A federal judge has blocked a more than $ 400,000 income tax refund claimed by elderly fraud victims, saying he regrets there’s nothing he can do by law but side with the IRS.
The story of Dennis and Suzanne Gomas shows the limits of the tax code’s help for crime victims — especially now, the judge and tax experts say.
The Florida retirees were scammed out nearly $ 2 million by their daughter who is now convicted on felony charges including theft. She is serving a 25-year prison sentence.
One deduction that could’ve helped recoup some of the nest egg money was off limits through 2025, and other ways to treat the lost IRA and pension money didn’t fit with tax rules, Tampa federal judge Tom Barber said in a decision this week.
“The fact that these elderly plaintiffs are now required to pay tax on monies that were stolen from them seems unjust,” Barber wrote. Still, the judge later added, he was “bound to follow the law, even where, as here, the outcome seems unjust.”
“It’s just an unfortunate outcome. We certainly are planning to appeal,” said attorney Tyler DeWitt, who represents the couple in their late 70s. DeWitt filed the appeal notice on Friday.
The IRS does not comment on pending litigation, a tax agency spokesman said.
‘Undisputed and disturbing’
Suzanne Anderson’s plot to extract money from her mother, her stepfather and their friends included a cooked-up scheme to pay for a lawyer and fake claims of cancer, according to court papers and prosecutors.
“The facts of this case are undisputed and disturbing,” Judge Barber wrote.
When the Gomases retired in 2016, they turned over their raw pet food business to Anderson. Roughly a year later, she persuaded the couple into thinking former employees had been misusing the business’ credit card processing account to scam customers.
Anderson said the Gomases needed to hire an attorney to avoid legal trouble and Dennis Gomas’ potential arrest. She suggested a name and the couple sent her nearly $ 140,000 to hire the man. But the couple never met or communicated with the lawyer because Anderson was always the go-between. At one point, she created a bogus email address to pose as the lawyer, Barber said.
In her scheme, Anderson repeatedly hit up the couple for money that would supposedly settle the legal problems and stave off Mr. Gomas’ arrest. She also told them she needed money for stomach cancer treatments, court papers said.
The couple’s friends eventually reached out to the supposedly retained attorney. The lawyer confirmed he wasn’t representing Anderson or the Gomases. Anderson was pocketing the money instead, according to court filings.
The friends told the Gomases in August 2019 that Anderson was conning them. (Anderson had ripped off some of the friends and others for more than $ 200,000, court papers say.) Hernando County police opened an investigation the same day and in January 2021, Anderson was arrested. Anderson pleaded guilty more than a year later and was sentenced last September.
A lengthy stay at prison is “right where she belongs,” Barber said. But the judge said the current case hinged on “whether the victims of her fraud are required to pay federal income tax on the money she stole from them. Astonishingly, for the reasons explained below, they are.”
Deduction on theft losses
There was a time when taxpayers like the Gomases could have claimed a theft loss deduction on personal property. The amount of the theft loss that exceeded 10% of a filer’s adjusted gross income was deductible.
But the 2017 Tax Cuts and Jobs Act greatly narrowed the theft loss deduction through 2025, as well as other itemized deductions. It also said claimed casualty losses would be eligible only when connected to federally-declared disasters.
“If it’s personal money and it’s stolen, it’s just gone,” said Charlene Luke, a tax law professor at the University of Florida Levin College of Law who has studied the theft and casualty loss deduction.
“It’s treated the way as any other form of consumption, which is highly problematic. … You can’t take a deduction if you go on a cruise or any other type of entertainment. Now you don’t get a deduction if someone steals your money.”
Historically, theft victims could deduct the loss in the year they learn about it, Barber said. When the Gomases learned of the theft in 2019, the deduction was paused.
So the lawsuit centered on the couple’s 2017 tax return. They amended it in 2020, now that they knew of Anderson’s deceit.
The updated return said the couple was due a refund worth $ 412,259, plus interest. They wanted to deduct from their income the $ 1.17 million they received from their IRA and pension accounts, and then gave to Anderson.
The IRS disallowed the refund claim, saying the IRA and pension distributions were not deductible. The federal lawsuit came next.
The Gomases weren’t trying to claim a theft loss deduction in the amended return, DeWitt said. The IRA and pension distributions were deductible for two different reasons, his clients said.
They argued the money had to be excluded from income because they never garnered any economic benefit from the money. It was Anderson who enjoyed the benefit, they noted.
For back up, they cited a case about misused IRA funds. In that case, a wife signed withdrawal requests and endorsed IRA checks without the husband’s authorization, before their divorce. Tax Court judges said the husband wasn’t on the hook for early IRA withdrawal penalties.
The cases didn’t apply because the Gomases were the ones choosing to tap those accounts, Barber said.
“Had Anderson forged plaintiffs’ signatures and collected the money herself, there would be a very different outcome here,” he said.
The Gomases also said the IRS could have treated the IRA and pension money as funds for businesses expenses. In the stress of the moment, they believed the money was going to legal expenses for their closed business, their court filings said.
But the couple had retired in 2017, so Barber said it was “impossible” to link the money to Anderson with a business they had closed.
What’s next?
“It is highly unlikely that Congress, when it eliminated the theft loss deduction beginning in 2018, envisioned injustices” like the current case, Barber said.
Nevertheless, the law was “clear here and it favors the IRS,” he added.
A ruling like this is a strong reason to for lawmakers to bring back the theft loss provision when they decide the tax landscape in future years, Luke said. It’s easy to sympathize with the Gomases, she said — but it’s also easy to see how the tax code could fall short elsewhere, she said.
Suppose people fall prey to con artists posing as IRS agents who demand money to fix bogus tax problems. “Under the reasoning of the court, you’d get the same end result” with the current laws if these victims tried turning to the tax code for help, Luke said.
People reported more than 50,000 government imposter scam attempts and a $ 128 million in loses just in the first quarter of the year, Federal Trade Commission data shows.
At a time when senior citizens are increasingly targeted for scammers, DeWitt says more cases may test the ways the tax code mixes with efforts to recover “your own hard-earned retirement money that’s been stolen from you.”
“It would be a shame if our courts determine ultimately you are out of luck,” he said.