Congress Eyes Tax Relief for Scam and Fraud Victims
A House bill would restore theft-loss deductions eliminated in 2018 and add new protections for fraud victims who currently owe taxes on stolen funds.
One of the more counterintuitive corners of the U.S. tax code is the rule that can leave fraud victims owing the IRS money on funds they never actually kept. Under current law, when someone loses money to a scam, that loss is generally not deductible — meaning the government can still expect a tax payment on income that was effectively stolen before the victim ever benefited from it. Lawmakers are now pushing to change that.
A bill moving through the House would roll back a provision from the 2017 Tax Cuts and Jobs Act that eliminated the personal theft-loss deduction for most taxpayers starting in 2018. Prior to that change, individuals could generally deduct losses resulting from theft, offering meaningful relief to those who had been swindled. The proposed legislation aims to restore that protection and layer on additional relief measures specifically targeting fraud victims — a population that has grown substantially as sophisticated scams, including investment fraud and romance schemes, have surged in recent years.
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The policy tension here is real. The IRS treats certain fraudulently obtained gains as taxable income in the year they are received, even when the victim later discovers the money was part of a larger scheme and never truly theirs to keep. Without a corresponding deduction for the subsequent loss, victims can end up in a fiscal double bind — robbed by criminals and then billed by the government. Restoring the deduction would create a more symmetrical and arguably more just treatment of these cases.
The broader context matters: consumer fraud losses in the United States have climbed sharply, with regulators reporting record figures in recent years. Legislation that addresses the tax dimension of victimization reflects growing congressional recognition that the legal framework has not kept pace with the scale and complexity of modern scams. Whether the bill advances through a divided Congress remains an open question, but its introduction signals momentum toward closing one of the tax code's most quietly punishing gaps.
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