Scam victims shouldn’t have to pay extra taxes when they get their money back, but that’s exactly what Chase Bank is telling one card holder to do after he managed to get his cash returned to him.

In 2009, a New Jersey couple scammed consumers out of millions of dollars with fake “travel club” memberships that promised huge vacation discounts that never materialized. One victim, scammed out of $4,893, tried to cancel his membership. When that failed, he contacted Chase directly to issue a charge back. That’s when the story got interesting.

After endless pestering, Chase agreed to make “an exception” and refund the victim the entire amount. However, because the bank defines the case as “forgiven debt” rather than a refund or charge back, the man received two 1099-C tax forms from Chase. They want him to pay taxes on his own stolen money.

Think it’s ridiculous? Let’s check out what what really happened and see why a refund can be technically be taxable.

 

Chase Bank Customer Falls Victim to Travel Scam

Photo of a scenic beach

The scam offered victims “travel club” exclusive deals at low prices

The hoodwinked Chase cardholder fell victim to a travel club membership scam for nearly $5,000. When he realized he’d been scammed, he tried to cancel his membership. Of course, his money was never refunded by the scammers so he went to Chase for a charge back.

Chase denied his request but the man was persistent. Here’s what the Consumerist reports:

“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.”

All of this took place back in 2011.

Fast-forward to 2013 — the New Jersey couple that perpetrated the scam plead guilty to charges related to their bogus scheme. The ruling essentially confirmed everything the Chase cardholder said. However, instead of going after the scammers, Chase sent two 1099-C forms to the scam victim.

 

Victim’s Money Defined as “Forgiven Debt” Instead of Refund

Photo of a Chase Bank

It’s all a matter of how the bank defines the situation: Is it a refund or debt forgiveness?

Chase told the man it views these payments as forgiven credit card debt rather than a refund. The bank felt legally obligated to report the forgiven debt to the IRS, hence two 1099-C forms — one for the initial 25% “courtesy credit” and one for the remaining debt.

Bamboolzed, the New Jersey column that reported the story, claims that the bank’s representatives said that someone owed $4,893 to Chase and since no money was repaid, it must be considered forgiven debt. Any forgiven debts over $600 must be reported to the IRS.

The real issue is whether or not the bank’s position is correct. It may technically be considered a debt because Chase never received payment from the vendor or the cardholder.

However, the director of consumer education for Credit.com chimes in for Bamboozled:

“This is a refund. It’s not a cancelled debt. It would be different if he took a cruise and paid with his credit card, and then never paid the credit card company.”

While Chase and the man have apparently reached some sort of settlement, the question remains of whether or not scam victims should have to pay taxes when they get their money back. In a similar case, the victim wasn’t sent a 1099-C form, bringing into question why the bank isn’t consistent in addressing scam cases.

 

What Do You Think?

Should a consumer ever be forced to pay taxes on “forgiven debts” or even refunds? Is the bank wrong for not being consistent in dealing with scam cases?

Let us know your opinion in the comments section!

 

See Also

Consumer Victory: Equifax Ordered to Pay $18.6 Million for Errors in Woman’s Credit Report
New Credit Card Protects Seniors from Internet Fraud and Scams
How Scammers Make Fake ATM Cards and Steal Your Money

2 Responses

Leave a Reply to 2014 FEDERAL TAX FORM 1040 EZ 2014 News Cancel Reply

Your email address will not be published.