Ask Liz Weston

Get smart with your money

Banking

Q&A: What to do when a stolen IRS check is altered and cashed

By Leave a Comment

Dear Liz: My mail with a check to the IRS was stolen from inside the post office (I dropped it into the internal wall slot). The envelope was pre-addressed to the IRS P.O. box. The payee on the check was altered. The memo section text was removed, and parts of the upper-left section of the check were removed or altered, including a misspelling.

I discovered the mail theft after the bank’s 90-day reporting period but within the UCC (Uniform Commercial Code) filing period. I opened a police report, filed a notarized Affidavit of Check/Account Fraud with my bank, closed that checking account, and filed a complaint with the Consumer Financial Protection Bureau.

The amount lost is in the mid-five figures. Is there anything more I can do to get my money back? If not, any way to deduct the loss? I am crying all the time and losing sleep. I am a senior, if that matters.

Answer: Francoise Cleveland, AARP’s government affairs director, says you’ve already taken many of the recommended steps to deal with check fraud, including filing a police report, closing the account and working with your bank.

In addition, Cleveland recommends reporting the theft to the Federal Trade Commission and the U.S. Postal Inspection Service, which investigates mail theft and related check fraud. (You can file a mail theft complaint online at the USPIS.) Cleveland also encourages you to contact the AARP Fraud Watch Network for information, support and further guidance.

Whether you ultimately get your money back depends on several factors, including the specific facts of your case and state and federal law. Banks work through these determinations behind the scenes, and it can take time, Cleveland says.

That said, you may want to hire an attorney familiar with banking or consumer law. Unfortunately, it can be easy for a bank to ignore a customer, but it’s a lot harder to ignore a law firm. At a minimum, make sure your bank has copies of the police report and your USPIS filing.

As far as deducting the loss, the news isn’t good. Personal theft losses generally are deductible only in limited circumstances, such as when the theft is attributable to a federally declared disaster, Cleveland says. Victims of investment fraud may deduct their theft losses, but victims of other types of fraud (such as romance scams and government impersonators — ”I’m from the IRS and you’re about to be arrested”) aren’t eligible.

It gets worse. People have had money stolen from a 401(k) or another account where withdrawals are taxable. So not only are the victims out the money and unable to deduct their losses, but they typically still owe taxes on the withdrawal. Cleveland says AARP supports a bipartisan bill called the Tax Relief for Victims of Crimes, Scams, and Disasters Act that would provide some help to victims of fraud and unexpected disasters even if they are unable to recover their stolen funds.

You should also be aware that scammers may target you again, promising they can help you recover your stolen money. The Federal Trade Commission warns you to be wary of anyone trying to charge you an upfront fee to get your money back.

And for everyone else who’s reading this: Please take heed. Mail theft and check fraud have soared. Switch to electronic payments now before you become yet another victim.

Q&A: Should you keep more than $250,000 in one bank?

By

Dear Liz: You recently wrote that it’s easier to have one bank than many, but I worry about FDIC insurance limits because I have more than $250,000 in savings.

Answer: You may be able to get more coverage at one bank than you think. FDIC insurance is per depositor, per ownership category, per bank. Ownership categories include single accounts, joint accounts, certain retirement accounts such as IRAs and trust accounts, among others.

If you’re married, for example, a joint account would be covered up to $500,000, or $250,000 for each owner. If each of you had single accounts, your total coverage for the three accounts would be $1 million ($500,000 for the joint account, plus $250,000 for each individual account). If you each had an IRA as well, you could have up to $1.5 million in coverage at a single institution.

Adding beneficiaries to your accounts turns either joint or single accounts into trust accounts, for FDIC insurance purposes. Each owner of a trust account is covered up to $250,000 per beneficiary, to a maximum of $1.25 million for five or more beneficiaries.

Q&A: How to handle cash savings of deceased parents

By

Dear Liz: My mother passed away a little over a year ago, and my father about 18 months prior to her. I discovered that my parents saved up quite a lot of cash (in the six figures), and I’m afraid to deposit it without triggering the IRS. My parents routinely saved anywhere from $5,000 to up to $20,000 per year for the last 30 years. I read my mom’s handwriting on the envelopes with the dates. How can I deposit all this without triggering the IRS? Some of the bills are “vintage” so I will keep them to see if they’re worth more than face value. I also thought about using it to buy real estate.

Answer: You mention “triggering the IRS” as if your deposit might set off an explosion of audit notices and tax liens. In reality, you’re far more likely to cause yourself grief by trying to avoid IRS notice than you are by simply depositing the money.

Banks report large cash deposits — typically those of $10,000 or more — to the IRS as a way to combat money laundering. Anti-money-laundering rules also have been extended to real estate deals. Banks are looking for smaller deposits that could add up to more than $10,000, so don’t think spreading out the deposits will help you avoid scrutiny.

“Depositing the money all at once would probably arouse less suspicion with the bank than making a continuing series of deposits just under $10,000,” says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Luscombe suggests retaining all those envelopes with your mother’s handwriting. If you are questioned by your bank or the IRS, the envelopes could help show your parents were gradually saving the money over time rather than engaging in some money-raising scheme on which taxes were never paid.

You didn’t mention if your parents had wills or other estate documents, or if there are other beneficiaries. Consult with an estate planning attorney to see if the cash needs to be deposited in the name of your mother’s estate.

Jennifer Sawday, an estate planning attorney in Long Beach, Calif., recommends going in person to your bank to ask for an appointment to make a large cash deposit. Ideally, you can discuss the situation and disclose the source of the funds in a private office, where you can’t be overheard. Ask if the bank can hire an armored courier to pick you up at your home to reduce the chance you’ll be robbed en route, Sawday suggests.

Please don’t delay, since theft isn’t the only concern. Cash also can be lost to fire, floods and other disasters. (One can only imagine how many bank-averse people lost cash in the recent Los Angeles fires.) Plus, cash tends to lose value over time thanks to inflation–the vast majority of “vintage” bills are worth much less than when they were printed. You’ll want to at least start earning some interest on the money, and perhaps put it to work in other investments.

Q&A: Big banks can cause big headaches when it comes to retitling accounts

By

Dear Liz: Someone recently asked whether to make a bank account “payable on death” or put it in their living trust. Our bank has refused to allow us to retitle our accounts so we can have them in our trust. Is “payable on death” our only option?

Answer: No, but you may need to move your accounts to another firm.

Some large national banks do balk at retitling bank accounts, notes Jennifer Sawday, an estate planning attorney in Long Beach. By contrast, many smaller banks, credit unions and big brokerage firms have no problem retitling accounts to living trusts.

If your bank isn’t willing to help you now, just imagine how difficult it will make matters for your loved ones after you die and they need to access your accounts, Sawday says.

If you’re reluctant to leave your big bank entirely, consider keeping a small amount of money in a day-to-day checking account while putting the bulk of your cash in a more trust-friendly bank.