Scam victim - out of luck?

[Margaret CPA in OH]

A client with a measure of dementia creeping in called me with her tale of woe.  She has been too embarrassed to call me months ago when this began.  Apparently she fell for a scam which resulted in her sending several hundreds of thousands from her IRA.  She finally got suspicious when it was never enough and contacted an acquaintance in the FBI.  Ironically she had taken a citizen's course about the FBI a few years ago so had a contact but her dementia interfered.

The agent told her that this was a major scam going around and, of course, a federal offense.  He took down lots of details as she kept many notes.  A case is being built against these folks.  She is hoping that there will be some mitigation but I think not.

I told her to get information from the bank and, to avoid further embarrassment, to just state her CPA needs this for year end tax planning.  She seems to think that $78,000 was the tax and I'm hoping that was withheld. No state tax, though.

I think she is up that creek but told her I would look into this.  She has enough to live on but it will be a reduced lifestyle going forward.  If she owes (almost for sure), additional tax, I assured her that payment plans are possible.

Is there anything I am missing that she or I should know?  I've had clients with stolen identities but this is a first.  These are despicable people taking advantage of elderly.

[Sara EA]

She should be eligible to deduct a theft loss on Form 4684 and Sch A.

I had a client in the exact same situation.  He didn't admit to me what happened until his financial situation became dire.  Once he did, he felt comfortable enough to admit that it had happened twice.  IRS accepted the first submission with no problem but questioned the second.  He eventually prevailed.  Still, all he saved was the tax, which would have been an added burden on his depleted bank account.  He never got his money back and had to sell his home and move in with his children.  The part of me that wants to think there is good in all people is facing the fact that there are many exceptions.

[jklcpa]

2 hours ago, Sara EA said:

She should be eligible to deduct a theft loss on Form 4684 and Sch A.

In general, casualty and theft losses for years 2018 through 2025 are only deductible if related federally declared disaster, and specifically for theft losses, those losses are currently only allowed for those losses that resulted from transactions entered into for profit. If the loss was from an investment type scam, then it may be deductible, but the original post didn't say what lead to the loss except that dementia played a part and that the funds came from an IRA.

Edited December 9, 2024 by jklcpa
Correct typo: thru date to read "2025"

[DANRVAN]

Unfortunately case law is not in favor of your client.  "Gomas v. United States, U.S. District Court for the Middle District of Florida, Case No. 8:22-CV-01271, July 17, 2023" held that since taxpayers freely authorized the distributions they were taxable under sec 408(d)(1).

In another case, Roberts v. Com, the taxpayers ex-wife forged the authorization of withdrawals from his IRA.  Then she received the check and forged his signature and deposited them into a joint checking account that she had sole access to.  But in your client's case, it appears she authorized the distributions and had control of them.

2 hours ago, jklcpa said:

If the loss was from an investment type scam, then it may be deductible,

 

5 hours ago, Margaret CPA in OH said:

Is there anything I am missing that she or I should know? 

See RR 2009-9 and RR 2009-20 for details on a qualified investment loss.

[BrewOne]

Unfortunately, unless Congress grants relief, this will be a matter of dealing with collections.  Maybe getting CNC status or an OIC.

[JimTaxes]

I had a client, cashed in her IRA when she was scammed.. received a 1099-R for like $ 75,000 or so.  Got the local congressman involved.. He got the IRS to open a case to see if taxpayer could be given some relief.. relief was denied. 

[Margaret CPA in OH]

Thanks to all for confirming that really nothing could be done.  She is not in a position to take advantage of this loss in any way as it was neither business nor casualty.  She has already refinanced her mortgage based on her sister's recommendation. I don't know the details but am fairly certain I would have advised against that.  She thought she needed more cash currently.  I think she now has a higher rate.

Alas, dementia is not a reason to have other taxpayers cover her losses or taxes owed.  The scammers are just awful humans, in my opinion.  I'm wondering whether, with my aging clientele, I should reiterate a caveat to maybe contact me if someone approaches or calls them about sending money.  This client said her gut feeling that something was wrong about this but hesitated to ask either her sister or me.  The phrase "can't fix stupid" comes to mind but, sadly, so does the fact that adults with dementia are truly not of sound mind.

[schirallicpa]

I believe that if fraud happens with a credit card that the CC company must assist you and make things right.  However, if the fraud happens with a bank or investment company, they are off the hook, even if they have been less than vigilant in protecting your funds. 

[Lee B]

In the past several years I have had three business clients who had fraudulent checks which cleared their checking accounts.

I found them when I did my monthly checking account reconciliation. In two cases the banks reimbursed my clients.

In the third case the bank refused to help my client. However the amounts were only 2 or 3 thousand dollars.

[mcbreck]

On 12/8/2024 at 5:07 PM, Margaret CPA in OH said:

several hundreds of thousands from her IRA

 

Like $200,000+?

These scams are getting good and I've gotten called a few times and it worries me I'll fall for them when I get older. I hang up on them quickly but the old standard that you can look at the email address and figure out it's a scam is pretty much gone. Some of those emails are shockingly good looking and the email addresses are spoofed / say the name of the company.

[jklcpa]

2 minutes ago, mcbreck said:

Some of those emails are shockingly good looking and the email addresses are spoofed / say the name of the company.

Like the one below that I recently shared. Sorry it's so big. Look at the "a" in the portion for "bank" in each of the examples.
Best practice is to never ever click a link in an email and never respond to a fraud phone call from a bank or credit card company that calls you because the thief can spoof the caller i.d.  Always place the call yourself using the number on the back of your credit card or monthly statement.

[Margaret CPA in OH]

2 hours ago, mcbreck said:

Like $200,000+?

These scams are getting good and I've gotten called a few times and it worries me I'll fall for them when I get older. I hang up on them quickly but the old standard that you can look at the email address and figure out it's a scam is pretty much gone. Some of those emails are shockingly good looking and the email addresses are spoofed / say the name of the company.

The client said about $700,000.  She also said the tax was $78,000 although I'm not sure how she got that figure.  I looked at 2023 1099R and back calculated the FWH to see the ratio.  It looks more like about $650,000.  I hope she gets the information from the bank as I asked.  It will be tough for her going forward especially if she has to enter memory care with diminished assets.

[mcbreck]

18 hours ago, jklcpa said:

Like the one below that I recently shared. Sorry it's so big. Look at the "a" in the portion for "bank" in each of the examples.
Best practice is to never ever click a link in an email and never respond to a fraud phone call from a bank or credit card company that calls you because the thief can spoof the caller i.d.  Always place the call yourself using the number on the back of your credit card or monthly statement.

 

Looking at spam I have an email that came from [email protected] which is their actual email (I cut and paste it into the google bar and it's real and not a fake letter like your example). I keep getting emails from my web site host saying my payment was rejected and I need to update my credit card - email says it came from their domain - it is fake. The first time I saw it I freaked but thankfully I googled their website and went in that way and realized I'm all paid up. My heart sank that I could have easily clicked their link. I kept the email saved and looking at it there is no obvious sign it's fake.

With the credit card thing - the real kicker was that ebay had just rejected an order because my credit card had expired. I'd updated my credit card so it was still on my mind.

 

[BrewOne]

I've received the same thing--from all appearances it was from paypal.

And as to the credit card expiration, a lot of scammers are relying on coincidence (i.e., you're expecting a FedEx package). 

'O Brave New World' (Shakespeare prior to Aldous Huxley)