(Reuters) - The trustee seeking money for victims of imprisoned swindler Bernard Madoff has reached an agreement with the U.S. Internal Revenue Service (IRS) to recover $326 million that was earlier transferred to the agency by Madoff's firm purportedly on behalf of foreign account holders, court documents showed.
The settlement money will eventually be distributed to Madoff's customers who have valid claims, according to the court filing.
The trustee, Irving Picard, in the course of his investigation, identified certain payments made by Madoff and his firm supposedly on behalf of foreign account holders.
Picard said in the court filing that payments were made on behalf of 145 foreign accountholders totaling about $330 million. The IRS had erroneously refunded about $4.2 million to two of the foreign accountholders, according to the court filing.
The trustee said there is no record of Madoff's firm having purchased or sold any securities for the benefit of 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 Bernard L. Madoff Investment Securities LLC (BLMIS) an air of legitimacy and to avoid inquiries," Picard said in a filing.
The trustee will reserve about $103 million of the settlement payment to meet any judgements against the IRS or the trustee.
The reserve amount will be released for distribution two years and 60 days after the settlement is approved by the court.
The trustee was appointed by the U.S. Bankruptcy Court in Manhattan to liquidate Madoff's money management firm BLMIS.
He has brought about 1,050 lawsuits seeking more than $103 billion, primarily from banks and other financial firms and funds. Roughly one-third of that sum has been thrown out in various court decisions.
The trustee had earlier said he has recovered roughly $8.7 billion to cover about $17.3 billion of valid customer claims.
Madoff is serving a 150-year prison sentence.
The case is SIPC v. Bernard L. Madoff Investment Securities, U.S. Bankruptcy Court, Southern District of New York, No. 08-01789.
(Reporting by Sakthi Prasad in Bangalore; Editing by Vinu Pilakkott)