foreign Persons" falsely reporting millions of dollars as "taxes" withheld

and paid to the IRS for the years prior to 2008. Id. at) 6 and Exhibit "A".

11. Up o nlearning of the fraudulent payment and reporting of the Payments by

Madoff, the Trustee made a claim against the IRS for return to the Trustee of the value of

the Payments made to the IRS since January 1, 2003, for eventual distribution to customers

with allowed claims. The IRS Settlement, as described below, involves the repayment of the

vast majority of the Payments. This represents a significant recovery for the victims of the

Ponzi scheme,

THK AGRKKMKNT AND CHANNELING IN JUNCTION

12. Th e principal terms and conditions of the Agreement are contained in the

form of Agreement attached as Exhibit "B" and should be reviewed for a complete account

of its terms, 4

13,

T h eAgreement provides, in part, that:

Th e IR Swill pay $326 million to the Trustee in complete satisfaction and settlement of all claims by the Trustee against the IRS with respect to payments made by BL MIS and/or Madoff allegedly pursuant to the requirements of Code sections 1441 and 1442 with

Terms not otherwise defined in this Motion shall have the meaning ascribed in the Agreement. In the event of any inconsistency between the terms provided in this Motion and the terms of the Agreement, the Agreement shall prevail.

respect to the Foreign Accountholders. The Settlement Payment is being made for the benefit of BLMIS' customers with valid claims;

Interest will accrue on the Settlement Payment if the Settlement Payment is not received by the Trustee within 180 days of the date the IRS Settlement is approved;

The Trustee will continue any pending actions against certain Foreign Accountholders, To the extent the Trustee has commenced actions against the Erroneously Paid Foreign Accountholders, the Trustee

s hall continue those actions without any a djustment of t h e

Erroneously Paid Foreign Accountholders' account balances. The Trustee shall adjust all other Foreign Accountholders' BLMIS account balances for purposes of any claims allowance or other pending proceedings and will credit all Payments out of the accounts for alleged withholding payments made to the IRS to the extent of those payments;

The Trustee will release the IRS and its employees, attorneys, representatives, advisors and agents from any and all past, present and future claims or causes of action and from any and all allegations of liability or damages of whatever kind, nature or description, direct or indirect, in law, equity or arbitration, absolute or contingent, known or unknown, that are, have been, could have been or might in the future be asserted by the Trustee against the IRS and that are based on, arise out of or relate in any way to any of the Payments allegedly made on behalf of Foreign Accountholders by BLMIS pursuant to the requirements of sections 1441 and 1442 of the Code;

T he Trustee will

Settlement Payment (the "Reserve" ) for the purpose of satisfying any potential administrative decisions, settlements or judgments against the IRS or the Trustee that have been or may hereafter be entered with respect to the Payments. The Reserve shall not be available to satisfy certain excepted claims (the "Excepted Claims" ) which are defined below and in paragraph 5 of the Agreement. The Trustee may release the balance of the Reserve for distribution on the day that is two years and sixty days from the Settlement Approval Date (defined below), but shall retain a sufficient amount in the Reserve to satisfy any claims or actions that are still pending;

r eserve approximately $103 million of

t h e

The Trustee shall seek, and the Agreement shall be contingent upon, the issuance of a final and non-appealable Order by the Court that:

(i) approves the Agreement; and (ii) contains a provision permanently enjoining (the "Channeling Injunction" ) any person, including any Foreign Accountholder (and including Erroneously Paid Foreign Accountholders), and anyone acting on his/her/its behalf or in concert

of participation with such Foreign Accountholder, from asserting any claim or action against the IRS or the Trustee which arises from or relates to any Payments allegedly made on behalf of a Foreign Accountholder and Erroneously Paid Foreign Accountholder by BLMIS pursuant to the requirements of Code sections 1441 and 1442, provided however, that such Channeling Injunction shall not bar claims or actions brought against the BLMIS estate by creditors or

against the SIPA customer fund as customers so long as such creditors or customers filed claims in the SIPA Proceeding prior to the

"Excepted Claims" ).

statutorily mandated claims bar date (the

Additionally, the injunction will not affect the rights and defenses of

any Foreign A ccountholders and E r roneously Paid F o reign Accountholder presently engaged in litigation with the Trustee;

If the Ch anneling Injunction provision in the Order is held to be invalid, i napplicable o r un enforceable against any F o reign Accountholder and Erroneously Paid Foreign Accountholder and a court permits an action to proceed with respect to the Payments other than an Excepted Claim, any such accountholder seeking to assert a claim shall assert such claim in the Bankruptcy Court against the Trustee and not the IRS;

The Or d er shall provide that if the IRS is rendered or adjudged liable to any person or entity, including any Foreign Accountholder and Erroneously Paid Foreign Accountholder, in respect of any claims or actions arising from or relating to the Payments, such liability will be satisfied by the Trustee from the Reserve; and

The A gr e ement is subject to the entry of the Order and the Order becoming final and non-appealable (such date, the "Settlement Approval Date" ).

1 4.

A s s e t forth above, as part of the Agreement, the

Trustee is seeking a

Channeling Injunction from this Court, pursuant to Section 105(a) of the Bankruptcy Code.

The Trustee is seeking such relief because the IRS will turn over the Settlement Payment to

the Trustee. Therefore, the Trustee will obtain control over the funds that could be the

subject of any future refund action by a Foreign Accountholder.

ARGUMENT

THE AGREEMENT IS FAIR AND EQUITABLE AND IN THE BEST INTERESTS OF THE BLMIS ESTATE

I. T he T e rms of the Agreement Are Fair and Reasonable and Will Confer a Significant Benefit on the Customer Fund.

15. Ba n kruptcy Rule 9019(a) provides, in pertinent part, that "[o]n motion by the

trustee and after notice and a hearing, the court may approve a compromise or settlement."

Courts have held that in order to approve a settlement or compromise under Bankruptcy

Rule 9019(a), a bankruptcy court should find that the compromise proposed is fair and

equitable, reasonable, and in the best interests of a debtor's estate. In re Ionosphere Clubs,

Inc,, 156 BR 414, 426 (S.D.N, Y. 1993), aff'd, 17 F.3d 600 (2d Cir. 1994) (citingProtective

Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424

(1968)),

16. The S econd Circuit has stated that

a bankruptcy court, in determining

whether to approve a compromise, should not decide the numerous questions of law and fact

raised by the compromise, but rather should "canvass the issues and see whether the

settlement 'fall[s] below the lowest point in the range of reasonableness.'" In re W. T. Grant

Co., 699 F.2d 599, 608 (2d Cir.), cert. denied sub nom. Cosoff v, Rodman, 464 U,S. 822

(1983) (quoting Newman v. Stein, 464 F.2d 689, 693 (2d Cir.), cert. denied sub nom, Benson

v. Newman, 409 U.S. 1039 (1972)); accord Nellis v, Shugrue, 165 B,R. 115, 121-22

(S.D.N.Y. 1994); In re Ionosphere Clubs, 156 B.R. at 426; In re Purofied Down Prods,

Corp,, 150 B.R. 519, 522 (S.D,N.Y. 1993) (" [T]he court need not conduct a 'mini-trial' to

determine the merits of the underlying litigation" ); In re Drexel Burnham Lambert Group,

Inc., 134 B,R. 499, 505 (Bankr. S,D.N.Y. 1991).

17.

In d e ciding whether a particular compromise falls within the "range of

reasonableness," courts consider the following factors:

a. the probability of success in the litigation;

b. the d i fficulties associated with collection;

c. t he c omplexity of the litigation, and the attendant expense, inconvenience, and delay; and

the paramount interests of the creditors (or in this case, customers). Nellis v. Shugrue, 165 B.R. at 122 (citing In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 292 (2d Cir. 1992), cert. dismissed, 506 U.S, 1088 (1993)).

18. T h ebankruptcy court may credit and consider the opinions of the trustee or

debtor and their counsel in determining whether a settlement is fair and equitable, See In re

Purofied Doivn Prods., 150 B,R, at 522; In re Drexel Burnham Lambert Group, Inc., 134

B.R. at 505. The competency and experience of counsel supporting the settlement may also

be considered. Nellis v. Shugrue, 165 B.R, at 122, Finally, the court should be mindful of

the principle that "the law favors compromise." In re Drexel Burnham Lambert Group, Inc.,

134 B.R. at 505 (quoting In re Blair, 538 F.2d 849, 851 (9th Cir. 1976)),

19. Th eTrustee believes that the terms of the IRS Settlement fall well above the

lowest point in the range of reasonableness and, accordingly, the Agreement should be

approved by this Court. The Agreement resolves all issues regarding the Payments (the

"Claims" ) without the need for litigation.

Other than a small deduction for amounts

erroneously paid by the IRS to the Erroneously Paid Foreign Accountholders, the IRS

Settlement provides for the return of the vast majority of transfers made by Madoff since

January 1, 2003, purportedly as income tax withholding with respect to foreign accounts.

SeeTrustee's Affidavit at $ 7.

10

20.

The A greement also furthers the interests of the customers of BLMIS by

adding a substantial amount of money to the Customer Fund, Id. Specifically, as a result of

the IRS Settlement, approximately $326 million should be available for distribution to

customers. Id.

21. A s n o ted above, for purposes of any claims allowance or other pending

adversary proceedings involving the Foreign Accountholders, the Trustee will adjust the

Foreign Accountholders' BLMIS account(s) balance(s) by crediting back all recovered

transfers comprising the IRS Settlement out of the accounts for the alleged withholding

payments made, to the extent of those payments. The Trustee will credit each Foreign

Accountholders' account

(with

t h e

e x ception o f

t h e E r roneously Paid F oreign

Accountholders) for each Payment that was made and will adjust the account balance as of

the date of the specific payment. Utilizing this methodology, five Foreign Accountholders

which were "net

winners" previously become break-even accounts,

O n e F oreign

Accountholder changes from a "net winner" to a "net loser". The Foreign Accountholders

(with the exception of the Erroneously Paid Foreign Accountholders) will receive credit for

the monies recovered by the Trustee.

22. Gi v en the time, cost and complexities involved in proceeding with litigation,

the Trustee has determined that the proposed settlement with the IRS represents a fair

compromise of the Claims. The Trustee's analysis of the proposed settlement shows that the

BLMIS estate will recover the significant majority of the funds owed to the estate by the

IRS. The IRS will have returned more than ninety-eight percent of the Payments that it

received from BLMIS since January 1, 2003, for distribution to BLMIS' customers with

allowed claims, without the Trustee having to incur the time and costs of litigation, an

11

unquestionably positive result. In light of those facts, the Trustee submits that it is in the

best interests of the estate to settle with the IRS according to the terms set forth in the

Agreement.

23,

T he Trustee maintains that he would have prevailed at trial in recovering all

Payments to the IRS. Yet, there is always a litigation risk. The Agreement allows the

Trustee to avoid potentially protracted litigation, The ability to avoid the time and expense

associated with litigating this matter, combined with the fact that the Agreement will result

in a very substantial recovery, makes the settlement embodied by the Agreement extremely

beneficial to BLMIS' customers.

II. An I n j unction under Section 105(a) Is Warranted and Necessary.

24. The T rustee seeks a narrowly

tailored injunction, which, given the unique

circumstances of the BLMIS liquidation in general and the IRS Settlement in particular, is

both appropriate and necessary.

25. The Agreement requires the Trustee to use his best efforts to obtain approval

of the Order as promptly as practicable, which shall contain a permanent injunction from the

Banluuptcy Court, pursuant to Section 105(a) of the Bankruptcy Code "permanently

enjoining any person, including any Foreign Accountholder (including for the avoidance of

doubt, any Erroneously Paid Foreign Accountholder), and anyone acting on its behalf or in

concert or participation with such Foreign Accountholder, from asserting any claim or action

against the IRS, the United States or the Trustee which arises from or relates to any

Payments allegedly made on behalf of a Foreign Accountholder by BLMIS pursuant to the

requirements of Code sections 1441 and 1442

12

"

subject to certain exceptions. Agreement,

a.

T he I n junction Is Narrowly Tailored and All Claims Subject to the Injunction Are Derivative of the Trustee's Claims.

26.

Thi s Court has subject matter jurisdiction to grant the injunction because the

claims that the Trustee seeks to enjoin are direct claims over which the Trustee has

"exclusive standing" to assert.

27,

Pur suant to 28 U.S.C. ) 1334(b), district courts (and therefore bankruptcy

courts) have original jurisdiction over civil proceedings "arising under" and "arising in" and

"related to" cases under title 11. 28 U.S.C. $ 1334(b), See also In re Adelphia Comme'ns

Corp., 2006 WL 1529357, at ~6 (Bankr. S.D.N.Y. June 5, 2006). "Related to" jurisdiction

to enjoin a third party dispute exists where the subject of the third party dispute is property

of the estate or the dispute would have an effect on the estate, In re Johns Manville Corp.,

517 F.3d 52, 65 (2d Cir. 2008), «acated ck remanded on other grounds, — - U,S, — -, 129

S,Ct, 2195, 174 L.Ed.2d 99 (2009), crffg in part ck rev'g in part, 600 F,3d 135 (2d Cir.

2010); In re Delta Airlines, Inc., 374 B.R. 516, 525 (S,D.N, Y. 2007).

28. Th i sCourt's recent decision inIn re Dreier LIP, 2010 WL 1707737 (Bankr.

S.D.N.Y. April 28, 2010), is instructive on the issue of subject-matter jurisdiction in a

situation similar to that created by Madoff s Ponzi scheme. Mare S, Dreier ("Dreier"), who

was the sole equity partner of Dreier LLP ("Dreier LLP"), committed an extensive fraud

against his clients by selling them sham promissory notes (the "Notes" ) from 2004 to 2008,

Id. at ~1. GSO, an investment manager for certain purchasers of Notes, transferred over a

hundred million dollars to Dreier LLP accounts. Id. at ~3. When the fraud was revealed,

Dreier and Dreier LLP filed bankruptcy cases. In an effort to settle potential avoidance

actions against GSO, the Chapter 11 Trustee and Chapter 7 Trustee, along with GSO,

entered into a settlement agreement, whereby GSO would contribute approximately $10

13

million, plus artwork with an approximate value of $3 million, to the debtors' estates in

exchange for a release and injunction against third-party claims. Id, at ~4.

29. In

co n sidering subject-matter jurisdiction, the Court first found that it

"plainly" had jurisdiction to bar general creditors of the estates from seeking to recover their

claims from the funds at issue — the funds transferred by Dreier LLP to GSO,

Id. at ~15.

The Court explained that principles stated in Hirsch v, FDIC (In re Colonial Realty Co,),

980 F,2d 125 (2d Cir. 1992), which recognized that the automatic stay barred an action by

the FDIC to recover property that the debtor had transferred before bankruptcy, and Keene

Corp. v. Coleman (In re Keene Corp.), 164 B,R. 844, 850 (Banla. S,D,N.Y. 1994), which

held that a bankruptcy trustee alone has standing to maintain avoidance actions, supported

the Dreier holding.

Id. at ~15-16. B a sed on these principles, the Court reasoned, the

bankruptcy court could permanently enjoin "derivative" creditor claims on avoidance funds

because "[a]bsent that power, the Trustees will be hampered in their ability to pursue and

ultimately settle fraudulent transfer claims from a transferee fearful of paying twice for the

same transfer — once on the Trustees' claim and a second time on the derivative claim," Id.

at ~16 (citing SEC v, Drexel Burnham Lambert Group, Inc. (In re Drexel Lambert Group,

Inc,), 960 F,2d 285, 293 (2d Cir. 1992).

' The Court in Dreier went on to determine that the injunction sought exceeded the Court's jurisdiction for reasons not applicable in this case. Specifically, the Court found that the Dreiei injunction did not sufficiently identify the entities being released and was not limited to claims affecting the property of the estate or the administration of the estate. In re Dreier LLP, 2010 WL 1707737, at *16-17. Following this decision, the Dreier trustee filed a renewed motion for approval of the settlement agreement with a more tailored injunction. By order dated June 8, 2010, the Court approved the settlement and entered the injunction sought by the Dreie> trustee [Case No. 08-15051 (SMB) ECF No. 610]. The injunction entered enjoined all creditors and parties in interest in the case from commencing or continuing any action against any of the released parties where the action is based on Mare Dreier's or Dreier LLP's misconduct and for which there is no independent basis to bring suit. The order granting the modified injunction was recently upheld by the District Court. See In re Dreier LLP, 2010 WL 3835179, at *4-5 (S.D.N.Y. Sept. 10, 2010).

14

30.

Her e, the Trustee has "exclusive standing" to assert the causes of action

because they belong to the Debtors' estate. Picked v. Fox, 2010 WL 1740885, at ~5 (Bankr.

S.D.N, Y. May 3, 2010); McHale v. Alvarez (In re The 103I Tax Group, LLC), 397 B,R. 670,

679 (Bankr. S.D.N.Y. 2008); Goldin v, Primavera Familienstiftung, Tag Assocs, Ltd. (In re

Granite Partners L.P,), 194 B.R. 318, 324-25 (Bankr. S.D.N.Y. 1996). The Second Circuit

has stated that "[i]f a claim is a general one, with no particularized injury arising from it, and

if that claim could be brought by any creditor of the debtor, the trustee is the proper person

to assert the claim, and the creditors are bound by the outcome of the trustee's action."

Picard v. Fox, 2010 WL 1740885, at *5 (quoting St. Paul Fire ck Marine Ins. Co. v.

PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989)).

31. In a ddition to the above authorities, the proposed injunction is consistent with

the injunction recently entered by the Court in Dreier, which excluded from the scope of the

injunction actions where there is an independent basis on which to bring suit.

In re Dreier

LLP, 2010 WL 1707737, at ~16-17, aff'd, 2010 WL 3835179, at *4-5 (S.D.N.Y. Sept. 10,

2010) (upholding injunction and endorsing pro rata distribution for similarly situated

victims of a Ponzi scheme). The Trustee, in exercising his exclusive jurisdiction, has

reached an agreement regarding the settlement of certain claims that belong to the Debtors'

estate. An injunction is appropriate to avoid the re-litigation of claims asserted on behalf of

all customers and creditors that have been resolved by the Trustee, particularly where the

Trustee has resolved those claims in a manner enormously beneficial to the Estate.

32. Fur ther, the claims that the Trustee seeks to enjoin are those that would

impact the administration of the liquidation. Courts have repeatedly enjoined suits against

non-debtor third parties to protect the administration of the estate. See, e.g., In re Adelphia,

15

2006 WL 1529357, at *4 (" The Bankruptcy Court's injunctive powers

. i n clude 'the

power to enjoin the Defendants from proceeding against non-debtor third parties

where,

as here, the actions against such third parties have at least a conceivable effect upon the

Debtors or implicate the interpretation or enforcement of this Court's orders,'") (internal

citation omitted); In re AP Indus., 117 B,R. at 801 — 02 (" The large majority of the courts

which have considered the question have held that the bankruptcy courts have the power to

restrain legal action by creditors of the debtor against non-debtor third parties, in certain

circumstances

,") (quoting In re Monroe 8'ell Serv., Inc., 67 B.R. 746, 751 (Bankr, E.D.

Pa. 1986)); In re Calpine Corp., 365 B.R, at 409 n,20. Enjoining such claims is necessary to

protect the proper administration of this liquidation.

33. If t h ese claims were allowed to be asserted, claimants would be permitted to

side-step the jurisdiction of this Court, the claims processes this Court has put into place, the

SIPA distribution scheme mandated by Congress, and the statutory bar date as determined

by section 78fff-2(a)(3) of SIPA, See generally SIPC v. BLMIS, 424 B.R. 122 (Bankr.

S,D.N, Y. 2010). In essence, those claimants would be inequitably obtaining property that

should not be available to them based on the previous decisions of this Court regarding the

claims administration process and the net equity calculation, to the detriment of other

' The standard for a Rule 7065 injunction is inapplicable when an injunction is sought under section 105 of the Bankruptcy Code. See In re Lyondejl Chem. Co., 402 B.R. 571, 588 n.37 (Bankr.

S.D.N.Y. 2009). The Court may enjoin actions against the IRS if (i) a third pa>ty suit would impair the couit's jurisdiction with respect to a case before it or (ii) the third party suits threaten to thwaite or frustrate the debtor's reorganization effotts and the injunction is necessary to preserve or protect the debtor's estate. See In re Keene Corp., 162 B.R. 935, 944 (Bankr. S.D.N.Y. 1994); In re Calpine Corp., 354 B.R. 45, 48 (Bankr. S.D.N.Y. 2006); Garri~ v. Lefflev (In re Newnan), 71 B.R. 567, 571 (S.D.N.Y. 1987), The Second Circuit recently upheld an anti-litigation injunction in the receivership context, finding that the injunction assisted the receiver in managing the receivership and maintaining control over receivership assets. SEC v, Byers, 609 F.3d 87, 92-93 (2d Cir. 2010).

Similarly, in th e i nstant

administration of the BLMIS estate,

case, the injunction sought would prevent interference with the

16

claimants who follow the Court's rules. See SIPC v. BJMIS, 424 B.R. 122 (Bankr. S.D,N.Y.

2010); Order on Application for an Entry of an Order Approving Form and Manner of

Publication and Mailing of Notices, Specifying Procedures For Filing, Determination, and

Adjudication of Claims; and Providing Other Relief entered on December 23, 2008 [ECF

No, 12]. As this Court noted with respect to the defendants in Picard v, Fox, "any judgment

awarded to the fFor defendants] would exceed their entitlement to BLMIS distribution

under SIPA and this Court's Net Equity Decision," Picard v. Fox, 2010 WL 1740885, at

~10. Indeed, permitting those with allowable customer claims to pursue the IRS outside of

the liquidation would create the potential for double recovery. Thus, in the absence of an

injunction, potential claimants would be able to eviscerate the equitable distribution

architecture that lies at the core of both SIPA and the Bankruptcy Code to their own

individual benefit.

34,

M or eover, the Trustee is recovering the significant majority of the amount of

the Payments made by BLMIS or Madoff to the IRS. It would be pointless to bring suit

against the IRS when the IRS, by making the Settlement Payment, will have already

returned the vast majority of the Payments to the Trustee. Once the Settlement Payment is

made, the IRS will have relinquished control over the funds. It would be unjust to subject

the IRS to the possibility of

double exposure and protracted litigation with various

claimants, particularly when the Order provides a mechanism for claimants to fairly enjoy

the benefits of the Settlement Payment.

35. Fi n ally, the injunction is narrowly tailored, protecting the IRS only in relation

to the Payments. The injunction and release are "narrowly drawn and are necessary to

prevent relitigation of precisely the claims that were negotiated and resolved by the

17

Settlement Agreement," In re Delta Airlines, Inc., 374 B,R. at 526, Accordingly, this Court

has the authority to grant the injunction sought.

b.

T he C ustomer Fund Will Receive Substantial Benefit from

the IRS

Settlement and the Unique Circumstances of the Case Make the

Injunction Appropriate.

36.

The IRS Settlement will bring approximately $326 million into the Customer

Fund for distribution to customers with allowed claims.

T hi s amount

represents a

significant recovery for the benefit of customers. As such, the principles set forth in the

controlling Second Circuit case, Deutsche Bank AG v, Metromedia Fiber Net>ork Inc. (In re

Metromedia Fiber Netivork, Inc.),

4 16 F.3d 136 (2d Cir. 2005), are satisfied. I n

Metromedia, the Second Circuit held that nonconsensual nondebtor releases and injunctions

are proper "in truly unusual circumstances" where, among other things, the debtor's estate

has received substantial consideration. 416 F.3d at 141-143; see also SEC v. Drexel

Burnham Lambert Group, Inc. (In re Drexel Lambert Group, Inc.), 960 F.2d 285, 293 (2d

Cir. 1992); Class Five Nev. Claimants v. Doe> Corning Corp, (In re Dovi Corning Corp.),

280 F.3d 648, 657-58 (6' Cir. 2002).

37. The I R S Settlement represents a significant milestone in this liquidation

proceeding. The Settlement Payment constitutes a significant recovery of the Trustee's

demand amount against the IRS for the recovery of amounts paid by BLMIS to the IRS as

backup withholding on behalf of Foreign Accountholders since January 1, 2003. The

' Although certain of the cited case law addresses injunctions in the context of a plan of reorganization, it is clear that injunctions pursuant to section 105 are not limited to reorganization proceedings. See, e,g., Apostolou, 155 F.3d at 882 (section 105 injunction applicable in liquidation proceeding); In re AP Indus., 117 B.R. at 201 (" The court will have ample power to enjoin actions excepted fiom the automatic stay which might interfere in the rehabilitative process whether in a liquidation or in a reorganization case."). The same principles apply to injunctions required in settlement agreements. See In re Dreier LLP, 2010 WL 1707737 (Bankr. S.D.N.Y. April 28, 2010);

see also In re Mrs. steinberg 's Kosher Foods, Inc., 278 B.R. 358 (Bankr. S.D.N.Y. 2002),

18

increase in customer property by virtue of the IRS Settlement is dramatic and would

constitute a significant increase in the amounts available for future pro rata distributions that

will be made to BLMIS customers with allowed claims.

A s

t his Court has already

recognized in the Picard v. Fox proceedings, the IRS Settlement would provide a unique

benefit to the estate that is certainly worthy of the protection of a carefully tailored

injunction. As the Court observed, an injunction pursuant to section 105(a) "is appropriate

and necessary to preserve the integrity of the SIPA proceedings and the Trustee's settlement

negotiations for the benefit of the BLMIS estate and all of its customer claimants." Picard

v, Fox, 2010 WL 1740885, at *9.

38. The re is no doubt that the injunction is necessary and fair. The IRS has made

it clear to the Trustee that the in order to achieve a settlement, and as a precondition to such

a settlement, the IRS and the U.S, Treasury must be protected from paying out the same

claims more than once. The proposed injunction is, therefore, an essential part of the

settlement. Given the value of the proposed settlement, and that the Settlement Payment

represents virtually all of the amount of the Payments, it is not surprising that the IRS wishes

to have finality and be certain that it will not be required to satisfy the same claims twice.

As this Court noted in Picard v. Fox, without an injunction, the IRS would be "fearful of

paying twice for the same transfer." Picard v. Fox, 2010 WL 1740885, at ~9 (quoting In re

Dreier I IP, 2010 WL 1707737, at ~16). The Second Circuit has held that an injunction is

appropriate in a situation where, but for the injunction, the settlement would be less likely to

occur. See e,g., SEC v. Drexel Bzvnham Lambert Group, Inc,, 960 F.2d at 293. In such

circumstances, the Court may use its powers to enjoin in order to foster the conclusion of a

settlement by providing the finality sought by the IRS, See, e,g., In re Johns-Mansville

19

Corp., 68 B.R. 618, 626 (Bankr, S.D.N.Y. 1986) (Lifland, J.) (enjoining further actions

against settling defendants under ) 105(a) in order to "preserve the rights of all asbestos

claimants by establishing a corpus of funds from which all can collect" and to "prevent[] the

inequitable, piece-meal dismemberment of the debtor's estate

"),

aff'd, 78 B.R. 407

(S.D.N.Y. 1987), aff'd sub nom Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.

1988).

39. A cc ordingly the terms of the injunction seek to satisfy the requirements set

forth in Metromedia: the opportunity offered to the estate by the IRS Settlement must be

considered "unusual circumstances" and the IRS Settlement will provide a substantial

benefit to the BLMIS estate and in turn, BLMIS's customers. A s

injunction sought by the Trustee should be granted.

CONCLUSION

such, the narrow

40. The T r ustee submits that the Agreement should be approved for two

overarching reasons: (a) to avoid lengthy and burdensome litigation, and (b) and because it

represents a reasonable compromise of the claims that benefits the estate and the customers

of BLMIS. Accordingly, since the Agreement is well within the "range of reasonableness"

and confers a substantial benefit on the estate, the Trustee respectfully requests that the

Court enter an Order (i) approving the Agreement, and (ii) issuing the permanent injunction.

NOTICE

41. In a ccordance with Bankruptcy Rules 2002 and 9019, notice of this Motion

has been given to (i) SIPC; (ii) the SEC; (iii) the IRS; (iv) the United States Attorney for the

Southern District of

New Y ork; and (v) the Foreign Accountholders (including the

Erroneously Paid Foreign Accountholders), The Trustee shall notify, by way of the ECF

filing that will be made, each person or entity that has filed a notice of appearance in this

20

case. Additionally, the Trustee will post this Motion, proposed order and Settlement

Agreement on the Trustee's website, www.madofftrustee,com. The Trustee submits that no

other or further notice need be given and respectfully requests that the Court find that such

notice is proper and sufficient.

21

WHEREFORE, the Trustee respectfully requests entry of an Order (i) approving the

settlement agreement between the Trustee on the one hand and the United States of

America, on behalf of the IRS, on the other and (ii) enjoining customers and creditors of

BLMIS who filed or could have filed claims in the liquidation from pursuing claims against

the IRS, substantially in the form of Exhibit "A".

Dated; New York, New York November 22, 2011

22

Respectfully submitted,

/s/Elyssa S. I ates Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111

Telephone: (212) 589-4200

Facsimile: (212) 589-4201 David J, Sheehan Email: dsheehan bakerlaw.com Mare E, Hirschfield Email: mhirschfield bakerlaw,com Elizabeth A. Smith b l

Elyssa S. Kates

b k

Amy E. Vanderwal Email: avanderwal r bakerlaw.com

Attorneys for Irving H, Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff

EXHIBIT A

[PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NKW YORK

SECURITIES INVESTOR PROTECTION CORPORATION,

Plaintiff-Applicant,

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

In re:

Defendant.

BERNARD L, MADOFF,

Debtor.

Adv. Pro. No. 08-1789 (BRL)

SIPA Liquidation

(Substantively Consolidated)

ORDER PURSUANT TO SECTION 105(a)OF THK BANKRUPTCY CODE AND RULES 2002 AND 9019 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE APPROVING AN AGREEMENT BY AND BETWEEN THE TRUSTEE AND THE UNITED STATES OF AMERICA ON BEHALF OF THK INTERNAL REVENUE SERVICE

Upon the motion dated November 22, 2011 (the "Motion" ) of Irving H. Picard (the

"Trustee" ), as trustee for the liquidation of the business of Bernard L. Madoff Investment

Securities LLC ("BLMIS") under the Securities Investor Protection Act, 15 U.S,C. ($ 78aaa et

seq. ("SIPA"), and the substantively consolidated estate of Bernard L. Madoff ("Madoff," and

together with BLMIS, collectively, the "Debtors" ), seeking entry of an order, pursuant to

sections 105(a) of the United States Bankruptcy Code, 11 U.S.C, $) 101 et sece. (the "Bankruptcy

Code" ) and Rules 2002 and 9019 of

the Federal Rules of Bankruptcy Procedure (the

"Bankruptcy Rules" ), approving the agreement dated as of November 21, 2011, by and among

the Trustee on the one hand, and the United States of America (collectively with its agencies,

offices and employees, the "United States" ), on behalf of the Internal Revenue Service (the

"IRS"), on the other hand, (the "Agreement" )' [at ECF No.

, at E xhibit"

"] ; and the Court

having considered the Affidavit of Irving H, Picard executed on November 22, 2011 in support

of the Motion [ECF No.

; al l objections to the Motion and responses thereto (collectively, the

"Objections" ); and it further appearing that the relief sought in the Motion is appropriate based

upon the record of the hearing held before this Court on December 21, 2011, to consider the

Motion; and after due deliberation and sufficient cause appearing therefor; the Court hereby

makes the following findings of fact and conclusions of law. The findings and conclusions set

forth herein constitute the Court's findings of fact and conclusions of law pursuant to Bankruptcy

Rule 7052, made applicable to this proceeding pursuant to Bankruptcy Rule 9014, To the extent

any of the following findings of fact constitute conclusions of law, they are adopted as such. To

the extent that any of the following conclusions of law constitute findings of fact, they are

adopted as such.

FINDINGS OF FACT

A. The U nited States is a sovereign nation that exists pursuant to the Constitution of

the United States of America.

B. The IRS is a bureau of the Department of the Treasury of the United States and is

authorized to carry out the responsibilities of the Secretary of the Department of the Treasury

pursuant to section 7801 of the Internal Revenue Code (the "IRC").

C. Pur suant to an order (the "Protective Order" ) entered by the Honorable Louis L,

Stanton, U,S.D.J., in the matter captioned Securities and Exchange Commission v, Madoff, et al,,

Case No. 08 CV 10791 (LLS) (the "District Court Matter" ) [Docket No. 4], the Trustee was

'All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Agreement.

'References herein to "ECF No.

(BRL),

" s hall refer to docket entry numbers in the above-captioned matter, 08-1789

"appointed trustee for the liquidation of the business of [BLMIS] with all the duties and powers

of a trustee as prescribed in SIPA„.".

D. Pri o r to December 11, 2008 (the "Filing Date" ), BLMIS and/or Madoff made

payments (the "Payments" ) to the IRS, purportedly on behalf of the foreign accountholders (the

"Foreign Accountholders") set forth on Exhibit "C" to the Motion, allegedly pursuant to the

requirements of sections 1441 and 1442 of the IRC as a withholding tax on income allegedly

earned by the Foreign Accountholders. However, there is no known record of BLMIS having

purchased or sold any securities for the benefit of the Foreign Accountholders, and in addition,

there is no record of any dividends actually having been paid with respect to accounts held by the

Foreign Accountholders. Therefore, the Foreign Accountholders did not earn any income

through their accounts with BLMIS (the "Accounts" ) and the Payments made to the IRS falsely

identified the funds as income tax withholding.

E. The I R S has previously paid certain refund claims relating to the Payments to

certain Foreign Accountholders.

F. The T rustee believes that all of the Payments are recoverable. The United States

disputes that it is liable for the return of all the Payments. After a review of the relevant records

and extensive discussions with counsel for the United States concerning the factual background

and certain legal arguments, and a consideration of the costs and uncertainty inherent in any

litigation, the Trustee, in the exercise of his business judgment, and the United States have

determined that it is appropriate to resolve this matter rather than litigate the avoidance or refund

of the Payments.

G. The settlement (the "IRS Settlement" ) involves the repayment of approximately

Three Hundred and

Twenty-Six Million United States Dollars ($326,000,000.00) (the

"Settlement Payment" ) to the Trustee for the benefit of BLMIS customers with allowed claims.

This represents a significant recovery for the victims of the Ponzi scheme, while at the same time

avoiding the potentially significant costs of protracted litigation.

H. T he T r ustee believes that

the terms of the IRS Settlement fall well above the

lowest point in the range of reasonableness and, accordingly has stated that the Agreement

should be approved by this Court.

CONCLUSIONS OF LAW

1. This Court has subject matter jurisdiction to consider the Motion and the relief

requested therein, including granting the permanent injunction sought, in accordance with 28

U.S.C. $$ 157 and 1334 and the Standing Order of Referral of Cases to Bankruptcy Judges of the

United States District Court for the Southern District of New York dated July 10, 1984 (Ward,

Acting C,J,).

2. Venu e of this case in this district is proper pursuant to 28 U,S.C. ) 1409.

3. Prop er, timely, adequate and sufficient notice of the Motion, the hearing thereon,

and the related objection deadline has been given in accordance with Bankruptcy Rules 2002 and

9019. Such notice constitutes good, appropriate and sufficient notice, and no other or further

notice need be given.

4. The Co urt has considered the probability of success in any litigation, the

complexity of any litigation, and the attendant expense, inconvenience, and delay, and the

paramount interest of the customers and other creditors. In addition, the Court may credit and

consider the opinion of the Trustee and his counsel in determining whether a settlement is fair

and equitable.

5.

The C ourt concludes that the IRS Settlement falls well above the lowest point in

the range of reasonableness, and is fair, reasonable, equitable and in the best interests of the

BLMIS estate.

6,

The A g r eement will confer a significant benefit on BLMIS customers with

allowed claims,

7. A n i nj u nction under

Sections 105(a) and 362(a) of the Bankruptcy Code is

warranted and necessary. Issuance of the permanent injunction, precluding prosecution of

actions by third parties against the IRS or the United States that are duplicative or derivative of

claims belonging to the Trustee, is necessary and appropriate to carry out provisions of the

Bankruptcy Code, to prevent any entity from exercising control or possession over property of

the estate, to preclude actions that would have a conceivable effect or adverse impact upon the

Debtors' estate or on the administration of the liquidation proceeding, and/or to avoid relitigation

or litigation of claims that were or could have been asserted by the Trustee on behalf of all

customers and creditors.

For all of the foregoing reasons, it is hereby

ORDERED, that the Motion is granted in its entirety; and it is further

ORDERED, that the Agreement between the Trustee on the one hand and the United

States on the other hand is hereby approved, and the parties to the Agreement are authorized and

directed to take such action as is necessary to effectuate the terms of the Agreement; and it is

further

ORDERED, that any BLMIS customer or creditor of the BLMIS estate who filed or

could have filed a claim in the liquidation proceeding (including, but not limited to, the Foreign

Accountholders and the Erroneously Paid Foreign Accountholders), or anyone acting on their

behalf or in concert or participation with them, or anyone whose claim in any way arises from or

is related to BLMIS or

the Madoff Ponzi scheme (the "Enjoined Entities" ), is hereby

permanently enjoined from asserting any claim against the IRS, the United States or the Trustee

which arises from or relates to payments allegedly made by BLMIS pursuant to IRC sections

1441 and 1442, or that is duplicative or derivative of the claims that have or could have been

brought by the Trustee against the United States or the IRS (collectively, the "Enjoined Claims" ),

rovided however, that the foregoing shall not bar claims or actions brought against the BLMIS

estate by creditors or against the customer fund by customers, provided that such creditors or

customers filed claims in the SIPA Proceeding prior to the statutorily mandated claims bar date

(the "Excepted Claims" ); and it is further

ORDERED, that if notwithstanding the foregoing provisions of the Order, the United

States or the IRS is nonetheless rendered or adjudged liable to any person or entity, including

any Foreign Accountholder, in respect of any claims or actions arising from or relating to

payments allegedly made by BLMIS pursuant to IRC sections 1441 and 1442, whether by a final

and non-appealable order, judgment, settlement agreement or otherwise, such liability shall be

satisfied by the Trustee from the Reserve (as that term is defined in the Agreement); and it is

further

ORDERED, that to the extent that the injunction set forth in this Order is held to be

invalid or inapplicable or unenforceable against any Enjoined Entity, and/or a court permits an

action to proceed with respect to Payments other than an Excepted Claim, any such Enjoined

Entity seeking to assert an Enjoined Claim shall assert any such Enjoined Claim in the

Bankruptcy Court against the Trustee, and not against the United States or the IRS; and it is

further

ORDERED, that this Court shall retain exclusive jurisdiction over any and all disputes

arising under or otherwise relating to this Order and the Settlement Agreement.

Dated: New York, New York , 2011

HONORABLE BURTON R. LIFLAND UNITED STATES BANKRUPTCY JUDGE

[PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT B

[PAGE INTENTIONALLY LEFT BLANK]

SKTTLKMKNT AGRKKMK%T

This SETTLEMENT A GREEMBNT (the "A gr eement"}, d ated as of November 21, 2011, is made by and between Irving H. Picard, in his capacity as the trustee (the "Testee") for the substantively consolidated liquidation proceedings of Bernard L, Madoff Investment Securities LLC ("BLMIS"} under the Securities Investor Protection Act of 1970, as amended from time to time ("SIPA"), and estate of Bernard L. Madoff ("Madoff"}, on the one hand, and the United States of America {the "United States" ), on behalF of the Internal Revenue Service {the "IRS"), on the other hand (each of the Trustee and the IRS shall be referred to individually as a "~Part ", and collectively as the "Parties" ),

BACKGROUND

A. B L M IS and its predecessor were

Securities Investor Protection Corporation ("SIP C"),

registered broker-dealers and members of the

B,

O n December 11, 2008, Madoff was arrested by federal agents for criminal

offenses including securities fraud, investinent adviser &aud, and mail and wire fraud. On

December 11, 2008, the United States Secunties and Exchange Commission {the"Commission")

filed a complaint in the United States District Court for the Southern District of New York (the "District Court" ) against, among others, BLMIS and Madoff captioned SEC v, BLMIS et al., No, 08-CV-10791(LLS).

C. O n December 15, 2008, pursuant to section 78eee{a){4)(A) of SIPA, the

Commission consented to a combination of its own action with the application of SIPC. Thereafter, SIPC filed an application in the District Court under section 78eee(a)(3) of SIPA alleging, inter ah'a, that BLMIS was not able to meet its obligations to securities customers as they caine due and, accordingly, its customers needed the protections afforded by SIPA. On December 15, 2008, the District Coint granted the SIPC application and entered an order under SIVA, which, in pertinent pait, appointed the Trustee for the liquidation of the business of BLMIS under section 78eee{b){3) of SIPA and removed the case to the United States Bankruptcy Court for the Southern District of New York (the "Bankru tc Court" ) under section 78eee(b}(4)

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The Trustee is duly qualified to serve and act on behalf of the estate of BLMIS.

D. O n M arch 12, 2009, in connection with his scheme to conduct a massive

Ponzi scheme through BLMIS, Madoff pleaded guilty to an 11 count information filed by the United States Attorney's Office for the Southern District of New York, which charged him with securities fraud, investment advisor fraud, mail fraud, wire fraud, two counts of international money laundering, money laundering, false statements, perjury, false filings with the SEC, and theft from an employee benefit plan, On June 12, 2009, Madoff was sentenced principally to 150 years' imprisonment,

E,

P ursuant to section 78fff-1{a) of SIPA, the Trustee has the general powers of a

bankruptcy trustee in a case under Chapter 7 of the United States Bankruptcy Code, as amended Rom time to time (the "Bankru tc Code" ), as well as the powers granted pursuant to SIPA.

Chapters 1, 3, 5 and subchapters I and II of Chapter 7 of the Bankruptcy Code apply to the SIPA Proceeding to the extent consistent with SIPA,

F. U n der SIPA, the Trustee is charged with the responsibility to marshal and

liquidate the assets of BLMIS, and to recover customer property for distribution to BLMIS customers in satisfaction of allowed customer claims, including through the recovery from BLMIS customers of preference payments and fraudulent transfers made to them by BLMIS.

6. P r ior t o D ecember 15, 2008, BLMIS and/or Madoff made payments

("~pa cuts") to the IRS, purportedly on behalf of foreign entities or persons which had accounts

with BLMIS (the "Forei A c c ountholders"), allegedly pursuant to the requirements of sections 1441 and 1442 of the Internal Revenue Code of 1986, as amended and in effect (the "Code*'), which require persons who pay income to nonresident aliens and foreign corporations to withhold tax equal to 30% of the income.

H. T h ere is no known record of BLMIS having purchased or sold any securities

for the benefit of the Foreign Accountholders, and in addition, there is no record of any dividends actually having been paid with respect to accounts held by the Foreign Accountholders. Thus, the Payments made to the IRS falsely identified the funds as income tax withholding to give the investment advisory arm of BLMIS an air of legitimacy and to avoid any inquiries from the IRS.

T h e IRS has erroneously paid certain refimd claims relating to Payments to certain Foreign Accountholders("Erroneousl Paid Forei n Accountholders").

I,

.J.

B ased on the foregoing, the Trustee and the United States wish to resolve the

matters described above without the expense, delay, and uncertainty of litigation.

NO%, THKRKIt'ORK, in consideration of the foregoing, of the mutual covenants, promises and undertakings set forth herein, and for good and valuable consideration, the mutual receipt and sufficiency of which are hereby acknowledged, the Trustee and the United States agree as follow.

1,

AGREEMENT

Pa ment to Trustee. With respect to payments made by BLMIS and/or

Madoff allegedly pursuant to the requirements of Code sections 1441 and 1442, which require persons who pay income to nonresident aliens and foreign corporations to withhold tax equal to 30% of the income, in complete satisfaction and settlement of all claims by the Trustee against the United States, whether brought as a claim or suit for refmd under the Code or an avoidance or other action under the Bankruptcy Code, or any other action which could be brought, the Trustee and the United States agree that the United States will make a payment of Three Hundred and Twenty-Six Million United States Dollars ($326,000,000.00) (the "Settlement ~Pa ment" )to the Trustee for the benefit of BLMIS customers with valid claims. The Settlement Payment shall be paid to the Trustee by the United States in a reasonable period of time after the Settlement Approval Date, as defined in paragraph 6 herein. If the Settlement Payment is not received by the Trustee within 180 days of the Settlement Approval Date, then interest will accrue on the Settlement Payment beginning on the 181" day following the Settlement Approval

Date, at the applicable Federal rate published for short-term debt instruments bearing annual interest for the calendar month in which such interest begins to accrue, as set forth in section 1274 of the Code.

2. For ei

n Accountholders Account Balances.To the extent the Trustee has the Bankruptcy Court against the Erroneously Paid Foreign

commenced actions in

Accountholders seeking, among other things, recovery of Payments which ultimately resulted in the refund claims eironeously paid by the IRS, the Trustee shall continue those actions without any adjustment of the account balance. For pinposes of any claims allowance or other pending adversary proceedings involving all other Foreign Accountholders, the Trustee shall adjust the Foreign Accountholders' BLMIS account balance by crediting all Payments out of the accounts for alleged withholding payments made to the IRS to the extent of those payments.

3,

Rel ease b Trustee.In consideration for the covenants and agreements set

forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, except with respect to any rights arising under this Agreement, the Trustee shall release, remit and forever discharge the United States and its agencies {including the IRS), and its employees, attorneys, representatives, advisors and agents from any and all past, present and future claims or causes of action (including any suit, petition, demand, or other claim in law, equity or arbitration) and fiom any and all allegations of liability or damages (including any allegation of duties, debts, reckonings, contracts, controversies, agreements, promises, damages, responsibilities, covenants, or accounts), of whatever kind, nature or description, direct or indirect, in law, equity or arbitration, absolute or contingent, in tort, contract, statutory liability or otherwise, based on strict liability, negligence, gross negligence, fraud, breach of fiduciary duty or otherwise (including attorneys' fees, costs or disbursements), known or unknown, that are, have been, could have been or might in the future be asserted by the Trustee against the United States or the IRS and that are based on, arise out of or relate in any way to any Payments allegedly made on behalf of Foreign Accountholders by BLMIS pursuant to the requirements of sections 1441 and 1442 of the Code, The release contained herein shall become effective upon the Trustee's actual receipt of the Settlement Payment without any further action by any of the Parties or the Bankruptcy Court.

Reserve of Settlement Pa ment b Trustee.Upon payment of the Settlement

Payment by the United States to the Trustee, One Hundred and Two Million, Nine Hundred and Ninety-Three Thousand, Seven Hundred and Twenty-Nine United States Dollars and Twenty­ One Cents ($102,993,729.21) of the Settlement Payment {the "Reserve" ) shall be set aside by the Trustee for the purpose of satisfying any potential administrative decisions, settlements or judgments against the IRS, the United States or the Trustee that have been or may hereaAer be entered with respect to any Payments; provided however, that the Reserve shall not be available to satisfy any Excepted Claims, as defined in paragraph 5 hereof, On the date that is two years and sixty days from the Settlement Approval Date, the Trustee may release for distribution to BLMIS customers the balance of the Reserve, provided however, that to the extent that on such date there exists any pending claim(s) or actions(s) with respect to the Payments, either administratively or judicially, an amount sufficient to satisfy such pending claims or actions shall continue to be maintained in the Reserve. At such tune, the Trustee will confer with the United States to determine the appropriate amount, if any, for any continuing Reserve. The remaining

4,

balance of the Reserve, if any, will be available for distribution to BLMIS customers only after the final resolution of all such pending claims and actions with respect to the Payments.

5. Cha nnelin In'unction,The Trustee shall seek, and this Agreement shall be

contingent upon, the issuance of a final and non-appealable order by the Bankmptcy Court that approves this Agreement (the "Order" ) and meets the conditions set forth in this paragraph, Specifically, such Order shall contain a provision permanently enjoining any person, including any Foreign Accountholder (including for the avoidance of doubt any Erroneously Paid Foreign Accountholder), and anyone acting on its behalf or in concert or participation with such Foreign Accountholder, from asserting any claim or action against the IRS, the United States or the Trustee which arises from or relates to any Payments allegedly made on behalf of a Foreign Accountholder by BLMIS pursuant to the requirements of Code sections 1441 and 1442; tsrovide1 however, that such injunction shall not bar claims or actions brought against the BLMIS estate by creditors or against the SIPA customer fund as customers, provided that such creditors or customers filed claims in the SIPA Proceeding prior to the statutorily mandated claims bai. date (the "Exce ted Claims" ). Moreover, nothing herein affects the H.ghts and defenses of any of the Foreign Accountholders, including the Erroneously Paid Foreign Accountholders, presently engaged in litigation with the Trustee. The Order shall further provide that, to the extent that the foregoing provisions of the Order are held to be invalid or inapplicable or unenforceable against any Foreign Accountholder, including the Erroneously Paid Foreign Accountholders, and a court permits an action to proceed with respect to Payments other than an Excepted Claim, any such Foreign Accountholder seeking to assert a claim arising fiom or relating to Payments shall assert any such claim in the Bankruptcy Court against the Trustee, and not against the United States or the IRS because pursuant to this Agreement the United States is remitting funds to the Trustee (with the exception of the amounts paid previously to Erroneously Paid Foreign Accoimtholders). Further, the Order shall provide that if, notwithstanding the foregoing provisions of the Order, the United States or the IRS is nonetheless rendered or adjudged liable to any person or entity, including any Foreign Accountholder, in respect of any claims or actions arising from or relating to Payments allegedly made on behalf of a Foreign Accountholder by BLMIS pursuant to Code sections 1441 and 1442, whether by a final and non-appealable order, judgment, settlement agreement or otherwise, such liability shall be satisfied by the Trustee from the Reserve, provided however, that the United States will not accept an offer to settle any claim that will then be payable from the Reserve without first meeting and conferring with the Trustee. The Trustee shall provide the United States with a proposed form of the Order, which shall be subject to the United States' reasonable approval.

6.

Ban kru tc C o urt A

roy al

E f f ective Date' Termination Reversal on

Appeal. This Agreement is subject to, and shall become effective and binding on the Parties upon the Order becoming final and non-appealable. The date that the Order becomes final and non-appealable shall be referred to herein as the "Settlement Approval Date." For purposes of this Agreement, the Order shall be considered "final and non-appealable" when (a) the time to appeal the Order has expired, or (b) if any appeal has been taken, any and all such appeals have been fully and finally resolved without material modification of the Order, The Trustee shall use his reasonable best efforts to obtain approval of such Order as promptly as practicable after fhe date of this Agreement. The Trustee shall provide the United States with a draft of any motion to

the Bankruptcy Court for approval of this Agreement, which shall be subject to the United

States' reasonable approval, If this Agreement does not become effective {a) this Agreement (other than this paragraph) shall terminate and be null and void for all purposes, (b) all of the statements, consents and agreements contained in fhe Agreement {other than this paragraph) shall terminate and be null and void, and (c) neither the Trustee nor the United States may use or rely on any such statement, consent, or agreement in any public statement or litigation involving the SIPA Proceeding, any case or proceeding relating to the SIPA Proceeding or any case or proceeding relating to BLMIS or Madoff.

7. ~Coo eration.The Trustee and the United States agree to reasonably cooperate

in connectioii with enforcing this Agreement and the Order to extinguish any claims that may be asserted in violation of the Order,

8. Aut hority.The Department of Justice signatory represents and warrants to the

Trustee as of the date hereof that she has the full power, authority and legal right to execute and deliver, and to perform the obligations under, this Agreement and has taken all necessary action to authorize the execution and delivery of, and the performance of the obligations under, this Agreement,

9. Fur ther Assurances.The Trustee and the United States shall execute and

deliver any docmnent or instrument reasonably requested by any of them after the date of this Agreement to effectuate the intent of this Agreement.

10. Ent ire A reement. This Agreement constitutes the entire agreement and

understanding between the Parties concerning the subject matter hereof, and supersedes all prior agreements, representations and understandings concerning the subject matter hereof.

11. Ame ndments Waiver.This Agreement may not be terminated, amended or

modified in any way except in a writing signed by the Parties, No waiver of any provision of this Agreement shall be deemed to constitute a waiver of any other provision hereof, whether or not similar, nor shall such waiver constitute a continuing waiver.

12. ~Assi abilit. No

Party hereto may assign its rights under this Agreement

without the prior written consent of the other Party hereto,

13. Su ccessors Bound.This Agreement shall be binding upon and inure to the

benefit of each of the Parties and to the Trustee's successors and permitted assigns.

14,

No T hird P B

ene fici

. T h eParties do not intend to confer any benefit

by or under this Agreement upon any person or entity other than the Parties hereto and their respective successors and permitted assigns.

d

i

»

'

i

«

' d'

to this Agreement shall be governed and construed in accordance with federal common law, the

Code, the Bankruptcy Code and SIPA, to the extent state law applies, then in accordance with

the laws of the State of New York {without regard to the principles of conflicts of law thereof). Each Patty hereby waives on behalf of itself and its successors and assigns any and all right to argue that the choice of New York law provision is or has become unreasonable in any legal proceeding.

16.

Ex c lusive Jurisdiction.The Parties agree that any action relating in any way

to this Agreement must be brought only in the Bankruptcy Cont, to the extent that Court has jurisdiction. No one shall bring, institute, prosecute or maintain any action pertaining in any way to this Agreement in any court other than the Bankruptcy Court, To the extent that any one maintains that the Banlvuptcy Court lacks jurisdiction, that dispute must be heard, in the first instance, by the Bankruptcy Court.

17. Ca t ions and Rules of Construction. The captions in this Agreement are

inserted only as a matter of convenience and for reference and do not define, limit or describe the scope of this Agreement or the scope or content of any of its provisions. Any reference in this Agreement to a paragraph is to a paragraph of this Agreement. "Includes" and "including" are not limiting,

18. Co unte arts E l ectronic Co

of

Si na t ures.

Thi s A g reement and

attachments may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same document. The Parties may evidence their execution of this Agreement by delivery to the other Patties of scanned or faxed copies of their signatures, with the same effect as the delivery of an original signature.

19. Not ices. Any notices under this Agreement shall be in writing, shall be

effective when received and may be delivered only by hand, by overnight delivery service, by fax or by electronic transmission to:

If to the Trustee:

Irving H. Picard Baker k Hostetler LLP

45 Rockefeller Center, Suite 1100

New York, NY 10111

Fax: (212) 589-4201

Email: ipicard@bakerlaw,corn

with a copy to:

Elizabeth A, Smith

Baker k Hostetler LLP

45 Rockefeller Center, Suite 1100

New York, NY 10111 Fax: (212} 589-4201 Email; esmith@bakerlaw,corn

If to the IRS:

Jeannette Vargas

Chief, Tax k, Bankruptcy Unit Office of the United States Attorney

for the Southern District of New York

86

New York, NY 10007 Fax: (212) 637-2686 Email: Jeannette. Var gas@usdoj. gov

Chambers Street, Third Floor

fSignature page foltows]

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written,

Sworn and subscribed before me this

Not

llc

SPtAYA M.GRAHAM

H.~ta;; '«>. '"ioiio, otGR65832$4 State of New York

Q>ga',ilia;!ir< Aaatchaatar

QA1llll'iSiofl EX@i%a: 9It2I20~

The Trustee for the liquidation proceedings of Bernard L. Nadoff Investment Securities LLC and the substantively consolidated bankruptcy case of Bernard L, Madoff

By: IRVING H. PICARD Trustee

PREET BHA1V~ United States Attorney ' Attorney for the United States of America

Sworn and subscribed before me this

g2nh dayof .:

0

be/

, 2011,

JE TTE A , VARGAS Assistant United States Attorney 86 Chamber's Street, Third Flo'or New York, NY 10007

Tel: (212) 637-2678 Fax', (212) 637-2686

E-mail:jeannette.vargas@usdoj.gov

Notary Public

DAVID FARBER, BIOTA'RY No. PUBLIC, 01 FA6214554 State of New York Quelled in New York County Cornrnission Expires Deo. 14, 2OS3. „

EXHIBIT C

[PAGE INTENTIONALLY LEFT BLANK]

ASCOT FUND LTD

CITCO GLOBAL CUSTODY N V FBO FAIRFIELD SENTRY LTD

PHYLLIS GUENZBURGER & FABIAN GUENZBURGER J/T WROS

HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT LAGOON INVSMNT

MAYFAIR COPORATION

ORCONSULT

THE YESHAYA HOROWITZ ASSOC

BRIDGEWATER PENSION TSTEES & A MARSHAL AS TRUSTEES PATHFINDER PRIVATE PENSION

GINCO ASSURANCE CO LTD

CITCO GLOBAL CUSTODY N V FBO FAIRFIELD SENTRY LTD

SG HAMBROS BANK & TRUST BAHAMAS LIMITED

GAURO & MARIA PIA BONAVIA JT WROS ITF CLAUDIA & ARIANA AVDA

MARGARETHA DECLERK KATHELYNE RABAEY JT/WROS

JENNIFER PRIESTLEY

KINGATE GLOBAL FUND LTD

IMPACT DESIGNS LIMITED

P B ROBCO INC

ROBERT PINCHOU & FABIAN GUENZBURGER J/T WROS

FARBER INVESTMENTS INC

PERRY FINANCE INC

CLAUDIO ROBERTO ZAGO OR RAYMOND P MC CARTHY OR UVANA TODA

GEO CURRENCIES LTD S A

ALLEN GOULD HOLDINGS INC MILDRED GOULD HOLDINGS INC BEN GOULD HOLDINGS, INC T/I/C

REDEMPTORIST FATHERS OF SAN JUAN INC

ZIN INVESTMENTS LTD

KINGATE EURO FUND LTD

FINANCIERE AGACHE

OPTIMAL MULTIADVISORS LTD

HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FOR PRIMEO FUND CLASS B

TELFORD LIMITED

HARLEY INTERNATIONAL FUND LTD THE BANK OF BERMUDA LIMITED HAMILTON, SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUST OF BERMUDA TST (DUBLIN) LTD, F/B/0 THEMA

PASIFIN CO INC

PLAZA INVESTMENTS INT'L

THE MIZAR FUND

LEISURE ENTERPRISES INC

OPTIMAL MULTIADVISORS LTD

ASSOCIADOS INVESTIMENTO LTD

RYE SELECT BROAD MARKET INSURANCE PORTFOLIO LDC

HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT LAGOON INVSMNT

JORGE BESSOUDO & KAREN BESSOUDO

PATRICIA BESSOUDO

TURRET CORPORATION

HCM WEBER IRON RESERVES LIMITED

CORONADO S A

ROBERT S EDMONDS

SEAPORT INTERNATIONAL CORP HUNTER DOUGLAS INTL NV FRITS W VAN DER GREFT

151797 CANADA INC

BELL VENTURES LIMITED

WHITECHAPEL MANAGEMENT LTD BNP PARIBAS SECURITIES SERVICE

DIANE WILSON

BNP PARIBAS SECURITIES SERVICE

ISADEX INC

EASTSIDE INVESTMENTS LIMITED SIENNA PARTNERSHIP LP

TRIANGLE DIVERSIFIED INVESTMTS

HAROLD L WATERMAN, GREVILLE WATERMAN, JANIS PASKIN JT/WROS

TROTANOY INVESTMENT CO LTD ANNA MARIA ASSUMPCAO

MASHANDA LIMITED

SQUARE ONE FUND LTD

GMR HCM WEBER P2

SOCIETE IMMOBILIERE HERBERT SA

SKYEWEST LIMITED

CHELA LTD 01 CHELA LTD 82

CATHARIJNE INVESTMENTS CV

GENESIS ENDOWMENT

OPTIMA LIMITED PARTNERSHIP LEXUS WORLDWIDE LTD

LADY EVELYN F JACOBS

ENFASIS INVEST S A

THYBO ASSET MANAGEMENT LTD

ARIEL FUND LTD LEGACY CAPITAL LIMITED

NONA INTERNATIONAL LIMITED

ZEST ASIA PACIFIC LIMITED

KESAGAMI LIMITED CHONG HON CHAR

BRIDGEWATER PENSION TSTEES LTD

BRIDGEWATER PENSION TSTEES LTD

EB TTEES LIMITED MADO 1/1/5/JP

RYE SELECT BROAD MARKET PORTFOLIO LIMITED

HALLEY INVEST

BANQUE JACOB SAFRA (GIBRALTAR) LIMITED AS CUSTODIAN FOR VISCAYA PARTNERS LIMITED

A B DAVIS LTD DISCRETIONARY PENSION MR k MRS ALFRED D CHAPLIN

MOUNT CAPITAL LIMITED

SAPPHIRE TRUSTEE LIMITED P2

WHITE ORCHARD INVESTMENTS LTD

ARGAU INC

PALMA HOLDINGS LTD

SWAY TRUSTEES (2002) LTD

SARAN INTERNATIONAL LIMITED HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FOR THEMA WISE INVESTMENTS LTD

M-INVEST LIMITED

EB TRUSTEES LIMITED RE MADO 1/1/5 /TM

GROUPEMENT FINANCIER LTD

HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FOR ALPHA PRIME FUND LIMITED

ALICIA HERNANDEZ DE BARRON

PERINVEST MARKET NEUTRAL FUND LIMITED

RADCLIFF INVESTMENTS LTD FIVE CONTINENTS FINANCIAL LTD

BEATRIZ EUGENIA HERNANDEZ DE ALMEIDA

BAZELON INVESTMENTS LTD

LINA INVESTMENT SA

GEORGINA M G HERNANDEZ GALLEGO

THYBO GLOBAL FUND LIMITED

GRANADILLA HOLDINGS LIMITED

UBS (LUXEMBOURG) SA FBO LUXALPHA SICAV HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FOR HERALD FUND SPC-HERALD USA

RESTAURANT EQUIPMENT DIST INC

ATA RANGI HOLDINGS LIMITED

WAIPARA HOLDINGS LIMITED

THYBO RETURN FUND

RHINELAND INTL LTD "A"

RHINELAND INTL LTD "B"

SOUTHEY INTERNATIONAL LTD

MEGA DEVELOPMENTS LTD

HEBRON LTD

CARDINAL MANAGEMENT INC

FIXBAR CORPORATION

ONESCO INTERNATIONAL LTD

UBS (LUXEMBOURG) SA FBO LUXEMBOURG INVESTMENT FUND US EQUITY PLUS

EQUITY TRADING PORTFOLIO LTD

CITRUS INVESTMENT HOLDINGS LTD

BANQUE SYZ & CO SA

NANTUCKET VENTURES LIMITED

HSBC SECURITIES SERVICES LUXEMBOURG SA SPEC CUST ACCT FOR SENATOR FUND SPC

THYBO STABLE FUND LTD

PROVENCE MGNMNT II STICHTING

STONY BROOK INVESTMENTS LTD

DEFENDER LIMITED HSBC INSTITUTIONAL TRUST SVCS(IRELAND) LTD FBO LANDMARK INVESTMENT FUND IRELAND SUBFUND OF GI (GLOBAL INVMTS)

NINE THIRTY MONT-BLANC INVESTMENTS LP HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FBO HERALD (LUX) US ABSOLUTE RETURN FUND (SICAV)

TECHNION ISRAEL INSTITUTE OF TECHNOLOGY

SAVEST LTD

CLIVEDEN CAPITAL LIMITED

BENOUVILLE FINANCES LTD

LORD ANTHONY JACOBS

AMAZONIA TODA TANG AND/OR UVANA TODA J/T WROS

MONTBARRY INC

-4­

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION,

Plaintiff-Applicant,

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

In re;

Defendant.

BERNARD L. MADOFF,

Debtor.

Adv. Pro. No. 08-1789 (BRL)

SIPA Liquidation

(Substantively Consolidated)

AFFIDAVIT IN SUPPORT OF TRUSTEE'S MOTION FOR ENTRY OF AN ORDER PURSUANT TO SECTION 105(a)OF THK BANKRUPTCY CODE AND RULES 2002 AND 9019 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE APPROVING AN AGRKEMKNT BY AND BETWEEN THE TRUSTEE AND UNITED STATES OF AMERICA ON BEHALF OF THE INTERNAL REVENUE SERVICE

STATE OF NEW YORK

)

) ss:

COUNTY OF NEW YORK )

Irving H, Picard, being duly sworn, hereby attests as follows;

1. I

am the t rustee for the liquidation of the business of Bernard L, Madoff

Investment Securities LLC ("BLMIS") under the Securities Investor Protection Act, 15 U,S,C.

$$ 78aaa et seq. ("SIPA"), and the substantively consolidated estate of Bernard L. Madoff

("Madoff," and together with BLMIS, the "Debtors" ). I respectfully submit this Affidavit in

support of the motion (the "Motion" ) seeking entry of an order, pursuant to section 105(a) of the

United States Bankruptcy Code, 11 U.S.C. $$ 101 et seq., and Rules 2002 and 9019 of the

Federal Rules of

B ankruptcy Procedure, (i) approving an agreement (the "Settlement

Agreement" ) by and among the Trustee, on the one hand, and the United States of America

(collectively, with its agencies, offices and employees, the "United States" ), on behalf of the

Internal Revenue Service (the "IRS"), on the other hand, and (ii) enjoining customers and

creditors of BLMIS, who filed or could have filed claims in the BLMIS SIPA proceeding, from

pursuing certain claims against the United States and the IRS.

2. I

make t h i s A f fidavit based upon my own personal

information that I believe to be true.

knowledge or upon

3. A ll c a pitalized terms not defined herein have the meaning ascribed to them in the

Settlement Agreement.

4. Duri n g the course of my investigation into BLMIS' dealings, certain payments

were identified as having been made by BLMIS or Madoff to the IRS, purportedly on behalf of

certain foreign accountholders (the "Foreign Accountholders"), allegedly pursuant to the

requirements of sections 1441 and 1442 of

the Internal Revenue Code (the "IRC"), as

withholding taxes on income supposedly earned on the Foreign Accountholders' accounts (the

"Payments" ),

5. The P ayments were made on behalf of 145 Foreign Accountholders and totaled

approximately $330 million. The Payments were reported as federal income tax withholding

relating to dividends allegedly paid to the accounts of the Foreign Accountholders.

6,

My inv estigation has revealed that there is no record of BLMIS having purchased

or sold any securities for the benefit of the Foreign Accountholders, nor is there any record of

any dividends actually having been paid with respect to accounts in the names of the Foreign

Accountholders. I believe that the Payments made to the IRS falsely identified the funds as

income tax withholding in order to give the investment advisory arm of BLMIS an air of

legitimacy and to avoid inquiries. In furtherance of his Ponzi scheme, Madoff annually filed

Forms 1042, "Annual Withholding Tax Return for the United States Source Income of Foreign

Persons," falsely reporting millions of dollars as "taxes" withheld and paid to the IRS for the

years prior to 2008. A

sample of some of the Forms 1042 filed by Madoff or BLMIS are

annexed hereto collectively as Exhibit "A".

7,

I bel i eve that the terms of the Settlement Agreement fall well above the lowest

point in the range of reasonableness and, accordingly, should be approved by this Court.

Pursuant to the terms of the Settlement Agreement, the IRS will pay approximately $326 million

(the "Settlement Payment" ) to the Trustee of the approximately $330 million transferred from

BLMIS or Madoff to the IRS, The IRS refunded previously two of the Foreign Accountholders

$4,224,884,10. Thus, the Trustee will recover for the benefit of the fund of customer property

(the "Customer Fund" ) the net amount of the Payments, without the need for protracted and

uncertain litigation. I will credit each Foreign Accountholders' account (with the exception of

the two Foreign Accountholders which received refunds previously from the IRS) for each

transfer that was made and will adjust the account balance as of the date of each specific transfer.

Utilizing this methodology, five Foreign Accountholders which previously were "net winners"

will become break even Foreign Accountholders, One Foreign Accountholder changes from a

"net winner" to a "net loser," This Foreign Accountholder has not filed a claim.

8. The Settlement Agreement furthers the interests of customers with allowed claims

by adding a substantial amount of money to the Customer Fund, Specifically, the Customer

Fund will be enhanced by approximately $326 million, the net amount of tax withholding for the

six-year period up to and including December 11, 2008.

9.

Give nthe potential expenditure of time, cost, complexities and litigation risk that

would be involved in proceeding with any litigation against the United States and/or IRS, I have

determined, in my

b usiness judgment, that the Settlement Agreement represents a fair

compromise of the Debtors' claims against the United States and IRS,

10.

I

am

s eeking the issuance of a channeling injunction because I have been

informed that the United States will not enter into the Settlement Agreement, or make the

Settlement Payment, in the absence of a channeling injunction. Additionally, I believe that the

entry of a channeling injunction substantially in the form of the injunction contained in the

proposed Order being submitted contemporaneously with the Motion is appropriate. I will be

recovering the vast majority of the amount of the Payments and it would be unjust to potentially

expose the United States to claims and double payments when the United States will be remitting

the entire net amount of the Payments (that is, the total payments minus approximately $4

million that was erroneously paid to two Foreign Accountholders as refunds) to me for the

benefit of the Customer Fund, Therefore, I will obtain control over the funds that could be the

subject of any future refund action by a Foreign Accountholder,

11.

In s um, I respectfully submit that the Settlement Agreement should be approved

(a) to avoid lengthy and burdensome litigation and (b) because the Settlement Agreement

represents a reasonable compromise.

Sworn to and subscribed before me this day of November, 2011

Nota

u lic

SONYA M. GRAHAM Notary Public, State of New York No. 01GRB133214

Qualifieci inWestchester Gouge

Commission Expires: 9/12/20M

Trustee for the SIPA liquidation proceeding of Bernard L. Madoff Investment Securities LLC and the substantively consolidated bankruptcy case of Bernard L. Madoff

IRVING H. P

RD, Trustee

[PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT A

[PAGE INTENTIONALLY LEFT BLANK]

,

1042

Depeitment cf ths Treasury

internal Revenue Service

Annual VIithholding Tax Return for

U.S. Source Income of Foreign Persons

k See instructions.

aMa Nc, t sea.cosa

If this is an amended return, check here .

Name of withholding agent

Bernard L. Madoff

Number, street, and room or suits no, (if a p,o. box, sea instructions)

885 Third Avenue

City or town, province or state, and county

New York, NY 10022

(Including postal code)

Employer Idsntlfica'tlon number

13-1997126

FD

RD

FF

CAF

FP

CR

EDC

SIC

if you will not be liable for returns in the future, check here W

Check here if you made quarter-monthly deposits using the 90sv( rule (see Deposit Requirements in the instructions)

Check if you are a: Ql/Withholding foreign partnership oi' trust Record of Federal Tax Liabili

Ente rdate final income paidW

NQI/F low-through entity

(See instructions.)

D onot show federal tax de osits here.

Tax liability for period

(Including any taxes assumed

on Form s 1000

Line

No.

3,650t797,50

3J650,797.50

42

43

45

46

5,263,106,62 47

48

36 49

482,843.

5,745,949. 98

50

51

2,029,307,81

2,029,307,81

32.09

32.09

55

56

60

b On paper .

Period

ending

Sept.

7

15

22

30

Sept. total

Oct.

7

31

Oct. total

7

15

Nov.

22

30

Nov, total

Dec.

22

Dec. total

Tax liability for period

(Including any taxes assumed

on Farms 1000

Tax liability for period

Uns

No.

I

2

34

Periad

ending

Jan.

Uns

No,

Period

ending

7

15

22

31

May total

7

15

June

30

June total

7

15

July

22

31

Jul tot al

7

15

Aug.

22

31

(including any taxes assumed

on Form s 1000

31840,058.71

3,840,058.71

2,989,060.09

2,989t06 .OS

69,730,89

69,730.89

3,633,789,79

3 633 789 79

30t4 83 466 02

30,483,466.02

7

15

22

31

23

598,1 09.40 24

25

Jan. total

7

15

598,109.40

2,929,393.82

2,929,393.82

4,686,602.94

4,686,602.94

31

31 0,633.00

6789 Feb.

29

10 Feb. total

Mar

7

15

22

31

15 Mar. total

16

17

18

19

20 A r. total

7

15

22

30

Apr.

30

32

33

34

35

37

38

0,633.00 39

40 Au . total

.

aid

16 c Electr onically

61 No, of Forms 1042-S filed: a On magnetic media

62 For all Form s 1042-S and 1000; a Gross income

103,777t783.83 b Taxes withheld or assumed

63a

30 483 466 02 Pgv4

63c

63a Total tax liability (add monthly total lines from above) .

b Adjustments (see instructions)

c Total net tax liability (combine lines 63a and 63b) .

64

Total paid by federal tax deposit coupons or by electronic funds

transfer (or with a request for an extension of time to file) for 2004

65

Enter overpayment applied as a credit from 2003 Form 1042 .

66

Credit for amounts withheld by other withholding agents (see inst.)

67

Total payments. Add lines 64 through 66

68

If line 63c is larger than line 67, enter balance due here

64

30,483,466. 02

67

68

30,483,466,02

69 If line 67 is larger than line 63c, enter overpayment here

70

70 Penalty for failure to deposit tax when due. Also include on line 68 or line 69 (see instructions)
71

Third Party

Apply overpayment on line 69 to (check one): Credit on 2005 Form 1042 or

R e fund

c. 'Hi+r-N~~.4v,trav.'?i&%,. '4, i

N o

D o ycu want to allow another person to discuss this return with the IRS (see page 4)?

Designee' s

n

e

signature

Preparer'sg

signature

Firm's name (or

yours If self-employed),

address, and ZIP code r

Phone

no.

Date

Data

n

Ca acit

Yes. Complete the following. Personal id entification

IN

in which actin

Preparer's SSN or PTIN

EIN W

Phone no.

Designee

Sign

Here

Underpsnaltiss of pail uiy, I declare that I have examined this return, includin accampanylng schedules and statsrnsnls, and to the best of my knowledge and belief, it is true, correc,tand complete. Declaration of preparer (othsr than witlhoidittg agent) is based oh all infotmation of whichpreparer has a ny knowledge.

Your

Daytime phone number I

Check if

self-employedS

Paid

Preparer's

Use Only

For Privacy Act and Paperwork Reduction Act Notice, seo the instructions.

Cat, No. 11384V

Farm 1042 (2004)

Form 1042 (2004)

Paao ~!

General Instructions

Section references are to the Internal

Revenue Code unless otherwise noted.

agreements, see Rev, Proc. 2003-64, use anyone else's coupons. If you do not

which is on page 306 of internal Revenue

Bulletin 2003-32 at www,irs.govlpublirs­

irbslirb03-32. pdf.

An NQI

have your coupons when a deposit is due,

call 1-800-829-4933, if you are in the

United States. If overseas, call 215-516-2000 (not a toil-free number) from

6:00 a,m. to 2:00 a.m. Eastern time. You

may also contact your local IRS office. To

avoid a penalty, do not mail your deposits

directly to the IRS.

The amount of tax you are required to

withhold determines the frequency of your

deposits, The following rules explain how

often deposits must be made.

1. If at the end of any quarter-monthly

period the total amount of undeposited

taxes is $2,000 or more, you must deposit the taxes within 3 bank ng days after the

end of the quarter-monthly period, (A quarter-monthly period ends on the 7th,

15th, 22nd, and last day of the month.) To

determine banking day., do not count

Saturdays, Sundays, legal holidays, or any

local holidays observed by authorized financial institutions.

This deposit rule is considered met if:

+ You deposit at least 90'ro of the actual

tax liability for the deposit period, and

r lf the quarter-monthly period is in a

month other than December, you deposit

any underpayment with your first deposit that is required to be made after the 15th

day of the following month. Any

underpayment of $200 or more for a

quarter-monthly period ending in

December must be deposited by

January 31.

2. If at the end of any month the total amount of undeposited taxes is at least

$200 but less than $2,000, you must

deposit the taxes within 15 days after the

end of the month. If you make a deposit of $2,000 or more during any month except

December under rule 1 above, carry over

any end-of-the-month balance of less than

$2,000 to the next month, If you make a

deposit of $2,000 or more during

December, any end-of-December balance

of less than $2,000 should be paid directly

to the IRS along with your Form 1042 by

March 15, 2005.

3. If at the end of a calendar year the

total amount of undeposited taxes is less

than $200, you may either pay the taxes with your Form 1042 or deposit the entire amount by March 15, 2005.

Note. If you are requesting an extension of

time to file using Form 2758, follow the rules on this page to see if you must make

a deposit of any balance due or if you can

pay it with Form 2758. See Form 2758 and its instructions for more information.

Electronic deposit requirement. You

must make electronic deoosits of all

depository tax liabilities using the

Electronic Federal Tax Payment System

(EFTPS) in 2005 if:

o The total deposits of such taxes in 2003 were more than $200,000, or

You were required to use EFTPS in

Purpose of Form

Use Form 1042 to report tax

Nonqualified Intermediary {NQI),

is any intermediary that is not a U.S.

person and that is not a Ql,

withheld on

foreign

certain income of foreign persons,

including nonresident aliens,

partnerships, foreign corporations, foreign

estates, and foreign trusts.

Where and When To File

File Form 1042 with the Internal Revenue Service Center, Philadelphia, PA

19255-0607, by March 15, 2005. Also send

amended returns to this address. Use

Who Must File

Every withholding agent or intermediary

Form

1042-S,

1042-T to transmit paper Forms

(see definitions below) who receives,

controls, has custody of, disposes of, or

pays any fixed or determinable

periodical income must file an annual

return for

Extension of time to file. If you need

may

annual or

more time to file Form 1042, you

submit Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns.

the preceding calendar year on

Form 1042.

You must file Form 1042 if either of the

following apply.

You are required to file Form(s) 1042-S

(whether or not any tax was withheld or

was required to be withheld). File

1042 even if you file Forms 1042-S electr'onicaljy or on magnetic media. o You pay gross investment income to

foreign private foundations that are subject

to tax under section 4948{a).

Withholding Agent

Any person required to withhold tax is a

withholding agent. A withholding agent

Form

may be an individual, trust, estate,

partnership, corporation, government

agency, association, or tax-exempt

foundation, whether domestic or foreign,

liable

Intermediary

An intermediary is a person who acts as a custodian, broker, nominee,or otherwise

as an agent for another person, regardless

of whether that other person is the

beneficial owner of the amount paid, a

flow-through entity, or another intermediary. Qualified intermediary (Ql). A Ql is an

intermediary that is a party to a withholding

agreement with the IRS, An entity must

indicate its status as a Ql on a Form

W-8IMY submitted to a withholding agent.

For information on a Ql withholding

agreement, see Rev. Proc, 2000-12, which

Is on page 387 of Internal Revenue

2000-4 at www.irs.govfpublirs­

Bulletin

irbsfirb00-04.pdf.

Form 2758 does not extend the time for

payment of tax.

Additional information

For details on withholding of tax, see Pub.

515, Withholding of Tax on Nonresident

Aliens and Foreign Entities. You can

Pub. 515 by calling 1-800-TAX-FORM

(1-800-829-3676) or by downloading it

from the IRS website at www,irs.gov.

Income Tax Withholding on Wages, Pensions, Annuities, and Certain Other Deferred Income

get

Use Form 941, Employer's Quarterly

Federal Tax Return, to report income tax

withheld and social security and Medicare

taxes on

wages paid to a nonresident alien

employee,

Withhold Federal Income Tax, to report

income tax withheld under section 3405

from pensions, annuities, and certain other

deferred income paid to a nonresident

alien individual. However, if the recipient

has elected under section 3405(a)(2) or

(b)(2) not to.have withholding under section

3405, these payments are subject to

withholding under section 1441 and the tax

withheld must be reported using Forms

'I042 and 1042-S.

Use Schedule H (Form 1040), Household

Employment Taxes, to report income tax

withheld and social security and

taxes on wages paid to a nonresident alien

household employee.

For more information, see the instructions for these forms.

Medicare

Generally, if you are not required to use

Payment

the tax

Every person required to deduct

and withhold any fax under

Chapter 3 of the Code is

for such fax. See section 1461. Use Form 945, Annual Return of

Withholding foreign partnership plVP) or Deposit Requirements

withholding foreign trust {WT). A WP or

WT is a foreign partnership or trust that the Electronic Federal Tax

has entered into a withholding agreement

with the IRS in which it agrees to assume

System (EFTPS), you must deposit

withheld and required to be shown on Form 1042 with an authorized financial institution using your preprinted Form

8109, Federal Tax Deposit Coupon. Do not 2004.

primary withholding responsibility for all

payments that are made to it for its

partners, beneficiaries, or

information on these withholding

owners. For

Form 10'42 (2004)

page 3

If you are required to use EFTPS and fail

Late filing of Farm 1042. The penalty for

to do so, you may be subject to a 10%

not filing Form 1042 when due

(including

penalty. If you are not required to use

EFTPS, you may participate voluntarily. To each month or part

enroll in or get more information about

EFTPS, call 1-800-555-4477 or

1-800-945-8400. You can also visit the

EFTPS website at www.eftps.gov.

extensions) is 5% of the unpaid tax for

of a month the return

is late, up to a maximum of 25% of the

unpaid tax.

Late payment of tax. The penalty for not

paying tax when due is usually '/~ of 1% of

Depositing on time. For deposits made

by EFTPS to be on time, you must initiate the transaction at least one business day

before the date the deposit is due.

Completing Form 8109. If you do not use

EFTPS, deposit your income tax

using Form 8109. In most cases, you will

fill out a Form 8109 following the instructions in the coupon book, However,

if a deposit liability arises from a

distribution reportable on Form 1042 for

the prior year, darken the 4th quarter

payments

space on Form 8109. If the

reportable for the current year, darken the

1st quarter space. In all cases, follow the

coupon book instructions for completing

the rest of the deposit coupon. To ensure

proper crediting, write your taxpayer

identification number, the period to which

the tax deposit applies, and "Form 1042" on the check or money order.

distribution is

Deposits by foreign corporations. Fill in

a preprintod Form 8109 showing the

'Amount of Deposit" in U.S. dollars. Mail the completed coupon with a bank draft

U.S. dollars to:

in

Financial Agent

Federal Tax Deposit Pracessing

P,O, Box 970030

St. Louis, MO 63197 U.S.A,

the unpaid tax' for each month or part of a

month the tax is unpaid. The penalty

cannot exceed 25% .of the unpaid

tax.

Failure to deposit tax when due. See the

instructions for line 70 on page 4.

Other penalties. Penalties may be

imposed for negligence, substantial

understatement of tax, and fraud. See

' sections 6662 and 6663.

Specific Instructions

File only one Form 1042

consolidating ail Form 1042-S

recipient information, regardless

of the number of different

clients, branches, divisions, or types of income for which you are the w fhhoiding

agent. However, If you are acting in more

than one capacity (for exampie,you

acting as a Q'I for cerfain designated

accounts and as an AIQIfor other accounts), file a separate Form 1042 for

each capacity in whicii you are acting.

Rounding off to whole dollars. You may

round off cents to whole dollars. If you do

round to whole dollars, you must round all amounts. To round off amounts to the nearest whole dollar, drop amounts under

are

50 cents and increase amounts from 50 to

Interest and Penalties

99 cents to the next dollar. For example,

$L39 becomes $1 and $2.50 becomes

Ql and NQI checkboxes. See page 2 for definitions of intermediary, qualified intermediary (Qf), withholding foreign partnership (WP), withholding foreign trust

(WT), and nonqualified intermediary (NQI).

See the Form 1042-S instructions for

definitions of U.S, branch treated as a U.S. person and flow-through entity.

Check the "Ql/Withholding foreign

partnership or trust" box on page 1 if you

are a Ql, WP, WT, or a U.S. brancti trealed

as a U.S. person. Check the

"NQI/Flow-through entity" box if you are an

NQI or a flow-through entity.

Lines 1 through 60, Do not enter any

negative amounts on these lines.

If you are a QI that did not assume

primary withholding responsibility, enter the

total amount withheld by the U.S.

withholding agent(s) on line 59, Report all other amounts (that is, amounts you

actually withheld) on the line that

corresponds with the date the!iability was

incurrecf,

Lines 62a and 62b. Enter the amounts

requested with respect to all Forms 'l042-S (regardless of whether the form was filed

electronically, on magnetic media, or on paper) and with respect to all Forms 1000,

Own'ership Certificate.

Be sure ta reconcile amounts

on Form '1042 with amounts on .Forms 1042-8 (including Forms

1042-S fi7ed eiectronicaiiy and

on magnetic media), to avoid unnecessary correspondence with the IRS.

Line 62a. The amount on line 62a should

equal the sum of all amounts shown on

Forms l042-S, box 2, and all amounts

shown as gross interest paid on Forms

If you file Form 1042 late, or fail to pay or $3. If you have to add two or more 1000.

deposit the tax when due, you may be

liable for penalties and interest unless you

can show that the failure to file or pay

due to reasonable cause and not willful

neglect.

amounts to figure the amount to enter on

a line, include cents when adding and

only round off the total. Employer identification number (EIN).

You are generally required to enter your EIN. However, if you are filing Form 1042

as a Ql, withhalding foreign partner'ship, or

withholding foreign trust, enter your

WP-EIN, or WT-EIN. Also, be. sure to check

QI-EIN,

the "Ql/Withholding foreign partnership

trust" box. See QI and NQI checkboxes

below.

If you do not have an EIN, you can apply for one online atwww.irs.gov/smalfbiz or by

or

telephone at 1-800-829-4933. Also,.you file Form SS-4, Application for Employer

can

Identification Number, by fax or mail. File

corrected Farms 1042-S when you receive

your EIN.

To get a QI-EIN, WP-EIN, or WT-EIN,

application for

other

Line 62b. The amount on line 62b

should equal:

o The sum of all Form' 1042-S, box 7, less «The sum of all Form' 1042-S, box 8,

plus

The tax assumed fron1 Forms 1000.

If it does not, attach a statement to Form

1042 explaining the dif-erence.

Line 63a. The amount on line 63a must

equal the sum of the monthly totals as

listed on the Record of Federal Tax Liability. Do not make any adjustments on

this line. Except for adjustments described

in the instructions for line 63b, you may

only make adjustments on the appropriate

entry line of the Recorcl of Federal Tax

Liability.

Line 63b. If you are a regulated investment

company (RIC) or a real estate investment

trust (REIT) that paid a dividend in January

subject to section 852(b)(7) or section

857(b)(9) (relating to certain dividends declared in the preceding October, November, or December), enter yaur

additional tax liability on those dividends declared in 2004 but paid in January 2005

less any additional tax liability on those

dividends declared in 2003 bui paid in

was

You do not have to figure the

am ount ofanyinterest or

penaltiesyou may owe.

Because figuring these amounts

will do it for you if

T~p

can be cornPiictee, we

you want. yt/e will seno' you a bill for any amount due. If you include interest or penalties (other

than the penalty for failure to deposit tax

and

when due) with your payment, identify

enter the amount in the bottom

Form 1042, page 1. Do not include interest

or penalties (other than the penalty for

failure to deposit tax when due) in

balance due on line 68.

margin of

the

Interest, Interest is charged

on taxes not

paid by the due date, even

if an extension

of time to file is granted. Interest is also

charged on penalties imposed

file, negligence, fraud, and substantial

for failure to

understatements of tax from the

(including extensions) to the date of

payment. Interest is figured at

determined under section 6621.

due date

a rate

submit Form SS-4 with your. application for

that status. Do not send an

a QI-EIN, WP-EIN, or WT-EIN to the

Philadelphia Service Center; it will not be

processed.

Address. Include the suite, room, or

unit number afte. the street address. If

your post office does not deliver mail to

the street address and you have a P.O.

box, show the box number instead of the

street address. January 2004. Show any negative amount

Form 1042 (2004)

Page 4

In brackets. Attach a statement showing

your calculation.

Line 66. You are permitted to take a

credit for amounts withheld by other

withholding agents that pertain to the

total net tax liability reported on line 63c.

For example, you are a Ql

and 1he

amount you

amounts

entered on line 63c includes

withheld by a U.S. withholding

if you are a Ql requesting a

refund, you must attach the

corresponding Form(s) f 042-S

received fo support the

amount

claimed on line 66, Failure fo do so will

resultin the denial of the refund or credit being claimed.

Lines 69 and 71. You may claim an

overpayment shown on line 69 as a refund

or a credit. Check the applicable box on

line 71 to show which you are claiming. if you claim a credit, it can reduce your

required deposits of withheld tax for 2005.

Line 70. The penalty for failure to deposit tax applies to the amount underpaid when

the deposit was due. See Deposit

Requirements on page 2. The penalty rates

are 2% for deposits made 1 to 5 days late,

5% for deposits made 6 to 15 days late,

and 10% fot' deposits made 16 or more

days late, However, the penalty is 15% if

the tax is not deposited within 10 days

after the IRS issues the first notice

demanding payment. Add the penalty to

any tax due and enter the total on line

68,

return. Also, enter the name, phone

number, and any five numbers that the

designee chooses as his or her personal

identification number (PIN). The

to the tax form

upon which it appears.

By checking the "Yes" box, you are authorizing the IRS to call the designee to answer any questions relating to the

information reported on your tax return,

You are also authorizing the designee to;

authorization applies only

tax return with the IRS, and

e Request and receive written tax return

information relating to your tax return including copies of specific notices,

correspondence, and account transcripts.

You are not authorizing the designee to

receive any refund check, bind you to

anything (including additional tax liability),

or otherwise represent you before the If you want to expand the designee's

authorization, see Pub. 947, Practice

Before the IRS and Power of Attorney.

IRS.

The authorization automatically expires

Privacy Act and Paperwork Reduction

Act Notice. We ask for the information on

this form to carry out the Internal Revenue

laws of the United States. Sections 1441,

1442, and 1446 require withholding agents

to report and pay over to the IRS taxes withheld from certain U.S, source income

of foreign persons. Form 1042 is used to

report the amount of withholding that must

be paid over, Form 1042-S is used to report the amount of income and

withholding to the payee. Section 6109

requires you to provide your emoloyer

identification number. Routine uses of this information include giving it to the

Department of Justice for civil and criminal

litigation, and cities, states, and the District

of Columbia for use in administering their

tax laws. We may also disclose this

information to other countries under a tax treaty, to federal and slate agencies to enforce federal nontax criminal laws, or to

federai law enforcement and intelligence

agencies to combat terrorism. If you fail to

agent. You may take a credit on line 66

for the amounts that were withheld by

the U:S. withholding agent, Exchange information concerning your

provide this informatior in a timely manner,

you may be liable for penalties and

interest.

You are not required to provide the

information requested on a form that is

unless the form displays a valid OMB

control number. Books or records relating

to a form or its instructions must be

retained as long as their contents may

confidential, as required by section 6103.

one year from the due date (without regard

to extensions) for filing your 2004 Form

subject to the Paperwork Reduction Act

terminate the authorization, a written

statement conveying your wish to revoke

the authorization should be submitted to the IRS service center where the return

become material in the administration of Amended Return any Internal Revenue law. Generally, tax returns and return information are

If you have to make changes to your Form

was processed.

1042. If you or your designee desire to

If you are due a refund, subtract the

penalty from the overpayment you show on

line 69.

Becattse this penalty

calculation is complicated, if

you want to, you can leaveline

70 blank and the IRS will

figure tfte penalty and send you a bill. We

will not charge you interest on the penalty

if you pay by the date specified on the biK

Third Party Designee

1042 after you submit it, file an amended The time needed to complete and file

Form 1042. Use a Form 1042 for the year

you are amending, Check the "Amended

Return" box at the top of the form. You average time is; Recordkeeping, 9 hr., 48 must complete the entire form, including all min.; Learning about the law or the form,

these forms will vary depending on

individual circumstance

The estimated

filing information for the calendar year,

sign the return. Attach a statement explaining why you are filing an amended r