Advance Fee Fraud victim loses tax NOL carryback

Talk about the Nigerian 4-1-9 scam in all its many variations, such as bogus checks sent from Nigeria to purchase used cars in the U.S. and many other variations of this scam.
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Kestrel
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Advance Fee Fraud victim loses tax NOL carryback

Postby Kestrel » Thu Dec 20, 2012 1:47 am

I found this in the US Tax Court decisions, but decided it fit better here.

The Tax Court case is 6105-10. The Petitioner, Paula J. Halata, lost over $180,000 in an Advance Fee Fraud. The issues decided in the case were whether she was entitled to a theft loss deduction, when the loss occurred, and whether she could claim and a Net Operating Loss carry-back for the two years preceding the fraud. The court allowed her the theft loss deduction as of the date the money was deemed unrecoverable, but for administrative reasons denied the NOL carry-back.

What is interesting in the court's opinion is the detailed description, including e-mails, of how Ms. Halata got suckered into the fraud, and what happened after she handed over the money. I won't cut-and-paste the whole description but here's the first part, complete with the fraudster's bad spelling and grammar. A purported California attorney is involved named Dwight Montgomery. According to the State Bar of California there is an attorney by that name who has an active license. I don't know if the "Dwight Montgomery" involved in the scam is the same person as the real attorney, but if he is I hope that his license status changes soon.

In 1999 or 2000, Halata began a romantic relationship with Dominique Ojeda. In late 2000, Ojeda and her eight-year-old daughter moved in with Halata. Two years later, Ojeda lost her job as an optometrist's assistant. Halata began paying all the living expenses of Ojeda and her daughter. At some point, Ojeda worked as an apartment locator over the internet, but this work apparently did not provide much income. Ojeda also began researching other business opportunities on the internet.

In September or October 2006, Ojeda told Halata that she had learned of a way of making money through bank-guaranty transactions. Ojeda found this supposed opportunity through a member of the California bar named Dwight Montgomery. Montgomery persuaded Ojeda to participate in a bank-guaranty transaction. Because Ojeda did not have any money, Halata supplied the money for the purported transaction. Halata was given to understand that if she made a payment of about $180,000, Ojeda would receive $2.5 million; that the first installment of the $2.5 million would be paid to Ojeda two.weeks after the payment of the $180,000; and that the $180,000 would be returned at any time upon request. Halata and Ojeda agreed that Halata would take the risk of loss on the purported transaction. Halata never personally spoke with Montgomery about the purported bank-guaranty transaction.

The trial record contains some documents, including emails, regarding the purported bank-guaranty transaction. These documents are quoted extensively in the discussion that follows. Many of the events, terms, persons, and entities referred to in the documents are not explained by the trial record.

Montgomery gave Ojeda an invoice from "European Investors Inc." dated October 13, 2006. Ojeda gave the invoice to Halata. The invoice requested that "Mantara Holding" pay 250,000 euro to account No. 0456-981457-12 at CreditSuisse in Lugano, Switzerland, a bank account supposedly owned by "European Investors Inc.":

To:
MANTARA HOLDING
(HIS ADDRESS) [The phrase "(HIS ADDRESS)" is in the original.]
DATE: 13TH OCTOBER 2006
PRO FORMA INVOICE N. 066/2006
Transaction code 032006WTDM
We, European Investors Inc., hereby present our corporate invoice as set forth in the Agreement dated 9th October 2006, by his [sic] reference the terms of which are incorporated herein, it was agreed that the 1st Party will cover the clearing, settlement and banking expenses against this invoice. This amount will be refunded by the 2nd Party at the end of the transaction, or can be deducted by the 1st Party form [sic] the amount of the payment fir [sic] the first tranche of Bank Guarantys as delivered by the 2nd Party to the 1st Party. If, in the event the Pre-Advice (MT799) is not delivered as provided in the Agreement, then the Eur 250,000 remitted by the 1st Party will be refunded by the 2nd Party to the 1st Party within ten (10) international banking days to the 1st Party's banking coordinates provided in the agreement.
TOTAL AMOUNT TO PAY EUR 250,000.00

Two weeks after the victim handed over her money the stalling and empty promises begin. The correspondence quoted by the court is loaded with diversionary tactics.

Finally, fourteen months later, Dwight Montgomery claims "I never promised you anything."
On December 5, 2007, Montgomery responded:
Dear Dominique:

I only made two promises to you:
(1) if Mantara or I have a buyer that completes a deal, then you and Willie will be included in the profit distribution; and
(2) if I am included in the profits on a deal that KKP completes, then I will share my profits with you and Willie.

I also informed you that KKP agreed to remit 150K euros ifKKP completes a deal. That is the only "word" I gave to you and Willie, and I will honor that "word" irrespective. I made no other promises to either you or Willie.

I too am very frustrated and angry that not one of the deals has completed. And while I remain confident that a deal will complete, I also remain frustrated and angry at these nonperforming buyers and delays.

All I can do is keep pressing on trying to get a deal done for the three of us. Meanwhile, if you or the FBI come calling, then Joe and I are more than willing to meet with you and I will give all of the emails and other documentation for the FBI to look at. I can not do anything more and do not need to do anything more.

At the end of the day, all I can and will do is honor the aforementioned promises to you and Willie. That is the only seed I sowed, and I remain optimistic that I -- and you and Willie -- will grow and blossom.

Best Regards,
Dwight.
"Never try to teach a pig to sing. It wastes your time and annoys the pig." - Robert Heinlein

Arthur Rubin
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Re: Advance Fee Fraud victim loses tax NOL carryback

Postby Arthur Rubin » Thu Dec 20, 2012 4:09 am

It's an interesting technicality; if the 2009 return is still open for normal purposes (which it must be until around April 15, 2013), and it shows an NOL, then, if* she can elect to choose a 2-year carryback period, then her 2007 and probably 2008 taxes would be reduced to the point that her previous payments would be adequate. However, as it's not allowed in this proceeding, it doesn't reduce the penalties for 2007 or 2008.

The reason I'm not sure, is that the election to waive the alternate carryback period seems to have to be made by the end of the tax year following the year of the NOL; in this case, December 31, 2010.

Can she sue her lawyer for malpractice in failing to claim an NOL from 2009? In theft loss cases with the year that recovery became impossible, I would think it a matter of form to plead, in the alternative, all possible years in which the loss might have "occurred", and any carryfoward or carryback to the years in the petition.
Arthur Rubin, unemployed tax preparer and aerospace engineer
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