If You See Something, Say Something

The Scam

(I have a tech article that will be published in a few days, but I thought this was thought-provoking and wanted to get this out today.)

It is sadly becoming all too common for seniors to be victims of a phone or online scam. This morning, while enjoying my first cup of coffee and reading The Wall Street Journal, I came across the article “‘She Hooked Me’: How an Online Scam Cost a Senior Citizen His Life’s Savings.” (Written by Feliz Solomon) The short version of the story is this: an older man is befriended on social media by an attractive younger woman, who lures him into a deepening relationship through conversation and alluring photos, plus the attention that his lonely heart craves. Over time, the young woman gains his trust and a romantic relationship develops, with promises of a life together. The woman introduces the idea of investing and money making via an online trading platform. But here’s the crux—the trading platform is fake, and this story takes a dire turn. In the end, the entire relationship is a scam, and the man loses his entire life savings of more than $700K. The article doesn’t mention the tax implications of this scenario, and that too will likely be devastating. As you may be well aware, since the TCJA (Tax Cuts and Jobs Act), theft losses are not deductible. 

Over the years, I’ve had the opportunity to save a few clients from similar scams. They all have one aspect in common—perpetrators preying on the lonely. In many cases, the victims are seniors, but that’s not always the case. Plenty of young people have fallen victim to romance scams over the internet. While losing money can be devasting, often the mental anguish inflicted can lead to thoughts of suicide and, in some cases, suicide itself.

A Tax Professional Perspective

What responsibilities do we, as tax professionals, have to our clients if we see something that looks awry? Combing through Circular 230, (which only provides regulations for practice before the IRS) I don't see anything that implies that we are required to prevent clients from making poor financial decisions. 

§10.22 covers diligence as to accuracy in preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters. 

§10.33 covers best practices for tax advisors – Tax advisors should provide clients with the highest quality representation concerning Federal tax issues by adhering to best practices in providing advice and in preparing or assisting in the preparation of a submission to the Internal Revenue Service.

Circular 230 was last updated a decade ago, and much has changed and technology evolved. Many of us would like to see changes added to Circular 230, especially addressing those who spread false and misleading information on social media. What is really needed is legislation allowing the IRS to have the authority to regulate ALL tax professionals. (That is a completely separate topic that would warrant its own article on all of the reasons why.)

At the end of the day, I believe that if you see something, you should say something. Many of us work closely with our clients, and they view us as a trusted advisor. While the services we offer should be laid out in our engagement letter, if you notice something concerning, it is worth communicating this with the client. And, of course, save this communication in their client “file.”

Example (Note: Names and identifying information have been changed.)

Elizabeth, a 77-year-old retiree living on a fixed income, is contacted by a man on Instagram who finds her posts interesting, and he proceeds to strike up a conversation. Her new “friend,” Logan, appears to be in his 40s, wealthy, and looking for love. Over the course of several weeks, they exchange dozens of messages, speak on the phone, and romance blossoms. Logan tells Elizabeth that since her budget is tight, he wants to give her some money. He tells her to log in to his bank account and add her account information. To Elizabeth, this all seems legitimate: he’s directed her to what appears to be a Chase Bank website. 

In the course of our tax preparation conversation, Elizabeth casually mentions these events to me. Immediately, alarm bells go off—there are so many red flags, and I fear what is about to happen. Asking her a series of questions, I’m able to help Elizabeth arrive at the conclusion that she is a victim of fraud. She is sad, but appreciative that her life savings are safe. 

Sadly, Elizabeth’s story is all too common. Over the last few years, I’ve had a handful of clients who were either scammed or about to be scammed. While we as tax professionals may not be legally or ethically bound to try to prevent our clients from being scammed, consider this: What if you or a family member was potentially a victim of a scam and someone noticed the red flags? Wouldn’t you welcome the warning? 

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Have you been in a similar situation with a client? Have questions or thoughts? Please comment below.