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Even When You've Been Deceived, There May Be a Silver Lining

February 01, 2013 | Written by: Dung T. Vu EA
Scam written with wooden blocks with rolled up money on top
One of our Members tried to obtain a loan for his business from a company in Brazil and all the communications were by e-mail. Unfortunately, the company was in the business of scamming people out of their money. Our Member took out over $100,000 from his retirement account for payments to obtain the loan, but in the end he never received the loan. He deducted the money he lost as a business expense, which resulted in his return being selected for audit. My challenge as his Audit Representative was to find the silver lining in the cloud he found himself under.

First, the Brazilian company requested an initial payment of $850 to register the loan with the Brazilian government. The payments were to be submitted via Western Union. After the initial fee was paid, they asked for the Member’s bank information to transfer the funds and an additional $1,720 for tax and transfer charges to complete the transaction. The Member confirmed that this was the final fee and on receiving assurance that there would be no more requests for money, he sent the money through Western Union.

Next the fraudulent lender made an excuse that the Member’s account was not in Brazil and requested an additional fee of $3,550 to set up an international transfer. The Member sent the money, and then received another request for attorney fees of $3,200. This went on and on. Every time the Member questioned the fees, the lender was able to convince him that these were both reasonable and legitimate requirements for anyone who tries to obtain a loan from them. After the Member sent fee after fee, the loan amount was increased from $100,000 to $250,000. This, of course, meant that with an increased loan amount the company demanded more fees. The Member was assured that all the fees he paid would be deducted from the loan amount, thereby reducing the amount to be financed. In the end, after sending over $100,000, the Member did not receive any loan proceeds. Finally, he contacted the police.

After hearing the Member’s story, I knew it would be a challenge to convince the tax agency to allow this deduction. I explained that documentation would be the key to his deduction being allowed. I advised him of the overall challenge and then requested organized receipts and a detailed explanation of how he incurred these expenses. The Member had receipts from Western Union showing the transfer of all of the money to the scammers. He provided over 300 pages of documentation, which were sent to the tax agency for review. 

Finally one day I received a call from the Member. He told me the tax agency had allowed all of his business expenses and sent his full refund. He was very happy and with the results, though he was concerned that he would get audited again for the same issue. I advised him that it was not likely, but that, as always, he should keep good records in the event that there were ever any questions. I was both surprised and happy with the results, especially after all that the Member had already gone through.

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