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Scam victim loses money, owes taxes

By Kay Bell · Bankrate.com
Tuesday, August 6, 2013
Posted: 2 pm ET

What's worse than losing money to a con artist? Owing taxes on the money that was stolen.

That's what happened to San Francisco-area resident Bernice Tingle. She had socked away more than $1 million by the time she retired in 1991. But by 2003 she was taking care of her 94-year-old mother and was concerned about increasing long-term care costs.

So in 2007, Tingle decided to invest in a rap concert promotion business that promised to deliver returns of 25 percent or more.

You see where I'm going, right? Too bad Tingle didn't.

Maurice Michael McCant presented himself as the CEO of Billionaire Catt Entertainment and was so convincing that Tingle liquidated her individual retirement account and other savings totaling $1.3 million and invested them with McCant.

Tingle was one of 15 erstwhile investors who lost their money to McCant's scheme, according to the CNBC program "American Greed." McCant was convicted in 2011 of wire fraud and sent to prison for almost four years.

But things got worse for Tingle, too.

Taxes due, too

The Internal Revenue Service and California's Franchise Tax Board demanded Tingle pay taxes on and penalties for cashing out her IRA. The Golden State billed her for $127,309. The IRS wanted $487,745.

"Even if I live to be as old as my mother, I will never be able to meet that tax bill obligation," she told the CNBC program.

Tingle's situation, sadly, is not uncommon. Whenever someone falls prey to a scam, they also could face costly tax consequences.

If it's a tax-specific scam, such as filing for a tax break for which they were conned into thinking they qualified, the victims still are liable for their legitimate tax bill and any penalties and interest accrued from not paying it.

The one small upside for Tingle and others in her situation is that she was able at the federal tax level to claim much of her scam-related loss as an itemized casualty and theft loss on Schedule A, filed with her Form 1040.

California tax officials, however, are not being as generous. That tax bill is still accruing interest and penalty charges.

So be careful out there, folks. Remember, if something sounds too good to be true, it probably is. Double, triple and quadruple check any fantastic offers for easy and big money.

The big money could end up being the bill you owe Uncle Sam and your state tax department.

***

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You also can follow me on Twitter @taxtweet.

Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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4 Comments
Taxes
August 07, 2013 at 9:36 pm

The Tax bill was from removing money from a tax deferred account and had nothing to do with the bad investment. Tingle should have been prepared for those taxes regardless of the return of the investment. The headline makes you think the tax is from the scam and that is not true.

Abraham
August 06, 2013 at 5:59 pm

I lost what i put on business and owe taxes.