ID and 401(K) theft

[Peggy Cobb]

A client of mine moved from Washington State to Idaho the first part of this year, got married, then had it annulled because she used his SS#, took all of his cash, changed his address to hers, took out credit cards and cellphones with his SS#, and drained his 401(K) of $15,000 and then took off. She has had a warrent served and he is working with the prosecuting attorney.

The main question - what of this 401(K) distribution is taxable? I reviewed the exceptions and the only one that comes close (and it would be a major stretch that I am not comfortable with) is distribution to a nonparticipant under a qualified domestic relations order. I advised him to see if he could locate her SS#.

Any other suggestions?

Thanks

Peggy Cobb

Mount Vernon, WA

[TAXBILLY]

Sounds like fraud to me. If the IRS comes after your client use the innocent spouse rules.

taxbilly

[jainen]

>>use the innocent spouse rules<<

Neither that nor the QDRO can work since they were never married.

Use Form 8275 to explain why you are not reporting the 1099-R on the tax return. If you get an IRS letter about undeclared income, respond immediately. IRS is very concerned about identity theft. They have a pamphlet, pub 4535, and the Taxpayer's Advocate has reported to Congress that the issue is of the highest priority.

[RoyDaleOne]

A client of mine moved from Washington State to Idaho the first part of this year, got married, then had it annulled because she used his SS#, took all of his cash, changed his address to hers, took out credit cards and cellphones with his SS#, and drained his 401(K) of $15,000 and then took off. She has had a warrent served and he is working with the prosecuting attorney.

The main question - what of this 401(K) distribution is taxable? I reviewed the exceptions and the only one that comes close (and it would be a major stretch that I am not comfortable with) is distribution to a nonparticipant under a qualified domestic relations order. I advised him to see if he could locate her SS#.

Any other suggestions?

Thanks

Peggy Cobb

Mount Vernon, WA

I have some "parrington" friends in Mount Vernon, WA.

There should be no taxable income, if your friend had nothing to do with the withdrawal. It was a theft, under false pretense, fraud, forgery, etc.

The problem is naturally, communicating that to the IRS.

[Peggy Cobb]

Thank you for the great suggestions. I appreciate the help

Mount Vernon has about 20,000 to 22,000 people. Great small town, lots to do even if it is raining. We are an hour north of Seattle.

Peggy Cobb

Mount Vernon, WA

[joanmcq]

I have a client in this situation too. I have been waiting for a copy of the police report though; I want 'proof' the withdrawals were not made by the client due to the new preparer penalties.