Loss due to fraud

[manyhappyreturns]

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 My client's former accountant told her she could exclude the amount withdrawn from her IRA and call it a bad debt.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

[joanmcq]

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.

[DTS]

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!!

[ChEAr$]

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.

[manyhappyreturns]

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.

[FEDUKE404]

What a mess!

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

[Lion]

Why is he her FORMER accountant?

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

[JohnH]

It's also possible that the brother is the scammer and there never was a "bride" to begin with.