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Federal Tax

Senate Report: Scam Victims Harmed by Casualty, Theft Loss Deduction Change

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

The Senate Special Committee on Aging published a report with its findings from an investigation into how the elimination of a tax deduction for victims of fraud or theft results in taxes on funds they no longer have.

Spearheaded by Chairman Bob Casey (D-PA), the April 11 report lambasted the Republican-designed Tax Cuts and Jobs Act (TCJA; PL 115-97) for covering costs of tax cut provisions benefiting wealthy individuals and corporations by eliminating other benefits. Specifically, the report focuses on the casualty and theft loss deduction, which historically let taxpayers deduct some stolen or lost amounts from their taxable income.

The TCJA did not completely do away the deduction, however, instead limiting it to losses incurred from federally declared disasters or if money lost was in connection to a business or transactions entered into for profit.

“Congress ought to be protecting victims of fraud and scams — not adding insult to injury by forcing them to pay taxes on their stolen savings to offset fat cat tax breaks,” said Casey in a press release accompanying the report. “I hope the devastation unveiled in this report helps ensure that we never make these mistakes again, and instead use the tax code to uplift working families and those in need.”

According to the report, losses from fraud or scams have been on the rise in recent years, especially for older Americans who are often targeted by predatory schemes. Citing data from the Federal Trade Commission, an estimated $10 billion from 2.6 million fraud incidents was lost in 2023. Nearly 385,6000 individuals over age 60 reported $1.6 billion in losses to fraud in the year prior, but the FTC estimates “actual losses are as high as 48 billion.”

Common scams designed against the elderly include tech support, government impersonation, and romance scams, the report detailed. Scammers convince victims to transfer sums through wire transfers, money orders, gift cards, or other means as part of a false narrative where the victim thinks they, for example, have a virus on their computer or a financial account has been compromised.

Those posing as a government employee use various deceptive means like providing seemingly legitimate documentation (such as letterhead that appears official) to convince victims they can be trusted and are there to help thwart fictitious bad actors. By presenting themselves as someone in a position to know how ‘hackers’ operate, scammers urge prompt action under the threat of consequences like jail time.

“Scammers can invest long periods of time cultivating their victims and preying on vulnerabilities, sometimes spending months to earn a victim’s trust,” read the report. “Scammers are skilled at persuading, assuaging, diverting, and inciting a sense of urgency and fear among targets.” Older individuals are more prone due to “social isolation,” it added.

The report documents first-hand accounts of 10 different victims across the country. In one case, a man in his seventies received a pop-up on his computer when he went to log into his IRA claiming there were security issues with his account. He spoke with a scammer impersonating a Social Security Administration official over the course of a month who convinced him his Social Security number was at risk. The Pennsylvania victim, a retiree, ended up drawing from his retirement and savings accounts to purchase cryptocurrency to send to the scammer, only to be informed by a real FBI agent after three transfers what was really going on.

In total, he lost $765,000 and owed the IRS over $220,000.

“After over 50 years in the workforce, my retirement dreams, and any legacy to pass on to my children have been stolen,” the victim was quoted in report. “I think almost daily about what I should have done to prevent this from happening. I will probably continue to replay this event in my mind for the rest of my life.”


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