Scam artists, the only criminals we refer to as artists, have a knowledge of psychology that Freud would have envied and they are adept at perpetrating a wide variety of scams to steal huge amounts of money from their unsuspecting victims. According to the FTC in 2025 consumers reported a record $15.9 billion dollars lost to scams and this number undoubtedly underestimates the actual amount lost to scams as many consumers, perhaps out of embarrassment or just feeling helpless fail to report being scammed. Taking underreporting into account, the FTC estimated that the actual amount consumers lost in 2024 could be as high as $195.9 billion.
It is bad enough to be scammed, but having to pay income taxes on money you have been scammed out of certainly adds insult to injury. Prior to 2017 if a scammer convinced you to take money out of your retirement accounts and send the funds to the scammer, you could get a theft loss deduction to ease the sting just a bit. However, with the passage of President Trump’s Tax Cuts and Jobs Act in 2017, the rules were changed on a temporary basis such that you could only take a deduction under Internal Revenue Code Section 165 for your scam losses if the transaction was entered into for a profit such as when you are a victim of an investment scam. However, for imposter scams, romance scams, tech support scams and more, you were not able to deduct your losses and if you took the money out of your retirement account to pay the scammer, the results are even worse because the full amount of your withdrawal unless it was from a tax-free Roth IRA was fully subject to income tax and if you were under the age of 59 1/2 the IRS made it worse by adding its 10% penalty for early withdrawal.
The passage of President Trump’s One Big Beautiful Bill Act in 2025 was not particularly beautiful for scam victims as this law made the formerly temporary punitive changes to the tax law permanent, taking away the ability of scam victims to deduct their losses except when those losses were the result of investment scams.
Now, however, there may be some relief for scam victims. A bipartisan bill H.R 9500 entitled the Tax Relief for Fraud Victims Act has been filed in the House of Representatives by Republican Representative Max Miller of Ohio and Democratic Representative Thomas Suozzi of New York. On July 1st it was approved by a vote of 39-0 in the House Ways and Means Committee. The next step is for the House Ways and Means Committee to prepare a report explaining the bill and recommending the full House of Representatives to consider it and be put on the House calendar. If the House of Representatives approves the bill it would then be referred to the Senate Finance Committee and ultimately to a Senate vote before it could become law.
The bill goes beyond merely allowing all scam victims to deduct their losses. It also removes the penalty for early withdrawals from retirement accounts when the funds were withdrawn and given to scammers and makes it simpler for the scam victims to replace the funds withdrawn from their retirement accounts without the complications of present contribution limits and other rules. It further allows scam victims to deduct the funds lost to scams for the tax year in which the funds were lost rather than the year in which the scam was discovered. Presently if an investment scam loss is discovered that occurred in a previous year the victims are only able to deduct the loss from their income in the year in which the scam loss is discovered. This can be a problem for retirees who may not have taxable income in the year that the scam is recognized.
Much more needs to be done to protect Americans from scams, but this new bill is a definite step in the right direction. I urge everyone to contact their Congressional representative and ask them to support this bill.
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