A Laguna Beach, Calif., man was arrested after he allegedly spent more than half of a $110,000 tax refund that wasn't his but was deposited into his bank account.
Oh, my. Can we learn some personal-finance lessons from this? (Tip o' the hat to Washington Post PF columnist Michelle Singletary for alerting her many readers, including us, about this teachable moment.)
Technically it wasn't the bank's mistake. The 67-year-old Los Angeles woman who was owed the refund in 2010 gave the IRS a number for a bank account she had closed in 2004. That account was later assigned to Stephen Reginald McDow, 34, authorities said. The Orange County Register tells the rest of the story:
The error was discovered months later and McDow was asked to return the money to the rightful owner. Prosecutors say he wrote to the victim's attorney in March saying he had spent most of it.
Prosecutors said he used about $60,000 to pay student and car loans and to save a house he owns from foreclosure.
McDow now faces a felony charge of theft of lost property and up to four years in prison if convicted. What can we learn from this?
- You have to pay close attention to detail, particularly when large sums of money are involved. The woman electronically filed her 2009 tax return in August 2010, but even with an apparent extension didn't take the time to verify the account information. Make sure you give the IRS correct and current account and routing numbers for direct deposit of your refund.
- You've got to follow up. According to Accounting Today, the woman asked her accountant to check on the status of the refund in December. The IRS provides a website for taxpayers to monitor the status of their refund. Use it. (It's unclear how much that would have helped in this case, as prosecutors allege McDow began paying bills with the money a day after it arrived in his account in September.)
- The IRS doesn't care if you mess up. It's your job to work this out. "The agency says it assumes no responsibility for taxpayer error," Singletary wrote.
- Apparently the bank didn't either. Citibank apparently didn't notice that the names or other information it was provided with the deposit didn't match. Post continues after video.
Singletary asked her readers what they would do if this had happened to them. There is no wiggle room, in her opinion:
Me, I wouldn't spend a penny until I had double- and tripled-checked that the money was mine. It's just never worth it to do the wrong thing even if you're in financial straits. It's like when people get more money back from a cashier and never say a word. I believe you will get a payback in kind eventually.
The only positive lesson here is that a windfall can be put to great use by paying off debt, rather than blowing it all on frivolous expenditures. Just make sure you've obtained it legally.