Counterfeit Bills

[dtlee]

This was based on an actual event, but came up as a hypothetical scenario in a discussion group yesterday. I am still not 100% comfortable with any of our suggested handlings.

A taxpayer moves money from Bank A to Bank B. He takes $1000 out of Bank A in cash and brings it to Bank B. Bank B checks the bills and determines he has a counterfeit $100 bill in the deposit. He gets a receipt that says, "This may be deductible. Ask your tax advisor." The other bank would not accept his insistence that he was given a counterfeit bill since he reported it after he left the window (and left the bank and drove five miles away and argued and then came back with a receipt showing he attempted to deposit counterfeit money).

We discussed this and seemed to think that it made sense that had this been a rent payment or business transaction on schedule c and was not able to be collected, it would reduce gross proceeds from those activities or be treated as a business bad debt. However, we were uncomfortable with the original scenario or any scenario where the source of the counterfeit bill could not be determined.

What do you think? Is this something you would adjust on page 1 somewhere? Is this something you would treat as a non business bad debt? If the latter, would the receipt from Bank B be sufficient evidence that you attempted to collect or would you need to have the withdrawal slip from Bank A and some correspondence attempting collection?

Any ideas or citations that tell us how this should be treated?

Thanks.

[jimmcg]

This was based on an actual event, but came up as a hypothetical scenario in a discussion group yesterday. I am still not 100% comfortable with any of our suggested handlings.

A taxpayer moves money from Bank A to Bank B. He takes $1000 out of Bank A in cash and brings it to Bank B. Bank B checks the bills and determines he has a counterfeit $100 bill in the deposit. He gets a receipt that says, "This may be deductible. Ask your tax advisor." The other bank would not accept his insistence that he was given a counterfeit bill since he reported it after he left the window (and left the bank and drove five miles away and argued and then came back with a receipt showing he attempted to deposit counterfeit money).

We discussed this and seemed to think that it made sense that had this been a rent payment or business transaction on schedule c and was not able to be collected, it would reduce gross proceeds from those activities or be treated as a business bad debt. However, we were uncomfortable with the original scenario or any scenario where the source of the counterfeit bill could not be determined.

What do you think? Is this something you would adjust on page 1 somewhere? Is this something you would treat as a non business bad debt? If the latter, would the receipt from Bank B be sufficient evidence that you attempted to collect or would you need to have the withdrawal slip from Bank A and some correspondence attempting collection?

Any ideas or citations that tell us how this should be treated?

Thanks.

Theft loss probably not deductable as a result of the usual theft loss limitations.

[JG EA]

I know this from watching TV: ,,
If you have anything stolen you must give it back, give it to the police (or bank in this case), and you lose any financial benefit from owning it.

If someone gave it knowingly to a taxpayer as payment, then I would not count it as money received.

I think this hypothetical taxpayer is stuck - but should go to the hypothetical police and tell them where they got the fake bill.

Another story totally unrelated.
I once closed out an account and the bank wanted to give me a cashier's check and I would have to pay a fee for it. I said I'll take it in cash then. Well, they didn't have enough cash (and it wasn't a large amount either). So, they waived the fee. I would have been very angry if they had given me a counterfeit bill.