lost check cashed by some one else

[Pacun]

The police will let us know as soon as the catch the thief, they got my client's phone number, home, cell, day, night, etc. They also got my client's email address, they know where he lives and entertains himself. They also know his next of kin. As you can see, what the police said is almost irrelevant. The relevant part is that a police report was filed.

Client will not benefit from NOL (whether passive or not) because of limited income, nor will he benefit from itemizing deductions. So, I am left with... going after the bank and its lawyers? Remember, client does not have money.

Everybody agrees that the IRS is right and that my client has to pay more than $100,000 in federal and state taxes, interest and penalties.

Any other thoughts or questions? Thank you for replying.

[kcjenkins]

I'd say you have an excellant chance of getting the penalties abated, and even some chance of getting the interest abated, in a case like this, where he did not, in fact, have the use of the money. The taxes, however, are based on statute, not on 'fairness'.

[So and So]

OK. Maybe I'm missing something here.

Report the distribution on line 15 for IRA's. Then file form 4864 Theft loss of 200,000 which will carry to Sch A. This much loss will make itemizing possible.

This will most likely wipe out the tax. But, due to the 10% and 100.00 offset, there might be some shortfall.

I don't see why this approach will not work.

Now, the T/P better be fully armed with all evidence of the theft and be able to prove it to the IRS. Because I can assure you, they will definately sit up and take notice of this.

[Bart]

Client will not benefit from NOL (whether passive or not) because of limited income, nor will he benefit from itemizing deductions. So, I am left with... going after the bank and its lawyers? Remember, client does not have money.

Everybody agrees that the IRS is right and that my client has to pay more than $100,000 in federal and state taxes, interest and penalties.

Did the client get a notice from the IRS charging tax, penalties and interest? Is the client creating an NOL in a different year because of claiming the theft loss? If the client reports the theft loss in a different year and creates an NOL, couldn't the client carry back the NOL to the year where the taxes are being assessed and get a refund of those taxes?

[Bart]

Client will not benefit from NOL (whether passive or not) because of limited income, nor will he benefit from itemizing deductions. So, I am left with... going after the bank and its lawyers? Remember, client does not have money.

Everybody agrees that the IRS is right and that my client has to pay more than $100,000 in federal and state taxes, interest and penalties.

Did the client get a notice from the IRS charging tax, penalties and interest? Is the client creating an NOL in a different year because of claiming the theft loss? If the client reports the theft loss in a different year and creates an NOL, couldn't the client carry back the NOL to the year where the taxes are being assessed and get a refund of those taxes?

Sorry this is my first post. The first two paragraphs are quoted text from a previous post. The last paragraph with all the questions is my post.

[jainen]

>>what the police said is almost irrelevant<<

No, what the police said is extremely relevant. You see, the bank knows (and must have told the police) who the account holder was. SSN, contact info--they probably even have a picture of the depositor at the ATM. So if the police haven't said much in over a year, there probably just isn't that much to say.

You made a generic comment about mail theft, but did NOT say that was the way this went down. You didn't mention postal or bank inspectors, or the FBI. If the police didn't bring anybody else in, they must have their reasons. When I say you haven't been responsive, I mean that you haven't explained who took the check and how he (or she) got hold of it. Since we don't know the facts, we can only speculate about different audit tactics and your potential for success.

We certainly don't all agree that the IRS is right--none of us knows for sure. It isn't even a single answer. The IRS letter could be correct, and your client could still avoid taxation through one or more of the methods we have discussed.

[JohnH]

Pacun:

Does your client know or have any info on who the thief was?

Was the suspected thief any of the following?

1) A son or daughter

2) Any other relative

3) An in-law

4) A friend

5) A spouse or ex-spouse

6) A neighbor

7) A business associate of the client

8) A business enemy of the client

[OldJack]

The best answer here may be to turn this tax situation over to the attorney that is going to handle all the legal stuff regarding the theft. You are not going to get paid enough to deal with this as it is going to go on for some time.

[So and So]

Did the person who took the check have the same name as your client? Such as father and son? Or Grandfather and grandson?

If so, that may be why the bank is digging their heals in. They may be able to show that the ID given them was correct. They have had no way to know he wasn't the owner of the check.

The police may think this is an inside deal between the family. That may be why they appear not to be investgating.

And, the IRS will be very reticent about accepting the theft theory. Especially if the relative is not prosecuted.

My thoughts. :)

[zeke]

The best answer here may be to turn this tax situation over to the attorney that is going to handle all the legal stuff regarding the theft. You are not going to get paid enough to deal with this as it is going to go on for some time.

I agree with "old jack". The IRS may not be understand that there is a "rebuttable presumption" of "constructive receipt" - I would have greater faith in the court.

zeke

[Pacun]

Yes, police has picture of the person who stole the money, signature, namem address, date of birth, social security number, dates of prior marriages, and dates of divorces, next of kin... there are two critical pieces missing on this case... once those two pieces are found, the case will crack open. The two things missing are: the thief and the money.

Not the same name and not related to my client.

I like the idea that NOL can be carry backward to the year in question... any other thoughts?

[jainen]

>>The two things missing are: the thief and the money<<

Also still missing (at least from my point of view) is how "the person" obtained the check. Well, assuming this is in fact a theft, you probably won't have to deal with calculating an NOL. The casualty loss will only offset 90% of the retirement income, and there are other effects such as making Social Security taxable and the switch away from standard deduction.

[Pacun]

Since there are no witnesses to the action... it is assumed that the thief got it from the mail box outside the door.

[GeneInAlabama]

Yes, police has picture of the person who stole the money, signature, namem address, date of birth, social security number, dates of prior marriages, and dates of divorces, next of kin... there are two critical pieces missing on this case... once those two pieces are found, the case will crack open. The two things missing are: the thief and the money.

Not the same name and not related to my client.

Pacun, why are you so reluctant to give out information? I can understand not giving the person's name, but why not come right out and say it was his wife, ex-wife, son, neighbor, whatever; and that they took the money out of the mailbox, out of the house ....... All the information you have given was dragged out of you. It seems that the only information you are giving is just enough to get a favorabe answer. No names have to be given. We don't know who the client is, so you can say what relationship the thief is without revealing any names. Names aren't improtant. Relationship is.

Gene

[Pacun]

Well, On August 1, at 3:33PM I said "Thief was not related to my client."

Yesterday at 9:34am, I said "By the way, have you seen those houses where there is a box next to the door where the mail person deposit the mail? No need to break anything in order to get the mail... that's the standard throw out the U.S., isn't it?"

I do understand your concerns, but I am making my case based on these facts. I do understand your points and you are doing a good detective work. Thank you all for giving ideas.

[MAMalody]

I know this will come across as argumentative, but why not say, "My client does/does not know who took the check." "The check was taken from the mailbox," or "This person was caring for the house and took the check when they brought the mail in." It is fairly obvious that you don't want to release some information (I hope you/your client was more forthcoming with the police), and you well know, that, with a lack of information comes a limitation on the response and the veracity of the answer is also in question. Good luck on recovery of any money, presecution of the thief and handling this issue from a tax perspective.

[Pacun]

By no means, I will think that you or your suggetions are argumentative. I know all of you have a genuine intent to help. Yes, those are the facts presented.

[jainen]

>>I am making my case based on these facts<<

In my opinion at least, these facts are not enough to establish that a theft occurred.

Someone, you won't say who but a person whose life history the client knows, had direct access to his mail. You avoid saying this person was not authorized to open the box and haven't indicated any other arrangements for the two month absence. You don't seem interested in having this investigated as a postal crime or bank fraud, and dismiss the police opinion as "almost irrelevant." The bank apparently feels the check was properly deposited.

For me, this is an example of how a client's statements might contain internal inconsistencies that Circular 230 requires to be resolved before I could sign the tax return.

[OldJack]

A member here should not be chastised just because they only want to ask a question with certain or limited facts. After all, the answers here are only each persons opinion based upon not knowing all the facts. Now that is a fact.

[MAMalody]

That's easy for you to say:>)

[Pacun]

Don't take it personally, this is strictly business.

When I said, these are the facts that I want to use to present my case, I meant to present my case here on this forum.

******************** ******************* ********************* ******************* ****************

This is reality.

Client requested retirement payments in August 2006. Checks were sent to the address of record and NOT the one we used to request the funds. Client thought that because he was still working no checks were sent, until he came in April to do his taxes without the 1099-R that I was expecting.

11 checks were sent to a very old address, he lived there 5 places ago and 11 years ago.

3 checks were cashed by the owner of the house

8 checks were stopped payment (no one tried to cash them) and were reissued last month.

Retirement office sent copies of the cashed checks to client and I confronted the owner of the house who forged my client's signature and deposited the checks and I gave her 10 minutes to reimburse my client or else (meaning I was going to call the police, FBI, the bank, and the postal inspector and any other authority I deemed necessary at the moment). I got the money on the spot and took it to my client.

My client was sent a 1099-R last year for more than 2K which he never receive; but, we have not filed taxes for 2006 yet (we requested and received a second 1099-R from retirement company). I am going to include the 1099-R on his taxes and everything should be in order. This is the same person that is about to loose his home and therefore all we wanted was the money back and quickly from the thief. My client has more home interest and points to cover any taxes owed and also he has $5K first time home buyer credit in DC that he will never be able to completely use.

Now, for a moment I thought, what if instead of 2k, the check was for $200,000 and the thief has closed the account and start enjoying life in her native country? This board is to clear any doubts and that's how I wanted to present my case here on this forum.

[MAMalody]

With the correct information presented, it looks like you should contact the issuer of the 1099R. You have received all the money (8 reissued checks and 3 that you collected) and the 1099R does not match those amounts. However, since you indicated there will be no tax liability, it is sort of a moot point, other than the return is not accurate per you records.

[jainen]

>>This board is to clear any doubts and that's how I wanted to present my case here on this forum.<<

That's fine. I stand by my answer. As you presented the case, the facts did not establish a theft loss. Assuming additional facts, the tax treatment could be in the ways I described.

I'm pretty sure Old Jack's reference to chastity wasn't about me.

[Pacun]

I appreciate your replies and trust me, if the check was bigger and this lady decided to close the account and go back to her country, I would have a police report with all the information I said, including but not limited to, prior marriages, dates of divorce, next of kin, but no thief or the money. The IRS would have a 1099-R and rightly wanted its taxes on the money.

[Evan S. Golar]

Why can't the bank, that knows the identity (Social Security Number) identify the person to the IRS or law enforcement officials to attempt to recoup this money?