Tax cuts don't pay for themselves
I love you honey, but not your tax return

Lessons from $110,000 tax refund theft

Too often, tax refunds end up in the wrong hands because a criminal has actively gone after the money, usually employing some sort of identity theft computer hack or tax scam.

But a California woman discovered a mistake that she made on her tax return sent her $110,000 IRS refund directly to a thief.

Bank error orig Stephen Reginald McDow, 34, has been arrested on one felony count of theft of lost property. McDow crime was one of opportunity. The Laguna Beach man simply spent most of the surprise tax windfall that showed up in his bank account.

In August 2010, a woman identified only as Michelle D. in the Orange County District Attorney's office announcement of McDow's arrest, e-filed her 2009 federal income tax return. As part of that filing, she asked the U.S. Treasury to directly deposit her $110,000 tax refund.

December 2010 arrived and Michelle still hadn't received her IRS check. So she asked her accountant to check on the status of her return.

That's when she learned her $110,000 had been deposited into the bank account she specified on her tax return.

The only problem was that the account number she provided was for an account she had closed in 2004.

And that account number had been reassigned to bank customer McDow.

Cutting to the chase, McDow spent most of the $110,000 refund to pay a car loan, a student loan and foreclosure debt.

Tax refund 101: This case offers lots of lessons for everyone.

First, McDow. C'mon man. Sure, I know you were having a tough financial time, but you knew that money was not yours.

You should have told the bank and the IRS about the deposit and let them back track it to the rightful owner.

I once got an unexpectedly generous IRS refund check and I immediately touched base with the IRS to find out why it was sending me so much more money than I had figured on our return.

Like Michele D., I had made a filing error that the IRS kindly corrected to my advantage.

But unlike McDow, I wasn't about to do anything with that check, even though it was addressed to me and the hubby, until I knew exactly what the deal was.

And you, Michelle D., where to start?

I'm not blaming you; you're the victim. But you did some, shall we say interesting, things in connection with your return and humongous refund.

You're getting $110,000 back from the IRS. I'm presuming this was from a special, one-time tax situation. If not, you definitely need to adjust your withholding!

The same "submit a new W-4" advice goes to anyone who's regularly getting big refunds or owing Uncle Sam.

But even more curious, Michelle, is that you were getting a refund of that size and you waited around five months to inquire about the money's status.

Good for you that you didn't need more than 100 grand to help cover your everyday living expenses. But really? Five months?

The IRS says e-filed returns are processed and direct deposit refunds issued as quickly as 10 days. When that 10th day rolled around, I would have started it by logging on and going straight to the tax agency's Where's My Refund? tracking tool, either at my computer or via the new IRS smartphone app.

And I can definitely sympathize with memory issues; we all have them from time to time. But Michelle, you really need to double check your tax return, especially the routing and accounting data entered for direct deposit.

So learn from Michelle D. and McDow.

Be careful in your filing. Stay on top of your refund's status.

And if you get a tax check you don't expect, don't spend it until you're sure it really is your money.

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