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    #1

    Loss due to fraud

    I have a client who withdrew $25,000 from her IRA and sent the money to someone in Ghana who turned out to be a scammer. My client's brother fell in love with this person over the internet and the person said she needed to borrow $25,000 to enable her to travel to the United States to marry him. Yikes! If that's not fishy-sounding, nothing is. Anyway, they fell for it and she loaned her brother the money to send to this con-artist in Ghana, and now the money is gone. My client's former accountant told her she could exclude the amount withdrawn from her IRA and call it a bad debt. I'm almost 100% sure that's wrong and that it is indeed taxable, but I thought I'd better check to make sure considering the amount of money involved in this.

    Linda
    Tags: None
    #2
    Um, no.

    As in you are right, and there is no exception to either the early withdrawal penalty or taxable income for stupidity.

    As for a bad debt deduction, she was not the one defrauded, it was her brother. So unless she had a promissary note all nice & legal like loaning her brother the money, AND made every attempt to collect from him the debt, AND documented the attempts, she doesn't even have a bad debt.

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      #3
      Really?

      is what I'd be asking that client. I'd be hard-pressed to w/d $25,000 from my retirement account for a friend or some distant family member and just "loaning" it to them, let alone wiring it to someone in GHANA!!

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        #4
        Originally posted by DTS View Post
        is what I'd be asking that client. I'd be hard-pressed to w/d $25,000 from my retirement account for a friend or some distant family member and just "loaning" it to them, let alone wiring it to someone in GHANA!!
        "Really?" is such a good question, for it's beginning to sound to me like the client made up this Ghanese cover story to try to embellish a tax deduction.
        ChEAr$,
        Harlan Lunsford, EA n LA

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          #5
          Stupity tax

          Stupity tax is a good name for it. I'm sure this is a real story, that these people aren't actually smart enough to make this up with the idea in mind to get a tax deduction out of it. It amazes me that people actually really do fall for these things. It's sad, because they are a really nice couple, and this was a big chunk our of their retirement savings. But I have to remember that I'm not the one who gave it all away. Thank you all for your answers.

          Comment

            #6
            What a mess!

            Originally posted by manyhappyreturns View Post
            Stupity tax is a good name for it. I'm sure this is a real story, that these people aren't actually smart enough to make this up with the idea in mind to get a tax deduction out of it. It amazes me that people actually really do fall for these things. It's sad, because they are a really nice couple, and this was a big chunk our of their retirement savings. But I have to remember that I'm not the one who gave it all away. Thank you all for your answers.
            I'm a bit concerned about the qualifications of that "former accountant." No reasonable way to exclude the IRA funds withdrawal and no way to call the (post-withdrawal) "loan" a bad debt absent the usual restrictions for such.

            BTW: Have you informed them they (likely) will also be staring down an additional 10% penalty on top of US/state income taxes??

            FE

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              #7
              Why is he her FORMER accountant?

              Hope brother is making her IRA contributions for the next many years, or supporting her in her retirement !!

              Comment

                #8
                It's also possible that the brother is the scammer and there never was a "bride" to begin with.
                "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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