A federal decide has blocked a greater than $400,000 revenue tax refund claimed by aged fraud victims, saying he regrets there’s nothing he can do by regulation however aspect with the IRS.
The story of Dennis and Suzanne Gomas exhibits the boundaries of the tax code’s assist for crime victims — particularly now, the decide and tax consultants say.
The Florida retirees have been scammed out almost $2 million by their daughter who’s now convicted on felony expenses together with theft. She is serving a 25-year jail sentence.
One deduction that would’ve helped recoup a number of the nest egg cash was off limits via 2025, and different methods to deal with the misplaced IRA and pension cash didn’t match with tax guidelines, Tampa federal decide Tom Barber mentioned in a call this week.
“The fact that these elderly plaintiffs are now required to pay tax on monies that were stolen from them seems unjust,” Barber wrote. Still, the decide later added, he was “bound to follow the law, even where, as here, the outcome seems unjust.”
“It’s just an unfortunate outcome. We certainly are planning to appeal,” mentioned lawyer Tyler DeWitt, who represents the couple of their late 70s. DeWitt filed the attraction discover on Friday.
The IRS doesn’t touch upon pending litigation, a tax company spokesman mentioned.
‘Undisputed and disturbing’
Suzanne Anderson’s plot to extract cash from her mom, her stepfather and their mates included a cooked-up scheme to pay for a lawyer and pretend claims of most cancers, in line with court docket papers and prosecutors.
“The facts of this case are undisputed and disturbing,” Judge Barber wrote.
When the Gomases retired in 2016, they turned over their uncooked pet meals enterprise to Anderson. Roughly a yr later, she persuaded the couple into pondering former staff had been misusing the enterprise’ bank card processing account to rip-off clients.
Anderson mentioned the Gomases wanted to rent an lawyer to keep away from authorized bother and Dennis Gomas’ potential arrest. She urged a reputation and the couple despatched her almost $140,000 to rent the person. But the couple by no means met or communicated with the lawyer as a result of Anderson was at all times the go-between. At one level, she created a bogus e mail deal with to pose because the lawyer, Barber mentioned.
In her scheme, Anderson repeatedly hit up the couple for cash that may supposedly settle the authorized issues and stave off Mr. Gomas’ arrest. She additionally instructed them she wanted cash for abdomen most cancers remedies, court docket papers mentioned.
The couple’s mates ultimately reached out to the supposedly retained lawyer. The lawyer confirmed he wasn’t representing Anderson or the Gomases. Anderson was pocketing the cash as a substitute, in line with court docket filings.
The mates instructed the Gomases in August 2019 that Anderson was conning them. (Anderson had ripped off a number of the mates and others for greater than $200,000, court docket papers say.) Hernando County police opened an investigation the identical day and in January 2021, Anderson was arrested. Anderson pleaded responsible greater than a yr later and was sentenced final September.
A prolonged keep at jail is “right where she belongs,” Barber mentioned. But the decide mentioned the present case hinged on “whether the victims of her fraud are required to pay federal income tax on the money she stole from them. Astonishingly, for the reasons explained below, they are.”
Deduction on theft losses
There was a time when taxpayers just like the Gomases might have claimed a theft loss deduction on private property. The quantity of the theft loss that exceeded 10% of a filer’s adjusted gross revenue was deductible.
But the 2017 Tax Cuts and Jobs Act vastly narrowed the theft loss deduction via 2025, in addition to different itemized deductions. It additionally mentioned claimed casualty losses could be eligible solely when related to federally-declared disasters.
“If it’s personal money and it’s stolen, it’s just gone,” mentioned Charlene Luke, a tax regulation professor on the University of Florida Levin College of Law who has studied the theft and casualty loss deduction.
“It’s treated the way as any other form of consumption, which is highly problematic. … You can’t take a deduction if you go on a cruise or any other type of entertainment. Now you don’t get a deduction if someone steals your money.”
Historically, theft victims might deduct the loss within the yr they find out about it, Barber mentioned. When the Gomases realized of the theft in 2019, the deduction was paused.
So the lawsuit centered on the couple’s 2017 tax return. They amended it in 2020, now that they knew of Anderson’s deceit.
The up to date return mentioned the couple was due a refund price $412,259, plus curiosity. They needed to deduct from their revenue the $1.17 million they obtained from their IRA and pension accounts, after which gave to Anderson.
The IRS disallowed the refund declare, saying the IRA and pension distributions weren’t deductible. The federal lawsuit got here subsequent.
The Gomases weren’t attempting to say a theft loss deduction within the amended return, DeWitt mentioned. The IRA and pension distributions have been deductible for 2 completely different causes, his purchasers mentioned.
They argued the cash needed to be excluded from revenue as a result of they by no means garnered any financial profit from the cash. It was Anderson who loved the profit, they famous.
For again up, they cited a case about misused IRA funds. In that case, a spouse signed withdrawal requests and endorsed IRA checks with out the husband’s authorization, earlier than their divorce. Tax Court judges mentioned the husband wasn’t on the hook for early IRA withdrawal penalties.
The instances didn’t apply as a result of the Gomases have been those selecting to faucet these accounts, Barber mentioned.
“Had Anderson forged plaintiffs’ signatures and collected the money herself, there would be a very different outcome here,” he mentioned.
The Gomases additionally mentioned the IRS might have handled the IRA and pension cash as funds for companies bills. In the stress of the second, they believed the cash was going to authorized bills for his or her closed enterprise, their court docket filings mentioned.
But the couple had retired in 2017, so Barber mentioned it was “impossible” to hyperlink the cash to Anderson with a enterprise that they had closed.
What’s subsequent?
“It is highly unlikely that Congress, when it eliminated the theft loss deduction beginning in 2018, envisioned injustices” like the present case, Barber mentioned.
Nevertheless, the regulation was “clear here and it favors the IRS,” he added.
A ruling like it is a robust purpose to for lawmakers to deliver again the theft loss provision after they resolve the tax panorama in future years, Luke mentioned. It’s simple to sympathize with the Gomases, she mentioned — nevertheless it’s additionally simple to see how the tax code might fall quick elsewhere, she mentioned.
Suppose folks fall prey to con artists posing as IRS brokers who demand cash to repair bogus tax issues. “Under the reasoning of the court, you’d get the same end result” with the present legal guidelines if these victims tried turning to the tax code for assist, Luke mentioned.
People reported greater than 50,000 authorities imposter rip-off makes an attempt and a $128 million in loses simply within the first quarter of the yr, Federal Trade Commission knowledge exhibits.
At a time when senior residents are more and more focused for scammers, DeWitt says extra instances could check the methods the tax code mixes with efforts to get better “your own hard-earned retirement money that’s been stolen from you.”
“It would be a shame if our courts determine ultimately you are out of luck,” he mentioned.
Source web site: www.marketwatch.com
