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Senate Committee Report Details How Older Fraud Victims Had to Pay Taxes on Stolen Money

By:
S.J. Steinhardt
Published Date:
Apr 17, 2024

iStock-849166998 Older Woman Frustrated

Fraud schemes that target older Americans can cause significant tax liability as well as financial  devastation, according to a recent report by the U.S. Senate Special Committee on Aging, Kiplinger Consumer News Service reported. That is because the 2017 Tax Cuts and Jobs Act removed a deduction for theft loss, the report found.

Older adults in Pennsylvania, Ohio, Florida, Utah, California, and other states have fallen victim to fraud—only to be burdened by taxes on their lost retirement savings, the report found.

The committee’s chair, Sen Bob Casey (D-Penn.), blamed a provision of the 2017 Tax Cuts and Jobs Act (TCJA) that removed the casualty and theft loss tax deduction for contributing to retirees’ financial challenges. He argued that the changes made to the deduction should be reversed.

“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,” he wrote in a release accompanying the “Scammed then Taxed” report.

“For a century, the theft loss deduction allowed taxpayers who experienced theft to receive a tax deduction to offset their losses,” the release said. “The repeal of this provision has meant that fraud victims are now often obligated to pay taxes on money that has been stolen.  … [The] report details how some older adults—who lose the most to frauds and scams—are now facing huge tax bills on top of losing all their assets, leading them to feel as though they have been victimized twice.”

Some of their stories were included in the report. One Pennsylvania retiree was tricked by someone posing as a Social Security Administration official into withdrawing his retirement fund and transferring the money into a cryptocurrency investment, resulting in a loss of $765,000 and an IRS tax bill of more than $220,000.

Another older adult, a 73-year-old former White House scientist, was victimized by a “tech support scam,”  losing $655,000 and paying more than $100,000 in taxes on those funds, The Washington Post reported in December.

The casualty and theft loss deduction, which had been in place for decades, allowed taxpayers to offset losses from theft by deducting them from income. The TCJA narrowed the deduction for individuals, though Congress has expanded the deduction for qualified disaster losses resulting from theft or casualty on several occasions, Kiplinger’s reported.

Taxpayers in the United States have lost about $10 billion to 2.6 million fraud incidents last year, according to Federal Trade Commission (FTC) data. Older adults (age 60 and over) reported higher median losses than other age groups.

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