Scambook Warns Consumers About Tax Rule for Money Returned from Scams

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Scambook, the Internet’s leading online consumer advocacy platform, is warning scam victims that they may be required to pay taxes on their own money after it is returned to them by their credit card company, as recently reported by the Consumerist.

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Many consumers may not be aware that banks can classify a charge back as a forgiven debt, which they are then required to report to the IRS if the amount is over $600.

Scambook, the Internet’s leading online consumer advocacy platform, is warning scam victims that they may be required to pay taxes on their own money after it is returned to them by their credit card company, as reported by the Consumerist.

One consumer recently received almost $5000 back after being scammed by a fraudulent travel agency. However, the consumer's bank, Chase, classified the case as a “forgiven debt” and is forcing the man to pay taxes on the amount returned to him.

“Many consumers may not be aware that banks can classify a charge back as a forgiven debt, which they are then required to report to the IRS if the amount is over $600,” said Scambook’s Director of Marketing, Kase Chong. “We want to help spread the word about this situation so that scam victims are not caught off-guard.”

Chase had originally refused the charge back, but the victim was persistent. According to the Consumerist, “The bank eventually agreed to a ‘courtesy credit’ worth 25% of the total, and after he eventually got the New Star-Ledger’s Bamboozled column involved, Chase agreed to make ‘an exception’ and refund him the entire amount.” *

However, Chase told the victim that the returned payments are viewed as forgiven credit card debt rather than a refund. The bank felt legally obligated to report the forgiven debt to the IRS. Any forgiven debts over $600 must be reported to the IRS.

Consumer advocates are appalled that this scam victim's refunded money is considered a forgiven debt and argue that the money should not be taxed.

Scambook is offering 3 tips to help consumers prepare for a similar tax scenario if their bank or credit card company returns money after a scam:

1.    Contact the financial institution's customer service or legal department. Be persistent and ask to receive written notices detailing the bank or credit card's charge back policies.

2.    Keep a paper trail of all communications with the financial institution.

3.    Consult a financial advisor, CPA or tax attorney to assess options.

As always, Scambook also reminds consumers that the most effective tactic against a scam is to remain vigilant and avoid becoming a victim. For more tips and information on the latest consumer threats, visit http://www.scambook.com/blog

About Scambook

Scambook is an online complaint resolution platform dedicated to obtaining justice for victims of fraud with unprecedented speed and accuracy. By building communities and providing resources on the latest scams, Scambook arms consumers with the up-to-date information they need to stay on top of emerging schemes. Since its inception, Scambook has resolved over $10 million in reported consumer damages. For more information, visit scambook.com.

*Morran, Chris, “Chase: Refunding A Scam Victim IS the Same As Forging a Debt,” http://consumerist.com/2013/09/09/chase-refunding-a-scam-victim-is-the-same-as-forgiving-a-debt/ 9/9/2013

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Lisa Inouye
PMBC Group
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