Unknowingly engaging in fraudulent transactions or learning you are the victim of a scam is never a good thing. When you’ve lost some of your hard-earned money due to theft, fraud, or a scam, you may be able to deduct the amount at tax time. However, state laws have three criteria that must be met to deduct losses resulting from these situations, as the taxpayer in the next situation unfortunately had to learn.
At a local swap meet, the taxpayer met Eugene McCullough when interested in his gold clubs and accessories. After forming a quick friendship, McCullough mentioned an old Navy-mate, known as Lawyer Stanley, and claimed he had a troubled past. However, according to McCullough, Stanley was currently doing well in the diamond industry. Since the taxpayer wanted a small pair of diamond earrings, McCullough contacted Stanley, who could not make a sale because he only did wholesale.
Within a few weeks, McCullough told the taxpayer that Stanley had contacted him with an interesting offer, and that the taxpayer should consider. With an adequate initial investment, Stanley could offer her $1 million after he had acquired the diamonds and resold them. Because of her friendship and trust of McCullough, the taxpayer didn’t sign any contracts or documents, and was expecting a ROI within 10 to 30 days.
The taxpayer sent $320,000 via wire transfer to Africa World Trade, LLC, and within days McCullough told her that Stanley emailed him, excited about the millions she could make if she continued to provide capital. She could own a bank! She reacted to the immediacy of the emails, and wired $60,000 more. (more…)