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

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

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

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

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

SIPA Liquidation

Plaintiff-Applicant,
(Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: BERNARD L. MADOFF, Debtor,

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, 1 5 U . S.C. $ $ 7 8aaa et s e q. ( " S IPA"), a nd t h e

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 o cal B a nkruptcy R u les an d G e neral O r ders ma y b e f o u n d a t 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) b e served upon Baker k H o s tetler 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: ~
Elyssa S. Kates

b bI

il: ~

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

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

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

David J, Sheehan Email: dsheehan bakerlaw.com Mare E. Hirschfield Email: mhirschfield b a kerlaw,com Elizabeth A. Smith '! ~ ih b I Elyssa S. Kates

4I
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, (Substantively Consolidated)

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

SIPA Liquidation

BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant, In re: BERNARD L. MADOFF, Debtor.

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 E H ONORABLE 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. M a doff ( " M adoff," and together with B L M IS, 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 f oreign account holders (the " F oreign A ccountholders") allegedly pursuant to the

requirements of sections 1441 and 1442 of the Internal Revenue Code of 1986 (the "Code" ). This settlement (the " IR S Settlement" ) will b r in g approximately $326 mi llion ( 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 e mber 11, 2008 (the " F iling D ate" ), th e 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). Th e complaint alleged that the Debtors engaged in fraud through investment advisory activities of BLMIS. 3. On De c ember 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 t d ate, the District Court entered the Protective Decree, to which

BLMIS consented, which, in pertinent part: (i) appo i nted 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 i nted Baker & Hostetler LLP as counsel to the Trustee pursuant to section 78eee(b)(3) of SIPA; and r e m o ved the case to this Court pursuant to section 78eee(b)(4) of SIPA.

(iii)

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. Madoff. O n On Apr i l 1 3 , 2009, an involuntary bankruptcy petition was filed against J une 9, 2009, this Court entered an order substantively consolidating the

Chapter 7 estate of Madoff into the BLMIS SIPA proceeding. 7. Purs u ant 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 B L M IS ' c ustomers in satisfaction of allowed customer claims, including through the recovery of avoidable transfers. TRANSFERS MADE PURPORTEDLY ON ACCOUNT OF WITH H O L DING 8. The T r u stee, 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 h ereto) which totaled approximately $330

Accountholders (identified on Exhibit "C "

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 I R S r e lating t o t h e P a yments (the " E rroneously Paid F oreign

Accountholders"). The total amount paid to the Erroneously Paid Foreign Accountholders is $4,224,884. 10. 10, Th e T r ustee'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. T h us, 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 n l earning 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 p r i ncipal 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, 13,
4

T h eA greement provides, in part, that: Th e IR S w i ll 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 B L M I S a nd/or M adoff a llegedly 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 t hose actions w i thout an y a d j ustment o f t h e Erroneously Paid Foreign Accountholders' account balances. The T rustee shall adjust al l o t her F oreign A ccountholders' B L M I S 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 r elease the IRS and it s 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 wil l r e serve approximately $ 103 m i l l ion o f t h e 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; 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 F o reign 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 o r customers filed claims in th e SIPA Proceeding prior to t h e statutorily mandated claims bar d ate ( the " E xcepted Claims" ). Additionally, the injunction will not affect the rights and defenses of any F oreign A c c ountholders an d E r r oneously P ai d F o r eign Accountholder presently engaged in litigation with the Trustee; If the Ch a nneling Injunction provision in the Order is held to be invalid, i n applicable o r un e n forceable a gainst a n y F o r eign 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 e r 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 e ment is subject to the entry of the Order and the Order becoming final and n on-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 r ms of the Agreement Are Fair and Reasonable and Will Confer a Significant Benefit on the Customer Fund. 15. Ba n k r uptcy 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) (citing Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424

(1968)),
16. T he S e cond 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 c i ding whether a particular compromise falls within the "range of

reasonableness," courts consider the following factors: a. b. c. the p r obability of success in the litigation; the d i f f iculties associated with collection; the c o mplexity 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 e b ankruptcy 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 e T rustee 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. T h e Agreement resolves all issues regarding the Payments (the "Claims" ) without the need for litigation. O t her 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. See Trustee's Affidavit at $ 7.

10

20.

The A g r eement 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 t ed 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' a ccount ( w it h t h e e x c eption o f t h e E r r o neously P ai d F o r eign

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 w i nners" previously become break-even accounts, O n e F o r eign

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 e n 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 T r ustee maintains that he would have prevailed at trial in recovering all

Payments to the IRS. Yet, there is always a litigation risk. T h e 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 u nction under Section 105(a) Is Warranted and Necessary. 24. The T r ustee 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 A g reement 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 th e 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..." subject to certain exceptions. Agreement,

12

a.

T he I n j u nction Is Narrowly Tailored and All Claims Subject to the Injunction Are Derivative of the Trustee's Claims. Thi s Court has subject matter jurisdiction to grant the injunction because the

26.

claims that the Trustee seeks to enjoin are direct claims over which the Trustee has "exclusive standing" to assert. 27, Pur s uant 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 s idering subject-matter jurisdiction, the Court f irst f ound 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 s ed 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 Dr e ier we nt on to d etermine 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 1 740885, at *5 (quoting St. Paul Fire ck Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989)). 31. In a d dition 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). Th e 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 t h er, 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 c lude '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). I n 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 i njunction assisted the receiver in m anaging the receivership and maintaining control over receivership assets. SEC v, Byers, 609 F.3d 87, 92-93 (2d Cir. 2010). S imilarly, i n t h e i n stant case, the i njunction sought w ould p r event interference with t h e administration of the BLMIS estate,

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 e viscerate the equitable distribution architecture that lies at the core of both SIPA and the Bankruptcy Code to their own individual benefit. 34, M or e over, 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 th e possibility of d ouble 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 a l ly, 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 u stomer Fund Will Receive Substantial Benefit from the IRS Settlement and the Unique Circumstances of the Case Make the Injunction Appropriate. The I R S Settlement will bring approximately $326 million into the Customer T h i s a mount represents a

36.

Fund for distribution to customers with allowed claims.

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 1 36 ( 2d C i r. 2 0 05), 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. 4 1 6 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 b ackup withholding on behalf of Foreign Accountholders since January 1, 2003. T h e

' A l though certain of th e c ited case law addresses injunctions in the context of a p l an o f 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."). Th e 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 B L MI S customers with allowed claims. A s t h i s 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 r e 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 o r dingly 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 BL MI S estate and in turn, BL M I S's customers. A s injunction sought by the Trustee should be granted. CONCLUSION 4 0. The T r u stee submits that the A greement should be approved for t w o s uch, the narrow

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 c cordance 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 N e w Y o rk ; and (v ) t h e F oreign 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. A d ditionally, 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

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 b a kerlaw,com Elizabeth A. Smith bl Elyssa S. Kates

bk
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

22

EXHIBIT A

[PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NKW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: BERNARD L, MADOFF, Debtor. 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 BL M IS, 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 t h e F ederal Rules of B a nkruptcy Procedure (the

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

SIPA Liquidation

"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 x h ibit " "] ; a n d the Court

having considered the Affidavit of Irving H, Picard executed on November 22, 2011 in support of the Motion [ECF No. ; al l o bjections 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 n i ted States is a sovereign nation that exists pursuant to the Constitution of

the United States of America. B. The I R S 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 s u ant 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. " s h all refer to docket entry numbers in the above-captioned matter, 08-1789

(BRL),

"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 t o D ecember 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. T h erefore, 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 r u stee 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 s e ttlement (the "IRS Settlement" ) involves the repayment of approximately

Three Hundred and T w enty-Six M i l l ion U n i ted 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 u stee 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 C o urt 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. 3. Venu e of this case in this district is proper pursuant to 28 U,S.C. ) 1409. Prop e r, 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 u r t has considered the probability of s uccess in any l i t igation, 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 o urt 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 e ement will confer a significant benefit on B L MI S customers with

allowed claims, 7. A n i nj u n ction under Sections 105(a) and 362(a) of the Bankruptcy Code is

warranted and necessary. I ssuance 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 B L M I S o r t h e M a doff 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 E ntity seeking to assert an Enjoined Claim shall assert any such Enjoined Claim in t h e 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 G REEMBNT ( the "A gr e ement"}, d a ted a s 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. BLM I S and its predecessor were registered broker-dealers and members of the Securities Investor Protection Corporation ("SIP C"), B, O n D ecember 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 D e cember 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)

1" i i

I'"

. -07 o

)(

"

d'

The Trustee is duly qualified to serve and act on behalf of the estate of BLMIS. D. O n M a rch 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 u r suant 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 i o r t o D e cember 15, 2008, BLMI S 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 o untholders"), 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 w it h r espect to a ccounts held b y t h e F oreign 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. I, T h e IRS has erroneously paid certain refimd claims relating to Payments to certain Foreign Accountholders ("Erroneousl Paid Forei n Accountholders"). .J. B a sed 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%, TH KRKIt'ORK, in c onsideration of th e f oregoing, of th e 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. AGREEMENT 1, Pa m ent to Trustee. Wi th 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 e i n A ccountholders Account Balances.To the extent the Trustee has commenced actions in t h e B a nkruptcy Court against the E rroneously Paid Foreign 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 e ase 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. 4, Res erve 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

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 I n '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" ). Mo reover, 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 k ru tc C o u rt A roy a l E f f e ctive 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. ~C oo eration. Trustee and the United States agree to reasonably cooperate The in connectioii with enforcing this Agreement and the Order to extinguish any claims that may be asserted in violation of the Order, 8. Aut h ority.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 t her 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 i re A r eement. Th is 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 n dments 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 a b ilit. N o P arty hereto may assign its rights under this Agreement without the prior written consent of the other Party hereto, 13. Su c cessors 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 h i rd P B ene f i ci . T h eP arties 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 '

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 l usive 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 i o ns 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 u nte a rts E l e ctronic Co of Si na t u res. Thi s A g r eement 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 i ces. An y n otices 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 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 Chambers Street, Third Floor New York, NY 10007 Fax: (212) 637-2686 Email: Jeannette. Var gas@usdoj. gov

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 fSignature page foltows]

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

Sworn and subscribed before me this

Not

llc
SPtAYA M. GRAHAM H.~ta;; '"ioiio, Stateof New York '>. otGR65832$4
Q>ga',ilia;! ir< Aaatchaatar
QA1llll'iSiofl EX@i%a: 9It2I20~

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

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
Sworn and subscribed before me this

g2nh dayof .: 0

be/

, 2011,

Notary Public
DAVID FARBER, BIOTA'RY PUBLIC, State of New York No. 01 FA6214554 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 G AURO & MARIA PIA BONAVIA JT WROS ITF CLAUDIA & ARIANA AV D A 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 MULTIA D VISORS LTD HSBC SECURITIES SERVICES (LUXEMBOURG) SA SPEC CUST ACCT FOR PRIMEO FUND CLASS B TELFORD LIMITED HARLEY INTERNATIONAL FUND LTD THE BANK OF BERMUDA LIM ITED 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 MULTIA D V ISORS 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 HC M W E BER 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 LIM I TED 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 LIM ITED NONA INTERNATIONAL LIM ITED 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 LIM ITED SAPPHIRE TRUSTEE LIMITED P2 WHITE ORCHARD INVESTMENTS LTD ARGAU INC PALMA HOLDINGS LTD SWAY TRUSTEES (2002) LTD SARAN INTERNATIONAL LI M I T ED 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 MA N A GEMENT 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 LIM I TED 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, (Substantively Consolidated)

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

SIPA Liquidation

BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re; BERNARD L. MADOFF, Debtor.

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 COUNTY OF NEW YORK ) Irving H, Picard, being duly sworn, hereby attests as follows; 1. I am the t r u stee for the liquidation of the business of Bernard L, M adoff )

) ss:

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 o f B a n kruptcy Procedure, (i) approving a n a g reement (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 f i davit based upon m y o w n p e rsonal knowledge or upon

information that I believe to be true. 3. A ll c a p italized 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 c ertain foreign accountholders (the "Foreign Accountholders"), allegedly pursuant to t h e requirements of sections 1441 and 1442 of t h e I nternal Revenue Code (the "IRC"), as withholding taxes on income supposedly earned on the Foreign Accountholders' accounts (the "Payments" ), 5. The P a yments 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 e stigation 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 BL MI S 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 s ample of some of the Forms 1042 filed by Madoff or BLMIS are

annexed hereto collectively as Exhibit "A". 7, I bel i e ve 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 w ill 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 S ettlement 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 n the 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 m y b u siness judgment, that the Settlement Agreement represents a f air

compromise of the Debtors' claims against the United States and IRS, 10. I am s e eking 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 u m , 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. 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 Sworn to and subscribed before me this day of November, 2011

RD, Trustee

Nota

u lic
SONYA M. GRAHAM Notary Public, State of New York No. 01GRB133214 Commission Expires: 9/12/20M

Qualifieci in Westchester Gouge

[PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT A

[PAGE INTENTIONALLY LEFT BLANK]

,... 1042
Depeitment cf ths Treasury

Annual VIithholding Tax Return for

aMa Nc, t sea.cosa

U.S. Source Income of Foreign Persons

k See instructions.
Employer Idsntlfica'tlon number

internal Revenue Service

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)

13-1997126
RD CAF CR EDC

885 Third Avenue

City or town, province or state, and county (Including postal code)

FD FF FP
SIC

New York, NY 10022

if you will not be liable for returns in the future, check here W En r date final income paid te W Check here if you made quarter-monthly deposits using the 90sv( rule (see Deposit Requirements in the instructions) Check if you are a: Q l /Withholding foreign partnership oi' trust NQI/F l ow-through entity (S instructions.) ee Record of Federal Tax Liabili D o n o t show federal tax de osits here.
Uns No. Periad ending Tax liability for period Uns (Including any taxes assumed No, on Farms 1000

Period
ending

Tax liability for period Line (Including any taxes assumed No. on Form s 1000

Period
ending

Tax liability for period

on Form s 1000

(including any taxes assumed

7 15 Jan. 22 4 3 31 Jan. total 7 15 9 8 7 6 Feb.

I 2 29 10 Feb. total

15
23 22 598,1 09.40 24 31 598,109.40 25 May total

22 3,650t797,50 30 3J650,797.50 45 Sept. total

42 43

Sept.

7 15
31840,058.71

3,840,058.71

June

7 15

7
15 Mar 22 31 Mar. total 7 15 Apr. 22 30 A r. total

15 16 17 18 19 20

30 2,929,393.82 2,929,393.82 30 June total 7 32 15 July 22 33 31 4,686,602.94 34 4,686,602.94 35 Jul tot al 7 15 37 Aug. 22 38 31 31 0,633.00 39 31 0,633.00 40 Au . total

7 46 5,263,106,62 47 Oct. 48 31 482,843. 36 49 5,745,949. 98 50 Oct. total 51 7 15 Nov. 22 2,029,307,81 30 2,029,307,81 55 Nov, total 56

2,989,060.09
2,989t06 .OS

69,730,89 69,730.89

Dec. 22
3,633,789,79 32.09 3 633 789 79 32.09 60 Dec. total 16 b On paper . c E ctr o nically le 103,777t783.83 b Taxes withheld or assumed 30t4 8 3 466 02 30 483 466 02 63a

6 1 No, of Forms 1042-S filed: a On magnetic media.. . . . 62 For all Form s 1042-S and 1000; a Gross income aid 63a Total tax liability (add monthly total lines from above) . Pgv4 b Adjustments (see instructions) 30,483,466.02 63c c Total net tax liability (combine lines 63a and 63b) . 64 Total paid by federal tax deposit coupons or by electronic funds 30,483,466. 02 64 transfer (or with a request for an extension of time to file) for 2004 65 E nter overpayment applied as a credit from 2003 Form 1042 . 66 Credit for amounts withheld by other withholding agents (see inst.) 30,483,466,02 67 67 T o tal payments. Add lines 64 through 66 68 68 I f line 63c is larger than line 67, enter balance due here 69 I f 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) c. 'Hi+r-N~~.4v,trav.'?i&%,. '4,i 71 Apply overpayment on line 69 to (check one): C r edit on 2005 Form 1042 or R e f und Yes. Complete the following. N o Third Party D o ycu want to allow another person to discuss this return with the IRS (see page 4)? Designee' s Phone Personal id entification Designee n e no. n IN

Sign Here
Paid

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 n y knowledge. Date Ca acit in w hich actin Your Daytime phone number I signature Preparer's SSN or PTIN Data Check if Preparer's g self-employed S signature

Preparer's Use Only

Firm's name (or yours If self-employed),

EIN W

address, and ZIP code r

Cat, No. 11384V

Phone no.

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

Farm 1042 (2004)

Form 1042 (2004)

Paao ~!

General Instructions
Section references are to the Internal Revenue Code unless otherwise noted.

Purpose of Form
Use Form 1042 to report tax withheld on certain income of foreign persons, including nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts.

agreements, see Rev, Proc. 2003-64, which is on page 306 of internal Revenue Bulletin 2003-32 at www,irs.govlpublirs irbslirb03-32. pdf. Nonqualified Intermediary {NQI), An NQI is any intermediary that is not a U.S. person and that is not a Ql,

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 (see definitions below) who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or periodical income must file an annual return for the preceding calendar year on Form 1042. You must file Form 1042 if either of the following apply.

Form 1042-T to transmit paper Forms 1042-S,

Extension of time to file. If you need more time to file Form 1042, you may submit Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns. Form 2758 does not extend the time for payment of tax.

You are required to file Form(s) 1042-S (whether or not any tax was withheld or was required to be withheld). File Form 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).

Additional information
For details on withholding of tax, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. You can get Pub. 515 by calling 1-800-TAX-FORM (1-800-829-3676) or by downloading it from the IRS website at www,irs.gov.

Withholding Agent
Any person required to withhold tax is a withholding agent. A withholding agent may be an individual, trust, estate, partnership, corporation, government agency, association, or tax-exempt foundation, whether domestic or foreign, Every person required to deduct and withhold any fax under Chapter 3 of the Code is liable for such fax. See section 1461.

Income Tax Withholding on Wages, Pensions, Annuities, and Certain Other Deferred Income
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, Use Form 945, Annual Return of
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 Medicare taxes on wages paid to a nonresident alien household employee. For more information, see the instructions for these forms.

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 Bulletin 2000-4 at www.irs.govfpublirs irbsfirb00-04.pdf. Withholding foreign partnership plVP) or withholding foreign trust {WT). A WP or WT is a foreign partnership or trust that has entered into a withholding agreement with the IRS in which it agrees to assume

use anyone else's coupons. If you do not 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

Deposit Requirements
Generally, if you are not required to use the Electronic Federal Tax Payment System (EFTPS), you must deposit the tax 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

primary withholding responsibility for all

payments that are made to it for its partners, beneficiaries, or owners. For information on these withholding

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
2004.

Form 10'42 (2004)

page 3

If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To 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. paying tax when due is usually '/~ of 1% of Depositing on time. For deposits made the unpaid tax' for each month or part of a by EFTPS to be on time, you must initiate month the tax is unpaid. The penalty cannot exceed 25% .of the unpaid tax. the transaction at least one business day before the date the deposit is due. Failure to deposit tax when due. See the instructions for line 70 on page 4. Completing Form 8109. If you do not use EFTPS, deposit your income tax payments Other penalties. Penalties may be using Form 8109. In most cases, you will imposed for negligence, substantial fill out a Form 8109 following the understatement of tax, and fraud. See instructions in the coupon book, However, ' sections 6662 and 6663. if a deposit liability arises from a distribution reportable on Form 1042 for the prior year, darken the 4th quarter Specific Instructions space on Form 8109. If the distribution is reportable for the current year, darken the File only one Form 1042 1st quarter space. In all cases, follow the consolidating ail Form 1042-S coupon book instructions for completing recipient information, regardless the rest of the deposit coupon. To ensure of the number of different proper crediting, write your taxpayer clients, branches, divisions, or types of identification number, the period to which income for which you are the w fhhoiding the tax deposit applies, and "Form 1042" agent. However, If you are acting in more on the check or money order. than one capacity (for exampie, you are Deposits by foreign corporations. Fill in acting as a Q'I for cerfain designated accounts and as an AIQI for other a preprintod Form 8109 showing the accounts), file a separate Form 1042 for 'Amount of Deposit" in U.S. dollars. Mail the completed coupon with a bank draft in each capacity in whicii you are acting. U.S. dollars to: Rounding off to whole dollars. You may round off cents to whole dollars. If you do Financial Agent round to whole dollars, you must round all Federal Tax Deposit Pracessing amounts. To round off amounts to the P,O, Box 970030 nearest whole dollar, drop amounts under St. Louis, MO 63197 U.S.A, 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, Interest and Penalties $L39 becomes $1 and $2.50 becomes $3. If you have to add two or more If you file Form 1042 late, or fail to pay or deposit the tax when due, you may be amounts to figure the amount to enter on a line, include cents when adding and liable for penalties and interest unless you only round off the total. can show that the failure to file or pay was due to reasonable cause and not willful Employer identification number (EIN). neglect. You are generally required to enter your EIN. However, if you are filing Form 1042 You do not have to figure the as a Ql, withhalding foreign partner'ship, or T~p am o unt of anyinterest or withholding foreign trust, enter your QI-EIN, penalties you may owe. Because figuring these amounts WP-EIN, or WT-EIN. Also, be. sure to check can be cornPiictee, we will do it for you if the "Ql/Withholding foreign partnership or trust" box. See QI and NQI checkboxes you want. yt/e will seno' you a bill for any below. amount due. If you do not have an EIN, you can apply If you include interest or penalties (other for one online atwww.irs.gov/smalfbiz or by than the penalty for failure to deposit tax telephone at 1-800-829-4933. Also,.you can when due) with your payment, identify and file Form SS-4, Application for Employer enter the amount in the bottom margin of Identification Number, by fax or mail. File Form 1042, page 1. Do not include interest corrected Farms 1042-S when you receive or penalties (other than the penalty for your EIN. failure to deposit tax when due) in the balance due on line 68. To get a QI-EIN, WP-EIN, or WT-EIN, submit Form SS-4 with your. application for Interest, Interest is charged on taxes not that status. Do not send an application for paid by the due date, even if an extension a QI-EIN, WP-EIN, or WT-EIN to the of time to file is granted. Interest is also charged on penalties imposed for failure to Philadelphia Service Center; it will not be processed. file, negligence, fraud, and substantial understatements of tax from the due date Address. Include the suite, room, or other (including extensions) to the date of unit number afte. the street address. If payment. Interest is figured at a rate your post office does not deliver mail to determined under section 6621. the street address and you have a P.O. box, show the box number instead of the street address.

Late filing of Farm 1042. The penalty for not filing Form 1042 when due (including extensions) is 5% of the unpaid tax for each month or part 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

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 1000. 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 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 entered on line 63c includes amounts withheld by a U.S. withholding agent. You may take a credit on line 66 for the amounts that were withheld by the U:S. withholding agent, 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 result in 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, If you are due a refund, subtract the penalty from the overpayment you show on line 69.
Becattse this penalty calculation is complicated, if

return. Also, enter the name, phone

number, and any five numbers that the designee chooses as his or her personal identification number (PIN). The authorization applies only 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; Exchange information concerning your 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 IRS. If you want to expand the designee's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney. The authorization automatically expires one year from the due date (without regard to extensions) for filing your 2004 Form 1042. If you or your designee desire to terminate the authorization, a written statement conveying your wish to revoke the authorization should be submitted to the IRS service center where the return was processed.

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

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 subject to the Paperwork Reduction Act 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 become material in the administration of any Internal Revenue law. Generally, tax returns and return information are

Amended Return
If you have to make changes to your Form 1042 after you submit it, file an amended Form 1042. Use a Form 1042 for the year you are amending, Check the "Amended Return" box at the top of the form. You must complete the entire form, including all filing information for the calendar year, and sign the return. Attach a statement explaining why you are filing an amended return (for example, you are filing because the tax liability for May was incorrectly reported due to a mathematical error). If you are also amending Form(s) 1042-S, see Correcting Paper Forms f042-S in the Form 1042-S instructions. Do not amend Form 1042 to recover taxes overwithheld in the prior year, For

confidential, as required by section 6103.

you want to, you can leave line 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

If you want to allow any individual, corporation, firm, organization, or partnership to discuss your 2004 Form 1042 with the IRS, check the "Yes" box in the Third Party Designee section of the

The time needed to complete and file these forms will vary depending on individual circumstance.. The estimated average time is; Recordkeeping, 9 hr., 48 min.; Learning about the law or the form, 2 hr25 min., Preparing the form, 4 hr., 33 min.; and Copying, assembling, and sending the form to the IRS, 32 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to near from you. You can write to the Internal Revenue Service,

Tax Products Coordinating Committee.

more information, see Adjustment for

Overwifhholding in Pub. 515.

SE:W:CAR:MP:T:T:SP, 1111 Constitu'.ion Ave. NW, IR-6406, Washington, DC 20224. Do not send the form to this address, Instead, see Where and When To File on

page 2,

,... 'i042
Denerttnent of the Treasury Internet aevenue Service

Annual Withholding Tax Return for U.S. Source income of Foreign Persons
W See instructions.
Employer identification number

OMS Nu, 1545.0090

If this is an amended return, check here .

Name of withholding agent

For tns uo~oool

CC RD CAF CR
EDC

Bernard L Madoff
Number, street, and room or suite no. (if a p.o, box, sco instructions)

13-1997126

FD
Flc FP

885 Third Avenue

City or town, province or state, and country (including postal code)

New York, NY 10022

9 I~C

If you will not be liable for returns in the future, check here W Enter d ate final income paid W . Check here if ou made quart m onth( de osi us ng th e90'e rule ee Dep o sitRe qu re ents tn the instruction ) ery ts i y' (s i m Check if you are a: Q l / f l t hholding foreign partnership or trust Q NQI / Flow-through entity (See instructions.) Record of Federal Tax Liabill D o n o t show federal tax de osits here.
Line

No.
1
4 3 2

Period ending

Tax liability for period (including any taxes assumed Line No. on Form s 1000

Period ending

TaX liability for period (including any taxes assumed Line

on Forms 1000

No.

Penod ending

Tax li >bility for period (including any taxes assumed

~ 0 0000

21

Jan. 22

15

31 Jan. total 7 15 Feb. 22 28 Feb. total 11 7 'I 2 'I5 Mar. 13

14 16 17 18 19 20 31 Mar. total 7 15 Apr. 22 30 A r. total

145 662.95

2 301 911.12 2 447,574.07

10 080 491.33 10 080 491.33

23 22 24 31 25 May total 7 27 15 June 22 28 30 29 30 June total 7 32 15 July 22 31

May

7 15

Jul total

31 Au . total 5 026 848.53 61 No. of Forms 1042-S filed: a On magnetic media , .

36 37 38 5,026,848.53 39

Aug,

7 15

7 42 15 Sept. 22 3,078;77 30 3,078.77 45 Sept. total 7 47 Oct. 48 2,427,337.66 49 31 2,427,337,66 50 Oct. total 7 52 (5 Nov. 22 53 4,50?,603.66 54 30 Nov, total 4,507,603.66 56 57 15 Dec. 22 58 566.80 31 566.80 60 Dec. total

292 662.24 292,662.24

4 589 026.95 0 559 926.95

4,114,935.58 4,114,935.58

12,526,577.67 12,526,577.67

. . b O p a per .. . . . . " .".5. n

. c E l ectronically

46,016,703,26 63a 63a Total tax liability (add monthly total lines from above) . 63b b Adjustments (see instructions) 63c c Total net tax liability (combine lines 63a and 63b), 64 T otal paid by federal tax deposit coupons or by electronic funds 46,016,703.26 transfer (or with a request for an extension of time to file) for 2005 65 E nter overpayment applied as a credit from 2004 Form 1042 . 66 Credit for amounts withheld by other withholding agents (see inst.) 67 T o tal payments. Add lines 64 through 66 68 68 If line 63c is larger than line 67, enter batance due here 69 69 I f (ine 67 is larger than line 63c, enter overpayment here 70 P enalty for failure to deposit tax when due. Also include on line 68 or line 69 (see instructions) 70 71 Apply overpayment on line 69 to (check one); C r e dit on 2006 Form 1042 or R e f u nd Third Party Designee' s Phone Personal ide n tification Desi nee na 0 fl u , num er IN

46,016,703,26

460016,703.26

II "

Sign
Here
Paid

Under penalties of perjury, I declare that I have examined this return, Including accompanying schedules and statements, and to the best of my knowledge and bekef, tt ts true, correct, and complete. Declaration of preparer (other than withholding agent) is based on all information of which preparer has any knovttedge, Date Ca acit, i n which actin Your Daytime phone number t 212-230-2424 signature Preparer's SSN nr PTIN Date Preparer's g Check if
signature self-employed 1.

Preparer's
Use Only

yours if self-employed), Ijt

address, and ZIP code r
Cat. No. 11384V

Firm's name (or

FlN >

Phone no.

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

Form 1042 (3005t

Form 1042 (ze05)

page 2

General Instructions
Section references are to the Internal Revenue Code unless otherwise noted.

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 aForm W-8IMY

Purpose of Form
Use Form 1042 to report tax withheld on certain income of foreign persons, including nonresident aliens, foreign partnerships, foreign corporations; foreign estates, and foreign trusts, Publicly traded partnerships {section 1446 withholding tax). For purposes of reporting on Forms 1042 and l042-S, new regulations under section 1446 apply to a publicly traded partnership (PTP). These regulations apply to partnership tax years beginning after May 18, 2005, However, the partnership can elect to apply these regulations to partnership tax years beginning after December 31, 2004. To make the election, the partnership must comply with the regulations and attach a
statement to Form 1042 filed for the tax year in which the regulations first apply indicating that the partnership is making the election. If the partnership does not make this election, it must follow the procedures in Rev. Proc, 89-31. Under these regulations, the PTP must withhold section 1446 tax on distributions of effectively connected income to its foreign partners, rather than on the partner's allocable share of the income, The regulations also permit the withholdinq obligation to be assumed by a domestic

submitted to a withholding agent, Foi

Information on a Ql withholding agreement, see Rev. Proc, 2000-12, which is on page 387 of Internal Revenue Bulletin (IRB) 2000-4 at www.irs.govlpubhrsirbslirb00-04. pdf.Also see Notice 2001-4 (IRB 2001-2); Rev. Proc. 2003-64, Appendix 3 {IRB 2003-32); and Rev. Proc. 2004-21 (iRB 2004-14). Withholding foreign partnership (WP) or withholding foreign trust (WT). A WP or WT is a foreign partnership or trust that has entered into a withholding agreement with the IRS in which it agrees to assume primary withholding responsibility for all payments that are made to it for its partners, beneficiaries, or owners. For information on these withholding agreements, see Rev. Proc, 2003-64, which is on page 306 of Internal Revenue Bulletin {IRB) 2003-32 at www.irs.govlpublirsirbslirb03-32.pdf. Also see Rev, Proc. 2004-21 {IRB 2004-14). Nonqualified intermediary (NQI). An NQI is any intermediary that is not a U.S. person and that is not a Ql.

Use Form 945, Annual Return of Withheld Federal Income Tax, to report income tax withheld under section 3405 from pensions, annuitie.', 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 sect on 1441 and the tax withheld must be reported using Forms 1042 and 1042-S, Use Schedule H (Form 1040), Household Employment Taxes, to report income tax withheld and social security and Medicare taxes on wages paid to a nonresident alien household employee. For more information, see the instructions for these forms,

Deposit Requirements
Generally, if you are not required to use the Electronic Federal Tax Payment System (EFTPS), you must deposit the tax withheld and required to be shown on Form 1042 with an authorized financial institution using your preprinted Form 8109, Federal Tax Deposit Coupon. Do no. use anyone else's coupons. If you do not have your coupons when a deposit is due, cail 1-800-829-4933, if you are in the United States, If overseas, call 215-516-2000 (not a toll-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. I, I( 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 banking days after th' e

nominee holding an interest in the PTP on

behalf of one or more foreign partners. For more information, see Regulations section 1.1446-4 and Pub. 515.

Where and When To File

File Form 1042 with the Internal Revenue Service Center, Philadelphia, PA 19255-0607, by March 15, 2006, Also send amended returns to this address. Use Form 1042-T to transmit paper Forms 1042-S.
Extension of tim'e to file. If you need more time to file Form 1042, you may submit Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns, Form 2758 does not extend the time for payment of tax.

Who Must File

Every withholding agent or intermediary (see definitions below) who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or periodical income must file an annual return for 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 Form 1042 even if you file Forms 1042-S electronically or on magnetic media. You pay gross investment income to foreign private foundations that are subject to tax under section 4948(a).

end of the quarter-monthly period, (A

Additional Information
For details on withholding of tax, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, You can get Pub. 515 by calling 1-800-TAX-FORM (1-800-829-3676) or by downloading it from the IRS website at www,irs.gov,

Withholding Agent
Any person required to withhold tax is a withholding agent, A withholding agent may be an Individual, trust, est~te, partnership, corporation, nominee (under section 1446), government agency, association, or tax-exempt foundation, whether domestic or foreign. Every person required to deduct
.
and withhold any lax under Cha p t er 3 ofthe Codeis liable for such tax, See section f46f.

Inoome Tax Withholding on Wages, Pensions, Annuities, arid Oertain Other Deferred
Income
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.

quarter-monthly period ends on the 7th, 15th, 22nd, and last day of the month.) To determine banking days, 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% of the actual tax liability for the deposit period, and If 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 'I above, carry over any end-of-the-month balance of less than
$2,000 to the next mor th. If you make a

Form 1042 (2005)

page 3

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, 2006. 3. If at the end of a calendar year the total amount of undeposited taxes is less :han $200, you may either pay the taxes with your Form 1042 or deposit the entire amount by March l5, 2006. 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 deposits of all depository tax liabilities using the Electronic Federal Tax Payment System iFFTPS) ln 2006 if: e The total deposits of such taxes in 2004 were more than $200,000, or + You wore required to use EFTPS in
2005. If you are required to use EFTPS and fail

~~p

You clo not have fo figure the a m o unt of interest or any penalties you may owe.

to do so, you may be subject to a 10% penalty. If you are not required to use FFTPS, you may participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477. You can also visit the EFTPS website at www.oftps.gov. 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 tho deposit is due, Completing Form 8109. If you do not use EFTPS, deposit your income tax payments using Form 8109. In most cases, you will fill out a Form 8109 following the instructions in the coupon book. I-lowever, if a deposit liability arises from a distribution reportable on Form 1042 for the prior year, darken the 4th quarter space on Form 8109. If the distribution is 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, tlie period to which the tax deposit applies, and "Form 1042" on the check or money order. Deposits by foreign corporations. Fill in a preprinted Form 8109 showing the "Amount of Deposit" in U.S. dollars. Mail the completed coupon with a bank draft in U.S. dollars to: Financial Aqent Federal Tax Deposit Processing P.O, Box 970030 St. Louis, MO 63197 U.S.A.

Because figuring these amounts can be complicated, we Will do it for you if you want. yI/e will send you a bill for any amount due. If you include interest or penalties (other than the penalty for failure to deposit tax when due) with your payment, identify and enter the amount in the bottom margin of Form 1042, page 1. Do not include interest or penalties (other than the penalty for failu're to deposit tax when due) in the balance due on line 68, 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 for failure to file, negligence, fraud, and substantial understatements of tax from the due date (including extensions) to the date of payment. Interest is figured at a rate determined under section 6621. Late filing of Form 1042. The penalty for not filing Form 1042 when due (including extensions) is 5% of the unpaid tax for each month or part 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 duo is usually "Y of 1% of 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 riegligence, substantial understatement of tax, and fraud, See sections 6662 and 6663,

WP-EIN, or WT-EIN. Also, be sure to check the "Ql/Withholding foreign partnership or trust" box. See Ql and IVQI checkboxes below. If you do not have an EIN, you can apply for one online atwww irs.gov/smallbiz or by telephone at 1-800-828-4I333. Also, you can file Form SS-4, Application for Employer Identification Number, by fax or mail. File corrected Forms 1042-S when you receive your EIN.
To get a QI-EIN, WP-EIN, or WT-EIN, submit Form SS-4 with your application for that status. Do not send an application for a QI-EIN, WP-EIN, or WI-EIN Io the Philadelphia Service Center; it wili not be processed. Address. Include the suite, room, or other unit number after 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, Ql and NQI checkboxes. See page 2 for definitions of intermediary, qualified

partnership (WP), withholding foreign trust (WT), and nonqualifiod intormodiary (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 LI.S. branch treated as a tJ.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 Ql 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 Specific Instructions actually withheld) on the line that File only one Form /042 corresponds with tho date the liability was consolidating ail Form 1042-S incurred. recip i e nt in/orrnation, regardless lf you repaid the recipient for an amount of the number of different overwithheld by reducing the amount clients, branches, divisions, or types cf withheld on a later payment, report the income for which you are the withholding reduced amount on these lines, If you used agent. However, if you are acting in more the reimbursement procedure for than one capacity (foi example, ycu are overwithheld amounts, see Pub. 515. acting as a Qi for certain designated Lines 62a and 62b, Enter the amounts accounts and as an /VQ/ for other requested with respect to all Forms 1042-S accounts), file a separate Form 1042 for (regardless of whether the form was filed each capacity in which you are acting. electronically, on magnetic media, or on Rounding off to whole dollar's. You may paper) and with respect to all Forms 1000, round off cents to whole dollars, If you do round to whole dollars, you must round all Ownership Certificate.

intermediary (Ql), withholding foreign

IntereSt and Penalties

If you file Form 1042 late, or fail to pay or deposit the tax when due, you may be liable for penalties and interest unless you can show that the failure to file or pay was due to reasonable cause and not willful neglect.

amounts, To round off amounts to the nearest whole dollar, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1,39 becomes $1 and $2.50 becomes $3. If you have to add two or more 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, withholding foreign partnership, or withholding foreign trust, enter your QI-EIN,

Be sure to reconcile amounts on Form f042 with amounts on Form s 1 042-S (including Forms 1042-S filed electronically and on magnetic media), tc avoid unnecessary correspondence with the IRS. Line 62a. The amount on line 62a should equal the sum of all amounts shown on Forms 1042-S, box 2, and all amounts shown as gross Interest paid on Forms 1000,

Form 1042 (2005)

Pago cj

Line 62b. The amount on line 62b should equal: o The sum of all Forms 1042-S, box 7, less The sum of all Forms 1042-S, box 8, plus The tax assumed from Forms 1000. If it does not, attach a statement to Form 1042 explaining the difference. Line 63a. The amount on line'63a must equal the sum of the monthly totals as listed on the Record of Federal Tax L.iability. 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 Record 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 ths preceding October, November, or December), enter your additional tax liability on those dividends declared in 2005 but paid in January 2006 less any additional tax liability on those dividends declared in 2004 but paid in January 2005. Show any negative amount 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 the amount you entered on line 63c includes amounts withheld by a U.S. withholding agent. You may take a credit on line 66 for the amounts that were withhsict by the U.S. withholding agent, If you are a Ql requesfing a refund, you must attach the corresponding Form(s) I042-S received to support the amount claimed on line 66. Failure lo do so will result in the denial of the refund or crsdif

Because this penalty

calculation is complicated, if

Do not amend Form 1042 to recover

taxes ovsrwithhsld in the prior year. For more information, see Acfi'usfmsnf for Overwithholding in Pub. 515.

you want to, you can leave line 70 blank and the IRS will figure the penalty and send you a bill, We will not charge you interest on the penalty if you pay by the date specified on the bill.

Third Party Designee

If you want to allow any individual, corporation, firm, organization, or partnership to discuss your 2005 Form 1042 with the IRS, check the "Yes" box in the Third Party Designee section of the return. Also, enter the name, phone number, and any five numbers that the designee chooses as his or hsr personal identification number (PIN). The authorization applies only to the tax form upon which it appears. Hy checking the "Yss" box, you are authorizing the IRS to cal! the designee to answer any questions relating to the information reported on your tax return. You are also authorizing the designee to'. o Exchange information concerning your tax return with the IRS, and 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 IRS. If you want to expand the designee's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney. The authorization automatically expires one year from the dus date (without regard to extensions) for filing your 2005 Form 1042, If you or your designee desire to terminate the authorization, a written statement conveying your wish to revoke the authorization should be submitted to the IRS service center whore the return was processed.

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 witt1holding 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 withholdi'ng to the payee. Section 6109

requires you to provide your employer

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 tt1is information to other countries under a tax treaty, to federal and stats agencies to enforce federal nontax criminal laws, or lo federal law enforcement and intelligence agencies to combat terrorism. If you fail to 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 subject to the Paperwork Reduction Act unless the form displays a valid OMH control number. Hooks or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of arty Internal Revenue law. Generally, tax

returns and return information are

Amended Return
If you have to make changes to your Form 1042 after you submit it, file an amended Form 1042. Use a Form 1042 for the year you are amending. Check the "Amended Return" box at the top of the form. You must complete the entire. form, including all filing information for the calendar year, and sign the return. Attach a statement explaining why you are filing an amended return (for example, you are filing because the tax liability for May was incorrectly reported due to a mathematical error), If you are also amending Form(s) 'I 042-S, see Correcting Paper Forms 1042-S in ths Form 1042-S instructions.

heing 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 2006. 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'/o for deposits made 16 or more days late. However, the penalty is 15o/o if .hs tax is not deposited within 10 days atter the IRS issues the first notice demanding payment. Add tt1s penalty to any tax due and enter the total on line 68. if you are dus a refund, subtract the penalty from the overpayment you show on line 69,

confidential, as required by section 6103. The time needed to c.omplets and file these forms will vary dopsnding on individual circumstances. The estimated average time is; Recordkeeping, 9 hr,, 48 min q Learning about tho law or the form, 2 hr,, 25 min q Preparing the form, 4 hr., 33 minJ and Copying, assembling, and sending the form to the IRS, 32 min. If you have comments concerning the accuracy of these time estimates or

suggestions for making this form simpler, we would bs happy to hear from you. You can write to the Inte'mal Revenue Service,
Tax Products Coordinatirrg Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitutior Ave. NW, IR-6406, Washington, DC 20224. Do not send the form to this address. Instead, sse Where and When To File on page 2.

,... 1042
Dopaitmoyil cf the Treasury Iniarhal Revenue Service

Annual WithhoIding Tax Return for

OMB llo, 1545-0096

U.S. Source Income of Foreign Persons

ywSee instructions
Employer identification number

If this is an amended return, check here

Name of withholding agent

Bernard L Madoff
Number, street, and room or suite no. {if a p.o. box, see instructions)

13-1997126

885 Third Avenue

City or town, province or stato, and country (Including postal code)

CC RD CAF EDC

FD FF FP

New York, NY10022

SIC

If you will not be liable for returns in the future, check here k Ente r date final income paid k 0 Check here if you made quarter monthly deposits using the 90/o rule (see Deposit Requirements in the instructions) Check if you are a: Q l /Withholding foreign partnership or trust NQI/F l ow-through entity (See instructions.) Record of Federal Tax Liabilit D o not show federal tax de osits here
Line No.

Period ending

Tax liability for period (including any taxes assumed Line No, on Form s 1000

Period ending

Tax liability for period (including any taxes assumed Litic

on Form s 1000

No. 42

Period ending

Tax liability for period (including any taxes assumed

t~

~to o o

7 15 Jan. 22 .3 3'I 4 Jan. total 6 7 '15 7

1 2

21 22

May

7 15

Sept. 22

'15

Feb.

9 8

24 31 25 May total 2,72'8,653w40 26 7 15 27 June 22 28

8,591,557.32 8 591 557,32

30 Sept, total 7

11,435,750.7'I 11,435,750.7'1

28

10 Feb. total 11 7 12 15 Mar. 22 13 14 31 1'5 Mar. tot al 7 16 17 15 Apr, 22 18 30 19 20 Apr. total

30 4,744,629.13 7,473,282.53 30 June total

7

15 47 Oct. 22 48 31 13,127,155.25 49 13,127,155.25 50 Oct. tot al

4,762,1'I 5.23 4,762,'I 1 5.23

32 33

13,276,924.42 1 3,276,924.42

15 July 22 3I Jul tot al

7 15 Aug. 22 38 6,933,554,63 31 6,933 554 63 40 Au . total

53 4,631,979,81 4,631,979,81 55 56
57 58 3,194,907.73 59

7 15 22 30 Nov. total 7 '15

2,923073,00 2,923,073.00

Dec.

31 3,194,907.73 60 Oec, total

18,124,760,48 18,124,760.48

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

.. . . .. . b O n paper .. . V .0 . .

. c El e ctronically, ..

63a 94,475 , 061.11 63a Total tax liability (acid monthly total lines from above). 63b b Adjustments (see instructions) 63c 94,475,061.1 'I c Total net tax liability (combine lines 63a and 63b) . 64 T o tal paid by federal tax deposit coupons or by electronic funds 94,475,061.11 transfer (or with a request for an extension of time to file) for 2006 65 E n ter overpayment applied as a credit from 2005 Form 1042, 66 C redit for amounts withheld by other withholding agents (see inst.) 94,475,061.11 67 67 T o tal payments. Add lines 64 through 66 68 If line 63c is larger than line 67, enter balance due here 69 I f line 67 is larger than line 63c, enter overpayment here 70 P enalty for failure to deposit tax when due. Also include on line 68 or line 69 (see instructions) 70 71 Apply overpayment ori line 69 to (check one): C r edit on 2007 Form 1042 or R e f und t to I I w o t h erpe s t d s o u t h t r t m r dth to tapis p e g 4} ? Y .. co p l t t h I I I I g . g l e e Third Party p oy u Designee' s Phone Personal id e ntification Designee rfa e k' no. n m er PIN
'4 ,

Sign IHcre
Paid

Preparer's
Use Only

Under penaities cf perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it i. true, correct, and complete. Dedaraticn o( preparer (other than withholding agent) is based on all information cf which preparer has any knowledge. Ca aci In which actin Date Your Daytime phone number I signature Date Preparer's SSN or PTIN Preparer's Ith Check it signature self-entployed k Firm's ifame (or yours if self-employed),ht address, and 7IP code W
Cat. No. 11384V
EIN W

Phone no.

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

Form 1042 (70OI>I

Form 1042 (2006)

Page

Section references are to the Internal Revenue Code unless otherwise noted.

Quaikied intermediary (Ql). A Ql is an intermediary that is a party to a withholding

General Instructions
Purpose of Form
Use Form 1042 to report tax withheld on certain income of foreign persons, including nonresident aliens, foreign parinerships, foreign corporations, foreign estates, and foreign trusts. Publicly traded partnerships (section 1446 withholding tax). For purposes of reporting on Form 1042, a publicly traded partnership (PTP) must withhold section 1446 tax on distributions of effec.tively connected income (ECI) to its foreign partners. A riominee that receives a distribution of ECI from a PTP and is
treated as the withholding agent must use Form 1042 to report the tax withheld. For this purpose, a nominee is a domestic oerson holding an interest in the PTP on oehalf of one or more foreign partners, For more information, see Regulations section 1.1446-4 and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Who Must File

Every withholding agent or intermediary (see definitions below) who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or

indicate its status as a Ql on a Fo'rm 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 Bulletin (IRB) 2000-4 at wwwirs.govlpubli rsirbslirb00-04. pdf. A! so see Notice 2001-4 (IRB 2001-2), as amended; Rev. Proc. 2003-64, Appendix 3 (IRB 2003-32)l Rev. Proc. 2004-21 (IRB 2004-14); and Rev. Proc. 2005-77 (IRB 2005-51). Withholding foreign partnership (WP) or withholding foreign trust (WT). A WP or WT is a foreign partnership ar trust that has entered into a withholding agreement with the IRS in which it agrees to assume primary withholding responsibility for all payments that are made to it for its partners, beneficiaries, or owners. I=or information on these withholding agreements, see Rev, Proc. 2003-64, which is on page 306 of Internal Revenue Bulletin (IRB) 2003-32 at www.irs.gavlpublirsirbslirb03-32.pdf. Alsa see Rev. Proc. 2004-21 (IRB 2004-14) and Rev, Proc, 2005-77 (IRB 2005-51), Nonqualified intermediary (NQI). An NQI is any intermediary that is not a U.S. person and that is nat a Ql.

agreement with the IRS. An entity must

(b)(2) not to have withholding under sectio<, 3405, these payments are subject ta withholding under section 1441 and the tax withheld must be reported using Forms 1042 and 1042-S. Use Schedule H (Form 1040), Household Employment Taxes, to report income tax withheld and social security and Medicare taxes on wages paid to a nonresident alien household employee, For more information, see the instructions for these forms.

Deposit Requirements
Generally, if you are not required to use the Eiectronic Federal Tax Payment System (EFTPS), you must deposit the tax withheld and required to be shown on Form 1042 with an authorized financial institution using your preprinted Form 8109, Federal Tax Deposit Coupon. Do no", use anyone else's coupons. If you do not have your coupons when a deposit is due, cali 'I-800-829-4933, if you are in the United States. If overseas, call 215-516-2000 (nat a tall-free number) frori 6:00 a.m. to 11:00 p.m. Eastern Standard time. You may also caritact your local IRS office. To avoid a penalty, do nat mail your deposits directly to the IRS. The amount of tax you are required ta 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 banking days after the end of the quarter-monthly period. (A quarter-monthly period ends an the 7th, 15th, 22nd, and last day of the month.) To determine banking days, do nat 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 <30% of the actual tax liability for the deposit period, and If 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 ar 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

Where and When To File

File Form 1042 with the Ogden Service Center, P.O. Box 409101, Ogden, UT 84409, by March 15, 2007. Also send amended returns to this address, Use Form 1042-T to transmit paper Forms 1042-S. Extension of time to file. If you riced more time to file Form 1042, you may submit Form 7004, Application for Autamatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Form 7004 does not extend the time for payment of tax.

periodical income must file an annual return for the preceding calendar year on Form 1042. Also, any PTP or nominee making a distribution of ECI under section 1446 must file Form 1042 for the preceding calendar year. You must file Form 1042 if either of the following apply. e You are required to file Form(s) 1042-S (whether or not any tax was withheld or was required to be withheld). File Form 1042 even if you file Forms 1042-S electronically or on magnetic media, + You pay gross Investment income to foreign private foundations that are subject to tax under section 4948(a).

Additional Information
For details on withholding of tax, see Pub. 515, You can get Pub. 515 by calling 1-800-TAX-FORM (1-800-829-3676) or by downloading it from the IRS website at www.lrs.gov.

Withholding Agent
Any person required to withhold tax is a withholding agent. A withholding agent may be an individual, trust, estate, partnership, carporation, nominee (under section 1446), government agency,
association, or tax-exempt foundation, whether domestic or foreign, Every person required fo deduct and withhold any iax under Chapfer 3 of the Code is liable for such tax. See section. l461.

Income Tax V/ithholding on Wages, Pensions, Annuities,

and Certain Other Deferred Income
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

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 ather person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.

employee. Use Form 945, Annual Return of Withheld Federal Income Tax, ta 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

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, 2007,

Form 1042 (2000)

PBge 3

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, 2007. Note. If you are requesting an extension of time to file using Form 7004, follow the rules on this page to see if you must make

can be complicated, we will do it for you if you want, We will send you a bill for any amount due.

WP-EIN, or WT-EIN. Also, be sure to check 1he "Qi/Withholding foreign partnership or

trust" box. See Ql and /VQI checkboxes below, If you do not have an EIN,you can apply for' one online at www.lrs.govlsmallbiz or by telephone at 1-800-829-4933, Also, you can file Form SS-4, Application for Fmployer

a deposit of any balance due or if you can pay it with Form 7004. See Form 7004 and its instructions for more information.
Electronic deposit requirement. You must make electronic deposits of all depository tax liabilities using the Electronic Federal Tax Payment System (EFTPS) in 2007 if: The total deposits of such taxes in 2005 were more than 8200,000, or You were required to use EFTPS in 2006. If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily, To enroll in or get more information about EFTPS, cali 1-800-555-4477, You can also visit the EFTPS website at www.effps.gov. 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 payments 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 space on Form 8109: If the distribution is reportable for the current year, darken the 1st quarter space. In all cases, follow the

If you include interest or penalties (other than the penalty for failure to deposit tax when due) with your payment, identify and enter the amount in the bottom margin of Form 1042, page 1, Do not Include interest or penalties (other than the penalty for failure to deposit tax when due) in the balance due on line 68. 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 for failure to file, negligence, fraud, and substantial understatements of tax from the due date (including extensions) to the date of payment. Interest is figured at a rate determined under section 6621. Late filing of Form 1042. The penalty for not filing Form 1042 when due (including extensions) is 5% of the unpaid tax for each month or part 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 /4 of 1% of 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 7042 consolidating all Form 7042-S recipient information, regardless of the number of different clients, branches, divisions, or types of income for which you are the withholding agent. However, rf you are acting in more than one capacity (for exarriple, you are acfing as a Ql for certain designated accounts and as an /VQI for other accounts),file a separate Form 7042 for each capacity in which you are acting. Rounding off to whole dollars. You hlay round off cents to whole dollars, If you do

coupon book Instructions for completing the rest of the deposit coupon, lo 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.
Deposits by foreign corporations. Fill in a preprinted Form 8109 showing the 'Amount of Deposit" in U.S. dollars. Mail the completed coupon with a bank draft in U,S, dollars to: Financial Agent Federal Tax Deposit Processing P.O. Box 970030 St, Louis, MO 63197 U.S.A.

Interest and Penalties

If you file Form l042 late, or fail to pay or deposit the tax when due, you may be liable for penalties and interest unless you can show that the failure to file or pay was due to reasonable cause and not willful neglect.
T~p
You do not have lo ffgvre fhe ' a mount any interest or of penalties you may owe, Because figuring these amounts

round to whole dollars, you must round all amounts. To round off amounts to the nearest whole dollar, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $L39 becomes $1 and $2,50 becomes $3. If you have to add two or more 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, withholding foreign partnership, or withholding foreign trust, enter your QI-EIN,

Identification Number, by fax or mail. File amended Forms 1042-S when you receive your EIN. To get a QI-EIN, WP-EIN, or WT-EIN, submit Form SS-4 wi1h your application for that status. Do not send an application for a QI-EIN, WP-EIN, or WT-EIN to the addresses listed in the Instructions for Form SS-4. Address. Include the suite, room, or other unit number after 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, Ql and NQI checkboxes. See page 2 for definitions of intermediary, qualified intermediary (Ql), 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. branch treated as a U.S. person, Check the "NQI/Flow-through en.ity" 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 Ql 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 liability was incurred. If you repaid the recipient for an amount overwithheld by reducing the amount withheld on a later payment, report the reduced amount on these lines. If you used the reimbursement procedure for overwithheld amounts, see Pub. 5'l5, Lines 62a and 62b. En1er the amounts requested with respect to all Forms 1042-S (regardless of whether the form was filed electronically, on magnetic media, or or, paper) and with respect to all Forms 1000, Ownership Certificate.
Be sure fo reconcile amounts. on Form 7042 with amounts on . Forms 7042-S (including Forms 7042-S filed electronically and on magnetic media), fo avoid unnecessary correspondence witf~ the IRS. Line 62a. The amoun' on line 62a should equal the sum of all amounts shown on

Forms 1042-S, box 2, and all amounts shown as gross intere..t paid on Forms
1000.

Form 1042 (2006)

Page 4

demanding payment. Add the penalty to Line 62b, The amount on line 62b any tax due and enter the total on line 68. should equai: If you are due a refund, subtract the e The sum of all Forms 1042-S, box 7, penalty from the overpayment you show on less line 69. ~ The sum of all Forms 1042-S, box 8, Because this penalty plus calculation is complicated, if i The tax assumed from Forms 1000. you want to, you can leave line If it does not, attach a statement to Form 70 blank and the IRS will 1042 explaining the difference. figure the penalty and send you a bill. We Line 63a. The amount on line 63a must will not charge you interest on the penalty equal the sum of the monthly totals as if you pay by the date specified on the bill. listed on the Record of Federal Tax Liability. Do not make any adjustments on Third Party Designee this line. Except fcr adjustments described If you want to allow any individual, in the instructions for line 63b, you may corporation, firm, organization, or only make adjustments on the appropriate partnership to discuss your 2006 Form entry line of the Record of Federal Tax 1042 with the IRS, check the "Yesv box in Liability. the Third Party Designee section of the Line 63b. If you are a regulated investment return. Also, enter the name, phone company (RIC) or a real estate investment number, and any five numbers that the trust (REIT) that paid a dividend in January designee chooses as his or her personal subject to section 852(b)(7) or section 857(b)(9) (relating to certain dividends declared in the preceding October, November, or December), enter your additional tax liability on those dividends declared in 2006 but paid in January 2007 less any additional tax liability on those dividends declared in 2005 but paid in January 2006. Show any negative amount in brackets. Attach a statement showing your caiculation. 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 the amount you entered on line 63c includes amounts withheld by a U.S. withholding agent, You may take a credit on line 66
for the amounts that were withheld by the U.S. withholding agent. If you are a Ql requesting a refund, you must attach the a corre s ponding Form(s) 7042-S received Io support the amount claimed on line 66. Failure to do so will result in the denial of the refund or crerjit being claimed. If you are a PTP or a nominee withhola'ing under section 1446, the tax paid for a payee may only be claimed as a credit by the payee. Lines 69 and 71. You may claim an

If you are also amending Form(s)

1042-S, see Correcting Paper Forms 1042-S in the Form 1042-S instructions.

Do not amend Form 1042 to recover taxes overwithheld in the prior year, For more information, seeAdjustment for
Overwithholding In Pub, 515.

identification number (PIN). The authorization applies only 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: Exchange information concerning your tax return with the IRS, and 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 IRS. lf you want to expand the designee's authorization, see Pub. 947, Practice

Before the IRS and Power of Attorney.

The authorization automatically expires one year from the due date (without regard to extensions) for filing your 2006 Form 1042. If you or your designee desire to terminate the authorization, a written statement conveying your wish to revoke the authorization should be submitted to the IRS service center where the return was processed.

Privacy Act and Papetwork 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 (for PTPs) 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 employer identification number. Routine uses of this information include giving il 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 state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. If you fail to provide this information in a timely manner, you may be liable for penalties and interest. You are not required to prov>de the information requested on a form that is subject to the Paperwork Reduction Act unless the form display. 'a valid OMB control number, Books or records relating to a form or i;s instruclions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax

returns and return information are

Amended Return
If you have to make changes to your Form 1042 after you submit it, file an amended Form 1042. Use a Form 1042 for the year you are amending. Check the "Amended Return" box at the top of the form, You must complete the entire form, including all filing information for the calendar year, and sign the return. Attach a statement explaining why you are filing an amended return (for example, you are filing because the tax liability for May was incorrectly reported due to a mathematical error).

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 2007. 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 ar'e 2% for deposits made 1 to 5 days late, 5% for deposits made 6 to 15 days late, and 10% for 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

confidential, as required by section 6103. The time needed to complete and file these forms will vary depending on individual circumstances. The estimated average time is; Recordkeeping, 9 hr48 min,; Learning about the law or the form, 2 hr., 25 min,; Preparing the form, 4 hr., ;33 min q and Copying, assembling, and sending the form to the IRS, 32 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR;MP;T:T:SP, 1111 Constitution Ave. NW, IR-6406, Washington, DC 20224. Do not send the form to this address, Instead, see Where and When To File on page 2.