Scam Victims Get Hit With a Tax Bill on Money They Never Kept. Congress Has a Fix Sitting in Committee

The Setup: Robbed, Then Taxed

Get scammed out of your retirement savings and the IRS can still come looking for its cut. It's the law.

Since 2018, the Tax Cuts and Jobs Act of 2017 has barred most theft-loss deductions for individual taxpayers, according to CNBC. Trump's 2025 budget law, the so-called "big beautiful bill," made that restriction permanent rather than letting it expire.

A scammer convinces a 68-year-old to drain his traditional IRA and wire the money. He's out the cash. But the IRS still treats that withdrawal as taxable income. If he's under 59½, add a 10% early-withdrawal penalty on top. He got robbed twice: once by the criminal, once by the tax code.

An IRS memorandum from March 2025 does allow deductions for investment fraud losses specifically, according to CNBC. But romance scams, impersonator scams, and most other categories don't qualify. Matthew Roberts, a tax attorney and partner at Meadows Collier in Dallas, called the current rule "very punitive," telling CNBC it's unfair that victims can't claim a theft loss deduction at all in most cases.

The Numbers Are Getting Worse

This isn't a niche problem. Americans reported $15.9 billion in fraud losses to the Federal Trade Commission in 2025, the highest figure on record and up about 27% from $12.5 billion in 2024, according to CNBC's review of FTC data. Since 2020, reported losses are up nearly 430%.

Imposter scams were the most commonly reported fraud type. About 1 million people filed reports, and while 80% didn't lose money, the 20% who did lost $3.5 billion combined. Investment scams produced the biggest total losses at more than $7.9 billion, per the FTC.

The overall spike is driven by big-dollar losses. More people are getting scammed out of six figures or more, and it's hitting older Americans hardest. Adults 60 and up lost $2.4 billion in 2024, and $1.6 billion of that, 68%, came from losses of $100,000 or more, according to the FTC's 2025 annual report to Congress.

Clark Flynt-Barr, AARP's government affairs director for financial security, told CNBC the pattern usually traces back to one thing: retirement accounts getting cashed out. Scammers know where the money is, and it's in 401(k)s and IRAs.

The Fix in Congress, and Why It's Stuck

A bipartisan bill, the Tax Relief for Fraud Victims Act (H.R. 9500), would undo the deductibility restriction and waive the 10% early-withdrawal penalty for fraud victims, among other provisions, according to CNBC. The House Ways and Means Committee approved it 39-0 on July 1, 2026, a rare unanimous vote in a committee that rarely agrees on anything.

Unanimous committee approval usually signals a bill nobody wants to be caught opposing. But CNBC reported it's uncertain when, or whether, the full House will actually vote on it. Bipartisan committee wins die in the scheduling queue all the time, and there's no indication of a floor date.

Neither CNBC nor other coverage lays out why leadership hasn't scheduled a vote, whether there's Senate companion legislation moving, or what the Joint Committee on Taxation estimates this would cost the Treasury in forgone revenue. Those are the practical questions that determine whether this bill is signed into law or joins the pile of unanimous-committee-vote bills that quietly expire at the end of a Congress.

The Case for Caution

There's a reasonable argument for keeping some guardrails on theft-loss deductions, even if the current rule is too blunt. Congress restricted these deductions in 2017 partly because the old system was messy to administer and invited disputes over what counted as a "loss" versus bad judgment or an investment gone sour. Distinguishing a con artist's victim from someone who just made a bad bet isn't always simple, and the IRS has to draw a line somewhere or risk a flood of dubious claims.

Keeping grieving victims from holding a tax bill on money that's already gone requires a solution. Investment fraud already gets a carve-out under the March 2025 IRS memo. Extending clearer, defined relief to romance scams and impersonator scams, categories the FTC says are driving the sharpest growth, is a narrower ask than reopening the entire pre-2018 deduction regime.

What Happens Next

The bill sits in the House with committee approval and zero floor votes scheduled as of today, July 18, 2026. No timeline exists. Fraud losses, meanwhile, keep climbing, and every month without a vote is another month victims file tax returns under the old rules, one more blow on top of the scam itself.