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

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

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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.

Q&A: More on payable-on-death accounts

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Dear Liz: You recently wrote about payable-on-death accounts. You wrote that one of the disadvantages to these accounts is that an estate’s executor might have to try to get money back from beneficiaries or pay expenses out of their own pocket if there wasn’t enough money left in the estate to pay the bills. I thought your bills would have to be paid before any money was distributed. Is that not the case?

Answer: No. Payable-on-death accounts typically go directly to the named beneficiaries. Such accounts avoid probate, the court process that otherwise follows death, so there’s no mechanism to withhold money that might be needed to pay final expenses or other bills.

Furthermore, beneficiary designations usually override the terms of a will or living trust. If you were counting on an account to pay final expenses but forgot you named a beneficiary, your executor probably couldn’t access those funds.

Payable-on-death accounts might be a solution for people with simple situations and too few resources to justify a living trust. For example, you might use a pay-on-death designation if you’re leaving a bank account to an only child and you trust them to use the money to pay your final bills.

Otherwise, you’ll want to discuss your situation with an estate planning attorney and get personalized advice about how best to settle your affairs.

What college students need to know about payment apps

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For college students, sending money to friends has never been easier thanks to peer-to-peer payment apps like Venmo, PayPal and Cash App. But that convenience poses risks, including vulnerability to errors, fraud and the tendency to overspend.

As a result, payment apps can contribute to financial stress at a time when young people are learning how to manage their finances on their own. “Peer-to-peer payment apps are cash on steroids because they’re a straw stuck into your bank account,” says Anne Lester, author of “Your Best Financial Life.”

Not only does that make spending easier and more “frictionless,” Lester explains, but it also means “if you trust the wrong person, then you’re in big trouble,” because it can be difficult or impossible to get the money back. In Kimberly Palmer’s latest for ABC News, learn what college students need to know about payment apps.

Q&A: Saving at online banks

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Dear Liz: My wife keeps over $60,000 in her checking account at a brick-and-mortar bank. I think that is a bad idea. Too easy for possible fraud. I have tried to convince her the safest place to keep the bulk of her cash is in a savings account, preferably in an online bank, which I believe provides added protection against fraud as long as we maintain good computer health. What do you think?

Answer: Many people have the opposite conviction, which is that online banks are somehow less safe than brick-and-mortar versions. In reality, both types offer encryption and other safety measures to deter fraud. Accounts are insured by the Federal Deposit Insurance Corp. and covered by federal banking regulations designed to protect consumers against fraud.

Your wife’s money wouldn’t necessarily be safer in a savings account, but she’d earn a little more interest. Many online banks currently offer rates of about 1% on savings accounts. If she moved all but $10,000 out of the checking account, she could earn about $500 a year in interest and perhaps more if the Federal Reserve continues to raise rates.

Wednesday’s need-to-know money news

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Today’s top story: Are 0% interest student loans better than forgiveness? Also in the news: The worst hidden travel fees and how to avoid them, 5 reasons why you haven’t switched banks, and the best app for splitting the check.

Are 0% Interest Student Loans Better Than $10K Cancellation?
Cancellation is the most popular proposal to address student loan debt, but it isn’t the only one out there.

The Worst Hidden Travel Fees and How to Avoid Them
Sticker prices can be misleading. Always make travel purchase decisions based on the final cost.

5 Reasons Why You Haven’t Switched Banks
Enough time, money and motivation can help overcome hurdles when changing banks.

The Best Apps for Splitting the Check
Never again break out the calculator to figure out how much you owe for mozzarella sticks.