Friday, July 15, 2011

Debtor's Prison

I saw a bank that said "24 Hour Banking," but I don't have that much time.
- Steven Wright
Here's a strange story. An IRS refund for $110,000 to an elderly woman in LA was sent to the wrong bank account. The man who received the funds immediately spent about $50,000 to save his home from foreclosure and pay off other bills. When caught he offered to pay back the remaining $65K to the woman with a monthly plan for paying the remainder but she rejected the plan as being too low. He's now in jail, facing a possible 4 years of prison time, for the felony of grand theft by misappropriation of lost property.

There are many red flags in this story:
1. A $100K refund? Why is someone with this kind of money doing her own taxes?

It is reported that she filed an old Citibank account number with the IRS for the refund. The account was closed in 2004 and the number later reassigned to a man in the story.

2. Why did Citibank reuse an old account number? That is terrible policy. How long did it wait before reassigning the number?

3. The woman rejected the deal to repay. Why in the world are the parties negotiating at all? Years ago my first automatic deposit paycheck in my new bank account was saved to the wrong account. The bank did not say, sorry, someone else spent your money. You better work out a deal with them. No the bank corrected their error. Likewise I would expect the IRS to pay the women her refund immediately and for the IRS to work with the man on recovering the misplaced funds. I suppose in this instance the IRS holds the woman responsible. They sent the money where she told them to send it.

4. Four years in jail? That seems harsh. I know the law says you can not spend the money in a bank error but come on. Work out a repayment plan with interest. Send him to jail if he violates the plan. With jail the government loses twice - it does not get the money back (unless that is part of the sentence) and it's spending money to keep him in jail.

5. The bail is set at $110,000, the exact amount of money misplaced.  Does the judge have a mean sense of humor?

Bottom Line

Just because money appears in your bank account, it is not yours to spend. If you can not explain the deposit (e.g. paycheck, etc.) then ask the bank where it came from before spending it.

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