It’s bad enough to get scammed. But being forced to pay taxes on what you were scammed out of just compounds the hurt. This is an egregious story of elder financial abuse.
Dennis and Suzanne Gomas are an elderly couple who worked hard to save enough money to retire comfortably. They inherited a business from Dennis’ brother. After a couple of years, Dennis had to fire the business manager because she was stealing from the company. Dennis put his stepdaughter, his wife’s daughter, Suzanne Anderson, in charge of the business.
Sometime later, the Gomas decided to close the business, but Anderson convinced them to turn everything over to her and let her run it. In just a few months, Anderson told the Gomas that the previous manager and other employees had used Mr. Gomas’ personal information and merchant credit card account to defraud customers and employees. She said the credit card processors were holding Mr. Gomas liable and would have him thrown in jail if he didn’t make restitution. The fact was, there was no fraud against customers or suppliers. It was the beginning of a fraudulent scheme by Anderson to bilk the Gomas out of massive amounts of money.
From there, Anderson convinced her stepfather to let her handle all the negotiations related to the fraud charges and proposed settlements. She said she had hired an attorney to help, which was not true. She created fake documents listing bogus charges against her stepfather. And, she produced fake settlement agreements between the stepfather and the credit card processors.
The Gomas gave their stepdaughter huge sums of money, which included distributions from the couple’s IRAs, which they paid taxes on. Eventually, the couple discovered the fraud by the stepdaughter, and Suzanne Anderson was convicted and is currently serving 25 years in prison.
In the past, the Gomas would have been able to claim a theft loss deduction and recover most of the taxes paid on the IRA distributions. But Congress suspended the theft loss deduction for the years 2018-2025.
The couple filed an amended tax return claiming a refund for the taxes paid on the IRA distributions. They claimed the distributions either shouldn’t be included in gross income because of the fraud or that the amounts they transferred to the stepdaughter should be deducted from income as business expenses.
The court ruled that even though the couple didn’t get the benefits of the IRA distributions, the amount had to be included in gross income. The court said that if Anderson had fraudulently directed the IRA custodian to make stock sales and distributions from the IRA without the couple’s consent, then they might not be liable for taxes on the distributions. But they were liable because the Gomas had full control over the accounts, were the ones who requested the distributions, received the distributions, and voluntarily gave the money to Anderson.
The court also ruled that, even though the Gomas believed the money was being used to pay business-related expenses, it wasn’t. And because the money wasn’t used to pay business expenses or legal fees associated with a business, the amounts weren’t deductible as business expenses. Therefore, the couple wasn’t entitled to any refunds of the taxes they paid on the IRA distributions.
While the court acknowledged the fraud, it ruled in favor of the IRS.
The plaintiffs were the undisputed victims of a complicated theft spanning around two years, resulting in the loss of nearly $2 million dollars. The thief – Mrs. Gomas’s own daughter and Mr. Gomas’s stepdaughter – was rightly convicted and is serving a lengthy prison sentence. The fact that these elderly Plaintiffs are now required to pay tax on monies that were stolen from them seems unjust.
In view of the egregious and undisputed facts presented here, it is unfortunate that the IRS is unwilling – or believes it lacks the authority – to exercise its discretion and excuse payment of taxes on the stolen funds. It is highly unlikely that Congress, when it eliminated the theft loss deduction beginning in 2018, envisioned injustices like the case before this Court. Be that as it may, the law is clear here and it favors the IRS.
This is a tragic case, and the amount of money stolen may be larger than most, but elder financial abuse is a growing problem among the elderly. In 2022, there were 7.8 million reported cases of elder financial exploitation that cost fraud victims $269.5 billion dollars.
Elder financial abuse is most often committed by family members and trusted individuals such as caregivers.
You can see the entire court document here.
(Gomas v. United States, U.S. District Court for the Middle District of Florida, Case No. 8:22-CV-01271, July 17, 2023)
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