Last month, the married couple pleaded guilty to stealing millions from more than 700 customers of their travel clubs, promising them vacation deals that were never delivered. Turner faces seven years in prison and $2.6 million in restitution to customers, and Bernstein, five years of probation.
Jay Schlesinger was one of their customers.
He used his Chase credit card to pay $4,893 to Dream Vacations International — one of the fake travel clubs — in June 2009. He tried to book trips for multiple dates, but those dates were never available. Three days after he bought the membership, he cancelled it via fax, email and a certified letter.
When the company didn’t refund the money, Schlesinger filed a dispute with Chase.
Bamboozled worked on Schlesinger’s behalf, providing Chase with copies of legal action taken by the state against the bogus travel empire.
We also reminded Chase that it provided a refund for another couple that bought into one of Turner’s companies just one week before we asked about Schlesinger.
Chase didn’t budge. But Bamboozled and Schlesinger didn’t give up.
Finally, after more than a year of the Chase-Schlesinger-Bamboozled triangle, Chase granted Schlesinger a refund on the rest of his money.
Back then, Schlesinger received a call from the executive office.
“She said, ‘I have good news,’” Schlesinger said at the time. “’[She said] I’ve been spending the last couple of days reading the documents and stories about this, and you’re been a customer of ours for more than 15 years. We’re making an exception and we’re going to credit that money to your account.”
That was in 2011.
Fast forward to Aug. 9, 2013, one day after Turner and Bernstein pleaded guilty to the phony vacation scheme.
Schlesinger received a very unwelcome letter from Chase. It included two 1099-C forms — forms that report cancelled debts to the Internal Revenue Service.
You see, when a debt is cancelled by a lender, the borrower doesn’t have to pay back the amount owed. But, that “forgiven” amount is considered as income to the borrower, and income taxes must be paid on the cancelled amount. Interest and penalties, too.
The problem? The money returned to Schlesinger by Chase was never characterized to him as a debt cancellation. This was not money he benefitted from in any way. It was a refund for a fraudulent purchase, and the refund made him whole.
“I am absolutely astounded, shocked…that the bank is treating this fraudulent charge reversal (which should just be a `return’) as debt cancellation (income to me), forcing me amend two of my previous income tax returns and costing me an additional $1,500 in federal taxes,” Schlesinger said in an email.
RECONSIDERATION AND THE LAW
Schlesinger called Chase but got nowhere with the reps.
“This should be a charge reversal, and they should have gotten the money back from that crook Turner,” he said. “Just because… it was too late to get the money back from him, they want me to pick up income equal to the fraudulent charge reversal?”
Schlesinger called the IRS.
“An IRS agent in the department that deals with debt forgiveness issues — it took me two hours to get to a real live person in the correct area — I was told that my position was correct,” he said. “Those credits should not be considered income.”
We reached out to Chase and asked it to withdraw the two 1099-C forms.
The next day, Schlesinger received a call from a Chase rep.
“She said they have to send 1099s. She said that Chase didn’t get the money back from the vendor,” he said. “She basically said, ‘Tough.’”
Schlesinger said he tried to explain why it was should be considered a refund, to no avail.
We contacted Chase again. It said debt cancellation reporting must be done by law for amounts over $600, which is true — if it was actual debt forgiveness — but this was but essentially a return. Chase said Schlesinger would receive another call from another rep.
That left us hopeful. While we waited for Chase to act, we posed Schlesinger’s problem to a few experts.
“By definition, cancellation of debt is when a creditor forgives a debt without requiring consideration in return,” said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence. “Although in this case there was fraud on the part of the third party provider, the open question is whether that changes the handling of the refund.”
Technically, Lassus said, it seems Chase forgave it as a debt because Chase was unable to recover funds from the travel club.
Ahem. That would be because Turner and Bernstein shut down the company only to open another in its place.
On the positive side, Schlesinger won’t have to file an amended return for 2009 because the statute of limitations has run out, said O. David Fischer, a certified public accountant and attorney with Fischer, Barr and Wissenger in Parsippany.
He will have to amend his tax return for 2011 because otherwise the 1099-C would be flagged as not matching his return, Fischer said.
Of course, that’s if Chase doesn’t change its mind about withdrawing the 1099-C.
“Someone’s making a mistake here,” said Gerri Detweiler, director of consumer education for Credit.com. “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.”
Detweiler said erroneous 1099-Cs are a common challenge for taxpayers because there is no set IRS procedure to follow or form to fill out for a dispute.
She said taxpayers in some cases, such as those with debts discharged in bankruptcy, may avoid paying taxes on cancelled debt. They’d fill out Form 982, but there is no place on the form to indicate fraud or theft.
“He should include an explanation with his amended tax return summarizing the fraud,” she said. “It may get popped back to him and he’ll have to provide additional information, so he has to stay on top of it.”
Detweiler also recommends Schlesinger file a complaint with the IRS’ Taxpayer Advocate Service, and “cross his fingers.”
Our experts also said Schlesinger should make sure there are no negative marks on his credit report from this so-called debt forgiveness.
While we waited for Chase’s response, we contacted another travel club victim who was helped by Bamboozled to receive a refund from Chase. That customer received a full refund, but he never received a 1099-C.
Same bank. Same charge. Same refund. Different treatment.
NO TALKING AND NO COMMENT
Schlesinger got a call from Chase.
“The bank proposed something but it’s under a non-disclosure agreement,” he said, unable to give the details of the lender’s offer to him.
We’re glad if Chase and Schlesinger came to an agreement, but we wonder — on Chase’s side — what’s the big secret?
We’ve covered stories before in which a company agreed to give customers refunds or make things right, but the company said it would only do so if the customer agreed to sign a non-disclosure form.
Yes. A non-disclosure form. Bamboozled translation: hush money not to talk to the press.
In other words: “You scratch my back and I’ll scratch yours.”
We asked Chase why this was hush-hush, but it refused to comment.
We asked why Schlesinger was given a 1099-C if the other Chase customer with the travel refund was not. No comment.
Would it be reported to the credit bureaus? Again, no comment.
The non-disclosure prevents Schlesinger from telling us, but if it makes him whole — for real, this time — we’ll take it.
Yes, with a big fat pout.