Discussion:Nigerian scam deductible as a theft loss?
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Discussion Forum Index --> Tax Questions --> Nigerian scam deductible as a theft loss?
| 19 July 2008 | |
| I have a client's son who died, and I am trying to bring all of his unfiled returns up to date. The son's record keeping was terrible (almost nonexistant) so the client has been bringing me boxes of documents from the son's house to sort through to try and piece together returns.
One of the boxes was full of Western Union and MoneyGram receipts for money sent overseas. We haven't added them all up, but I estimate that we're into six figures. From what information the attorney and I can pull together, the son had been sucked into a Nigerian Scam. Can I take a theft loss deduction for the money that was wired overseas? | |
Southparkcpa (talk|edits) said: | 19 July 2008 |
| My understanding of these scams is that a check is sent to the client. The client cashes the check and sends 90 percent of it to a "Nigerian Nobleman". GOOGLE This.
What basically happens is that the check is a stolen check from a large company. The "Nigerian" puts the clients name on the check and the client is found guilty of fraud for the full amount when he cashes it. So if this is the case, the son in your case in fact may not have sent his money but someone elses. He would then be guilty of bank fraud and liable for all of the money. No deduction because it is not his money. Let's hope this is not the case. | |
| 19 July 2008 | |
| There are many variations of the "Nigerian Scam" - one published on Long Island - New York State - was where the "Ring" obtained Credit Card numbers from Manhattan Restaurants (with expiration dates) - made fake credit cards - and sent "runners" to Home Depot - where Power Tools were purchased and later exchanged for "credits" - those checks issued by HD were then negotiated.
This involved millions and ring leaders were caught and are now in prision. Banks publish a list of conterfeit cashiers checks - so never accept a Cashiers Check as full payment (eBay purchases) until it has cleared the issuing bank - and call them first to make certain they did in fact issue the check. Southparkcpa is right the most common "Nigerian Scam" is the cashing of counterfeit checks and sending part of the funds offshore. | |
| 19 July 2008 | |
| If the son was a victim of the Nigerian Scam, I don't see why he wouldn't have a deduction. As I understand one of the scams, he would have received a counterfeit cashiers check, deposited it, and then sent a portion to the scam artist overseas. When the counterfeit cashiers check was discovered and charged back to his account, he would still be out the amount of his own funds he sent to the scammer. While it could be said that he sent the scammer's money back to the scammer, in fact he didn't because the scammer didn't provide him with money to send back - he provided him with a counterfeit item which was no good. The part that he had to cover with his own funds after the charge back of the illegit money order would be a theft loss. | |
Southparkcpa (talk|edits) said: | 19 July 2008 |
| SCCPA
We have the same understanding. In my readings and as was on CBS news, the checks are VERY Large like 40K, 20K etc... stolen from big public companies via mail fraud. Thus the client wouldn't be able to pay back the funds. If he did pay back some, he may be entitled to deduction. However, he will be charged with a crime unfortunately. Courts in NY and Connecticut have found that he "should have known" it was a scam and is liable. In fact, some are in jail claiming that they are victims. So then that brings in the fact that illegal payments can't be deducted. Other than that I agree with you completely. | |
| 19 July 2008 | |
| Southpark makes a good point. You can't have a theft loss for something that was never yours to begin with. So, the facts of this scam will have to be nailed down. | |
| 20 July 2008 | |
| From my understanding, there are several different kinds "Nigerian Scams" out there.
In the first kind, someone post something on Ebay or the like, and the scammer agrees to buy the item (typically at a high price). Then, rather than just send the amount of money, they find an excluse to send excess, with the request the victim cash the check and send the rest back to them with the item. As an example, the scammer and the victim agree to sell an X-box for 500. The scammer mails a $1000 check. The victim deposits the $1000 check, then sends the scammer the $500 and the item. By the time the $1000 check bounces, the money (and possibly the item) has been taken by the scammer which disappears. The bank, when it discovers the check is bad, reverses the check and deducts the amount from the victim's account. So in this case the victim is out $500 + item. The item typically is an afterthough though. In another variation, the scammer sends a message to a victim indicating that they've inherited money or the like from a dead relative there. Or maybe there is an unclaimed money that he will help them obtain for a cut of the money. Of course, a snag happens and the victim is requested to send money upfront for "document fees", or maybe "Clerence fees" or for bribes to government officials. If they pay, then a further "complication" happens which requires more money or fees to correct..and so on until the money stops flowing. A possibly Not Safe For Work site that goes into great detail is here... http://419eater.com/ | |
| 21 July 2008 | |
| This is the second type of scam that GoalieEd mentiones.
The money was being sent overseas for various "fees" that needed to be paid to get the unclaimed money out of the country. And, of course, there was always a "snag" that required more money. I can pretty much tie the money wires to cash withdrawls from his bank account, and I don't have any unidentified deposits in his bank account. (At least amounts anywhere near the total of the wire transfers). It wasn't the counterfiet check to a money order conversion scam as we don't have any records of returned checks (we have the bank statements) and the attorney isn't aware of any legal action for check fraud against the deceased son. For the amount of money being rolled, somebody would have been on him by now if it was this type of scheme. So, the bottom line. Can I take all the money the son sent overseas for the "fees" as a theft loss deduction? | |
| 21 July 2008 | |
(page 897 for those who need a cite
Tax according to Kevin, highlighted and annotated edition, revised well-above-standard version.) | |
Southparkcpa (talk|edits) said: | 21 July 2008 |
| I think we are all in agreement. yes, he has basis, it was his money. Theft deduction allowed.
Kevin, Page 897 of what ......???? Matt | |
| July 21, 2008 | |
| Of Tax According to Kevin. I'm writing a similar book and will use that for future cites. Only 89.99 cash prepaid. | |
Kmikeburns (talk|edits) said: | 21 July 2008 |
| ok
Send each person $ 200 to guarantee receipt of the book and we will go from there. | |
| July 21, 2008 | |
| Sorta. I was thinking that if you could get five of your friends to buy it as well, I'll kick you 10%...and so on. | |
IDrinkYourMilkshake (talk|edits) said: | 21 July 2008 |
| I had a friend who stringed along one of these scammers before. He was seeling something on Craigslist when he was contacted by the scammer. The scammer sent hundred more than the price and asked the rest be sent back to him via Western Union. Knowing it was a scam, the check was never cashed, although he kept sending the scammer Westion union tracking numbers to the scammer. Lasted a few weeks, quite funny and entertaining... | |
