Client lost $75,000 in a fraud scheme. Deductible?

[zeros]

Woman was in an online relationship and man told this awful story about his son suffering and needed money. Well, she fell for it and sent approximated $75,000. Money taken out of her IRA account and prematurely. He suddenly disappeared, what do you know? Anyhow, would this by chance be deductible anywhere?

[TaxmannEA]

Possibly a casualty/theft loss, but a police report would need to be filed and all proper documentation present.

[zeros]

Reported

Possibly a casualty/theft loss, but a police report would need to be filed and all proper documentation present.

As I understand from the client that a police and FBI reports have been filed. Anything else needed?

[JoshinNC]

Gift

As I understand from the client that a police and FBI reports have been filed. Anything else needed?

Not deductible. Make sure you file a gift tax return as it is greater than the annual exclusion.

Sorry

[taxea]

Not deductible. Make sure you file a gift tax return as it is greater than the annual exclusion.

Sorry

This is a type of embezzlement and criminal in nature. How can you call it a gift and not deductible? With all the proper documentation it is a theft/loss.

[JoshinNC]

I don't believe

This is a type of embezzlement and criminal in nature. How can you call it a gift and not deductible? With all the proper documentation it is a theft/loss.

A person who WILLFULLY sends money to a person with whom they have an existing personal relationship with for the purpose of assisting that person with a personal financial issue is anything other than a gift. The donor's intent was to GIVE the money to the donee. The fact that the donee was a lying scumbag doesnt Change the donor's intent.

[taxea]

A person who WILLFULLY sends money to a person with whom they have an existing personal relationship with for the purpose of assisting that person with a personal financial issue is anything other than a gift. The donor's intent was to GIVE the money to the donee. The fact that the donee was a lying scumbag doesnt Change the donor's intent.

there are many instances where the catfish will call this a loan. This is a criminal activity even if the person sending the money doesn't realize it at the time. The "existing personal relationship" is part of the scam.

[Burke]

I just did one for $70,000. She was recruited through an on-line dating site, but it was an investment scheme with tons of legitimate-sounding names of investment firms (using the name Vanguard) and promises of investment "returns." There was no intention to give the money to a person for personal use. Local police are not even interested, as they don't have any jurisdiction over NY banks through which this was facilitated nor the UK where the money was supposedly wired. She did register a report with the Federal Trade Commission on their fraud site. I don't understand why we don't have better safeguards in the banking system to deal with these frauds.

[zeros]

Did IRS Challenge the Deduction?

I just did one for $70,000. She was recruited through an on-line dating site, but it was an investment scheme with tons of legitimate-sounding names of investment firms (using the name Vanguard) and promises of investment "returns." There was no intention to give the money to a person for personal use. Local police are not even interested, as they don't have any jurisdiction over NY banks through which this was facilitated nor the UK where the money was supposedly wired. She did register a report with the Federal Trade Commission on their fraud site. I don't understand why we don't have better safeguards in the banking system to deal with these frauds.

Was she allowed her deduction?

[Burke]

Well, we won't know for a while. It has just been filed. It's bound to raise a red flag, I would suspect.....although there are even special IRS worksheets to complete for investment fraud, prompted by the Bernie Madoff debacle.

[zeros]

Amount Claimed? IRA Penalty?

Client added into the amount defrauded the 10% penalty for cashing in her IRA's prematurely. Is that kind of a stretch?

[Burke]

Client added into the amount defrauded the 10% penalty for cashing in her IRA's prematurely. Is that kind of a stretch?

Yes, it is. She did not send him that 10%. She cashed in those voluntarily to get the cash. Bad move, to add insult to injury. IRS still wants it's penalty and it's not deductible.