Who Foots Bill for Counterfeit Cash?

Q: Last week I gave a cafeteria cashier a $20 bill, and she marked it with a pen before putting it in the cash register. She explained that the ink from the pen would have turned dark if the bill had been counterfeit. Fortunately, my bill passed muster. But what would have happened if someone had given me a bogus bill and I tried to spend it? Could I have been prosecuted? Would I have been given the money back or would it have been confiscated? It sure seems possible that people could get caught through no fault of their own. --V.W.

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A: You’re absolutely right in noting that innocent people can get caught holding bad money. What happens to you when this occurs depends on whether the situation is played according to the book, or, more likely, according to expediency.

The Secret Service, which is responsible for protecting our currency, advises shopkeepers and other merchants to confiscate all bills they know to be counterfeit and to notify both the local police and the Secret Service of the situation, regardless of the severity of the case. At this point, if all goes according to the book, you might be contacted by either a police officer or Secret Service agent.

This doesn’t mean that you will be charged with any crime; in fact, the Secret Service acknowledges that the majority of bogus bills are held unknowingly by citizens who are as much a victim of the counterfeiter as anyone.

The real pain comes when you realize that you will not be compensated for any counterfeit currency confiscated from you. It’s simply your loss. Merchants consider it a cost of doing business; individual taxpayers may treat it as a theft loss, which is tax deductible to the extent that each occurrance exceeds $100. If the counterfeit money is given to you as part of your payment of wages, and then confiscated and not replaced, you should be sure to deduct the confiscated amount on on line 21 (other income) of the 1040 tax form. (If you do deduct your losses, be sure to get verification for your records; you wouldn’t want to face a hassle from the Internal Revenue Service on top of all this.)

If that’s how it’s supposed to be handled, now let’s discuss what’s more likely to occur. If the ink on the bill you submitted to your cafeteria cashier had revealed the bill to be bogus, she would probably have returned it to you and asked for another bill.

Now you have the bad money back. What do you do?

You’re supposed to turn it in to either law enforcement or banking authorities and explain how and where you got the bill, assuming you even know. More likely? You will simply try to spend it somewhere else, hoping the ink mark isn’t noticed. As you can see, this is like like those childhood “pass the ball� games where the object was not to be the person holding the ball when the whistle blew.

However, now that you know you hold a bogus bill, the real penalties for attempting to spend it kick in. In the eyes of the law, you are no longer an innocent victim. Victim, yes; but not innocent if you attempt to pass the bill. And the penalties for conviction--as much as 15 years in prison and a $10,000 fine--are not inconsiderable.

Will Addendum Aids Value of Property

Q: Several years ago you mentioned attaching an addendum to your will noting that property held by spouses as joint tenants was actually purchased with community property funds. You said this would ensure that the asset would be treated to a full step up in value upon the death of one spouse. What is the wording of that statement? Does it really work? --J.M.

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A: Although there is still some debate among the legal community as to whether this statement is valid, many attorneys advise their clients that they can take advantage of the best of both community property and joint tenancy systems of holding property. Remember, under joint tenancy, the probate process is avoided, while community property vesting allows a step up in value for the property held by the surviving spouse.

The following statement was drafted by Marvin Goodson of the Los Angeles law firm of Goodson and Wachtel: “We hereby agree that all of the property we hold in joint tenancy is truly and completely community property and we are holding it in joint tenancy for convenience only. We do not intend to change the character of the ownership of the property by holding in in joint tenancy.�

Goodson recommends that married couples sign and date the statement, preferably before a witness, and file it with their wills. Goodson says the solution has been upheld in IRS Ruling 87-98.

Account Holder Pays for Lost, Stolen Checks

Q: What happens when you lose a blank check, or one is stolen from you, and then someone actually writes and passes that check? Who’s liable: the institution that accepted the check or the account holder? G.W.B.

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A: Technically speaking, the account holder is responsible for notifying the bank of check losses or thefts and for securing stop-payment orders. If you fail to do this, you will likely be held liable for the checks. Of course, you could argue that the merchants or institutions that accepted the checks failed to get adequate identification. It’s a nice argument, but it isn’t likely to hold up.

Even if you did not know the check was stolen, there is no clear legal protection. Many banks, however, are fairly reasonable about these situations in the interest of customer relations.

Remember, the stop-payment orders issued by most banks are good for only six months and must be renewed at that point if you want to be completely secure that the check won’t be cashed. Most banks charge $10 for each stop-payment order. You might be better off closing the account from which you have either lost checks or had checks stolen.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles CA 90053 Or send e-mail to [email protected]