By Kelly Phillips Erb
Love is a funny thing. It can make an otherwise rational person do things that they never thought they would do—like fly cross-country on a whim or pretend to be really good at karaoke. Those butterflies you feel when you think you’re in love can make you feel invincible.
Unfortunately, that feeling can also make you vulnerable to scammers. Last year, the Federal Trade Commission (FTC) received some 56,000 complaints about romance scams—more than triple the number from 2017. And those folks didn’t just lose their hearts—they also reported monetary losses totaling $547 million.
Those scams—called romance scams or lonely hearts scams—typically start online. The popularity of online dating apps like match.com and OkCupid has made it easy for those looking to take advantage to do so.
One of the most notorious online romance scammers is Shimon Hayut, better known as the Tinder Swindler. Hayut, who also went by the name Simon Leviev, allegedly defrauded multiple women he met on the dating app by pretending to be the son of a billionaire. He hopped from one woman to the next, flashing signs of his alleged wealth to gain trust—and more money.
A Netflix documentary detailing Hayut’s behavior became a phenomenon—with many wondering why he remained a free man. Hayut had, in fact, already served time in 2015, including a stint in Finnish prison after being convicted of cheating three women out of money. But the film picks up after that time, claiming that he targeted new victims in 2018 and 2019. Hayut denies doing anything wrong, declaring, “I was just a single guy that wanted to meet girls on Tinder.”
Hayut has since been banned from Tinder, as well as several other dating apps.
But you don’t have to be on a dating app to be the victim of a romance scam. According to the FTC, more than a third of people who lost money to a romance scam in 2021 reported that it started on Facebook or Instagram.
And while the Tinder Swindler targeted high-dollar victims, even those who don’t have a lot of money run the risk of being scammed.
Here’s how most romance scams work. The scammer befriends you over a dating app or online—but you rarely meet in person. Eventually, the scammer suggests there’s a problem—and that he or she needs money. Some of the most common requests for money involve funds to cover travel costs to visit in person, “emergency” medical expenses, and unexpected legal problems. The legal difficulties often play on themes you’ve heard before—such as asking for money upfront to pay taxes or attorney fees to collect an inheritance. They promise to pay you back, but that never happens, leaving with you a broken heart and an empty bank account.
Sometimes, a potential victim may try to involve a tax professional to support their claims that tax may be due or that assets need to be transferred. At the height of the real estate boom, I was approached by a woman looking to buy property, and, she claimed, in need of tax advice. We set up a meeting to discuss a potential representation. The meeting turned into a call with her boyfriend, who was, she explained, the reason they needed tax advice. She described her dilemma: She was a U.S. resident and her boyfriend was not. He would pay for the property since she didn’t have enough cash on hand and did not want to take out a mortgage. But, she explained, quite convincingly, she was worried about the tax consequences because he was not a U.S. person. The solution, she had decided, was to title the property in her name alone—problem solved.
I could tell he had reservations—not the least of which were that he had never been to the U.S., nor met his “girlfriend” in person. But he had also done enough research to know that there was a grain of truth to what she was saying. That’s often how scams get started.
The potential client was referencing the Foreign Investment in Real Property Tax Act, commonly referred to as FIRPTA. While U.S. persons are typically subject to tax on worldwide income, non-U.S. persons are generally only taxed in the U.S. on income that is effectively connected with the conduct of a U.S. trade or business.
Selling property, especially if it is a personal residence, doesn’t typically result in trade or business income. Congress believed that this created a loophole for foreign persons, and set about changing it. Now, under Section 897 of the Tax Code, gains and losses from a foreign person’s disposition of a U.S. real property interest are treated “as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.” That means that they are subject to tax in the U.S.
Of course, if the foreign person simply left the country without filing a tax return, there’s a chance that the IRS wouldn’t get paid. So, FIRPTA requires that the buyer withhold—typically at 15%—from the total sales price. That amount is paid to the IRS and is treated like any other tax withholding.
If the property is jointly owned by a U.S. person and a foreign person, you would allocate the gain for purposes of FIRPTA. But the allocation is based on the capital contribution of each person—and in this case, the U.S. person was contributing zero, while the foreign person would have contributed 100%.
The potential client explained that the way around the tax issue was simply to take the cash and buy the property herself.
It was one of many red flags. The FTC advises that you never send cash to a “sweetheart” you haven’t met in person—even if they say it’s really for your benefit.
The potential client also wanted to get the transaction done in a hurry. That’s another red flag. Don’t let a scammer rush you. Slow down and talk to someone you trust. That might be a tax or legal professional—but it should be one that you choose. Just because pieces of a transaction ring true doesn’t mean that you should sign on the dotted line without further investigation.
And don’t assume that you’re safe if you’re making an investment instead of handing over cash. The FBI has issued warnings about a new twist in romance scams: being asked to invest in or trade cryptocurrency. Once the victim has been wooed, the scammer claims to know about a cryptocurrency opportunity that requires an initial investment. After evidence of an alleged profit, the asks get bigger. The scammer may say that more money is needed to pay additional taxes or fees, and may also involve third parties.
Cryptocurrency transactions offer a measure of privacy that makes them particularly appealing to scammers. It’s also easy to move cryptocurrency quickly, making it more difficult to trace than cash deposits or transfers which may be slowed by banking requirements.
So what’s the recourse for a romance scam? Unfortunately, there are not a lot of options—as many brokenhearted victims are finding out. Once the money is gone, it’s typically gone forever. And while there used to be a tax break for victims, that’s no longer the case. As a result of the 2017 tax law, personal casualty and theft losses are currently deductible only to the extent that the losses are attributable to a federally declared disaster.
Your best bet is to be smart. A little flirting can be fun, but take it slow. Ask lots of questions and pay attention to answers that don’t make sense.
Do a little homework. You can quickly and easily do a reverse image search on a profile photo. Simply upload it to Google Images and see what comes up.
You can also search the web for text in your emails and messages. If something feels like a Shakespearean sonnet or an Ed Sheeran song lyric, that’s not necessarily a warning sign, but if the same language shows up on websites devoted to exposing scams, that should set off alarm bells.
Finally, the FBI reminds you not to disclose your financial details—including your financial health—to people that you don’t know and trust. You shouldn’t provide your banking information or any other sensitive information to anyone online or to a site you do not know is legitimate. And, if an online investment seems too good to be true—it probably is.
We want to believe in happily ever after—but even fairy tales have their share of dragons. Be smart, and be the hero of your own story.
This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.
To contact the reporter on this story: Kelly Phillips Erb in Washington at firstname.lastname@example.org
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