Is there a way to avoid penalties and taxes on an earlyIRA distribution if it was due to fraud?

[jhknight56072]

Wife was tricked into withdrawing 30k from IRA. then returned the 30k, then withdrew 35k with a 1099 showing 65k. The money went to a con man in another country so why are we being double penalized?  How do we even enter this in our taxes so we are only taxed/penalized for the actual 35k that was withdrawn and not penalized for the 30k "contribution" when it was temporarily put back?

[AmyC]

I am assuming traditional IRA on 1099-R with code 1 in box 7. Make sure the IRA box is marked in the program also. The first 30k that you withdrew had a 60 day window to roll it somewhere. If you put it back within 60 days and have a paper trail to prove it, you will not have to pay the extra tax on the money. Even if you rolled it into the same account, the point is the money is back in a tax-deferred account.

When you program asks, what did you do with the money? Select moved to another retirement account. Dropdown shows and select rolled over all of the money

The $35k was not rolled over so it will be taxable.

Unfortunately, fraud is not a reason for an exception to the taxes and penalty.

See Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)