Finally, Tax Relief for American Scam Victims is on the Horizon

Tax Relief for Victims of Crimes, Scams, and Disasters Act: A Lifeline for American Scam Victims

Scams have become an unfortunate epidemic in American society, preying on trust and vulnerability to siphon hundreds of billions of dollars annually from hardworking individuals.

From romance scams that exploit emotional connections to investment frauds promising quick riches, and impersonation schemes mimicking government officials or loved ones, these crimes affect tens of millions annually, often leaving victims not just financially devastated but emotionally shattered. According to estimates from the Federal Trade Commission (FTC), Americans lost over $10 billion to scams in 2023 alone (probably only 3-5% of the actual amount), with the figure climbing amid increasingly sophisticated tactics like AI-driven deepfakes and cryptocurrency lures. This isn’t just a personal tragedy; it’s a societal burden, straining families, eroding consumer confidence, and overwhelming support systems like law enforcement and victim advocacy groups. For scam victims, the pain is compounded by a harsh reality: under current tax laws, there’s usually no way to recoup even a portion of these losses through deductions, effectively taxing them on money they never truly had.

The Existing Problem: A “Double Hit” for Victims

At its core, the issue stems from how the U.S. tax system treats theft and casualty losses. When someone falls victim to a scam, they might withdraw funds from retirement accounts, sell assets, or use taxable income to send money to fraudsters, only to realize later it’s gone forever. Not only do they lose the principal amount, but they also face taxes on any associated income (e.g., capital gains from sold assets or penalties for early withdrawals). Without a tax deduction for these losses, victims are hit twice: once by the scammer and again by the IRS. This exacerbates financial ruin, pushing many into debt, bankruptcy, or reliance on social services. For elderly victims, who are disproportionately targeted in romance and investment scams, this can mean depleting life savings without recourse. Society at large pays the price too, through increased welfare costs, reduced economic productivity, and a chilling effect on trust in online commerce and financial systems.

Why There’s No Deduction Currently: The Legacy of the 2017 Tax Cuts and Jobs Act

Prior to 2018, the Internal Revenue Code allowed taxpayers to deduct unreimbursed personal casualty and theft losses on their itemized returns, subject to reasonable limits (a $100 floor per event and a reduction by 10% of adjusted gross income). This included scams classified as “theft” under IRS rules, providing some relief by lowering taxable income and potentially yielding refunds. However, the Tax Cuts and Jobs Act (TCJA) of 2017, enacted to simplify taxes and reduce rates, temporarily suspended this broader deduction from 2018 through 2025. Now, such deductions are only available for losses tied to federally declared disasters (e.g., hurricanes or wildfires), leaving everyday thefts like scams, burglaries, or fraud out in the cold. The rationale was to curb “miscellaneous” deductions amid a shift toward higher standard deductions, but critics argue it overlooked vulnerable populations. As a result, scam victims today have limited options: narrow IRS safe harbors for Ponzi schemes exist, but most common frauds (e.g., wire transfer scams) don’t qualify, forcing victims to absorb the full tax blow.

The Overall Benefit of the New Bill: Restoring Fairness and Relief

The Tax Relief for Victims of Crimes, Scams, and Disasters Act (introduced as S. 1773 in the Senate and H.R. 3469 in the House on May 15, 2025) aims to right this wrong by reinstating the pre-TCJA deduction rules. If passed, it would allow scam victims and those affected by other thefts or non-disaster casualties to claim deductions for unreimbursed losses, retroactively covering tax years 2018 through 2025. This means victims could file amended returns to potentially recover thousands in overpaid taxes, easing immediate financial pressure and aiding recovery. For society, the bill promotes equity: it acknowledges that scams are a modern plague, not a personal failing, and ensures the tax code doesn’t punish the innocent. Broader benefits include encouraging scam reporting (as documentation strengthens deduction claims), deterring fraud by reducing net victim losses, and fostering a more compassionate economic framework. While not a full reimbursement, deductions are limited and only benefit those who itemize; the bill could help millions reclaim 20-40% of losses in tax savings, depending on income brackets. In an era of rising cyber threats, this legislation signals that American policymakers are prioritizing victim support, potentially setting a precedent for stronger anti-scam measures nationwide.

Overview of the New Senate Bill

The “Tax Relief for Victims of Crimes, Scams, and Disasters Act” (S.1773, 119th Congress) is a proposed piece of legislation introduced in the U.S. Senate on May 15, 2025, by Sen. Tammy Baldwin (D-WI), with cosponsors including Sen. Peter Welch (D-VT) and others in a bipartisan effort. A companion bill was introduced in the House. As of February 25, 2026, the bill remains in the introductory stage: it was read twice and referred to the Senate Committee on Finance, with no further actions, hearings, amendments, or votes recorded. It has not passed either chamber of Congress and is not yet law. The bill’s official title is “A bill to amend the Internal Revenue Code of 1986 to reinstate the deduction for personal casualty losses as in effect prior to the enactment of Public Law 115–97” (referring to the Tax Cuts and Jobs Act, or TCJA, of 2017).

The legislation is a short, targeted amendment to Section 165 of the Internal Revenue Code (IRC), which governs losses. Its primary purpose is to restore the pre-TCJA deduction for personal casualty and theft losses, which was temporarily suspended from 2018 through 2025 under the TCJA. Before the TCJA, taxpayers could deduct unreimbursed losses from casualties (e.g., fires, storms, accidents) and thefts (including scams and fraud) on their personal property, subject to limitations: a $100 per-event floor and a reduction by 10% of adjusted gross income (AGI). The TCJA limited this deduction to only losses attributable to federally declared disasters, effectively excluding most thefts, scams, and non-disaster casualties.

Key Provisions of S.1773 Include:

• Reinstatement of the Broader Deduction: Restores the full personal casualty and theft loss deduction as it existed before the TCJA, covering losses from theft, scams, fraud, accidents, and non-federally declared disasters.
• Retroactive Application: Applies retroactively to tax years 2018 through 2025, allowing affected taxpayers to file amended returns to claim the deduction for past losses.
• No New Definitions or Expansions: It does not introduce new tax credits, refunds, or programs; it simply reverts to the pre-2018 rules without adding complexities like income phase-outs or special scam-specific provisions.

The bill has garnered support from organizations like AARP, the Investment Adviser Association (IAA), and advocates for scam victims, who argue it addresses an unfair “double hit” where victims pay taxes on income they lost to fraud. It is bipartisan and bicameral, but its lack of progress suggests it may be stalled amid broader congressional priorities, such as budget reconciliation or tax extenders packages. No related bills or amendments have advanced it further.

What the Law Does and Does Not Do for Scam Victims

If enacted, the bill would primarily benefit the estimated millions of U.S. scam victims (e.g., from romance scams, investment fraud, impersonation schemes, or theft) by allowing them to deduct qualifying losses, reducing their taxable income and potentially leading to refunds on amended returns. Here’s a breakdown:

What It Does:

• Allows Deduction of Theft Losses: Scams typically qualify as “theft” under IRC Section 165(c)(3), including fraudulent schemes where money is stolen through deception (e.g., wire transfers to scammers posing as officials). Victims could deduct the lost amount (minus any reimbursements, like from insurance) on Schedule A (itemized deductions), subject to the pre-TCJA limits: subtract $100 per casualty/theft event and then reduce the total by 10% of AGI.
• Relieves Tax Burden on Lost Income: Many victims withdraw from retirement accounts or sell assets to send money to scammers, incurring taxes and penalties on those withdrawals. The deduction could offset this, especially if the loss exceeds other income. For example, a victim who lost $50,000 to a scam after paying taxes on it as income could amend their return to deduct the loss, potentially recovering thousands in overpaid taxes.
• Covers Broad Scam Types: Applies to non-Ponzi scams (e.g., romance, government impersonation), which are currently excluded from narrower IRS relief options like the Ponzi-scheme safe harbor.
• Retroactive Relief: Benefits victims from 2018 onward, addressing the “insult to injury” of the TCJA’s changes.

What It Does Not Do:

• No Automatic Refunds or Forgiveness: It doesn’t waive taxes already paid or provide direct reimbursements; victims must actively claim the deduction via amended returns.
• Limited to Itemizers: Only useful for those who itemize deductions (about 10-15% of taxpayers post-TCJA); standard deduction users get no benefit unless the loss pushes them to itemize.
• No Penalty Waivers: Doesn’t explicitly waive early withdrawal penalties (e.g., 10% on IRA distributions before age 59½), though some related proposals (like Sen. Grassley’s amendment) have suggested this.
• Excludes Non-Qualifying Losses: Losses must meet IRS theft criteria (e.g., criminal intent by the perpetrator); voluntary payments or bad investments without fraud don’t qualify. Also, no relief for losses below the $100/10% AGI thresholds.
• No New Protections or Programs: Doesn’t fund scam prevention, victim support services, or IRS enforcement against scammers; it’s purely a tax code tweak.
• Temporary Nature: The reinstatement aligns with the TCJA’s sunset (post-2025, the old rules return anyway), so it doesn’t create permanent changes beyond retroactivity.

Overall, it could help recover 20-40% of lost amounts in tax savings for higher-bracket victims with large losses, but smaller losses or low-income victims might see minimal or no benefit due to thresholds.

Retirement Account Penalties

If enacted, the Tax Relief for Victims of Crimes, Scams, and Disasters Act (S.1773/H.R.3469) would provide meaningful but limited relief for scam victims who face tax liabilities from early withdrawals from retirement accounts (e.g., IRAs, 401(k)s, or similar tax-deferred plans) to pay scammers. Breaking this down step by step, focusing on the context of scam victims who often encounter these “double hits” from fraud and taxes.

The Underlying Problem

When a scam victim withdraws funds from a retirement account to send to fraudsters (e.g., in pig butchering, romance, or impersonation scams), the IRS treats the withdrawal as taxable ordinary income in the year it’s distributed. This happens regardless of what occurs with the money afterward, even if it’s immediately stolen. Additionally:

• If the victim is under age 59½, a 10% early withdrawal penalty (under IRC Section 72(t)) typically applies on top of the income tax.
• The Tax Cuts and Jobs Act (TCJA) of 2017 suspended broader theft loss deductions from 2018–2025, meaning victims couldn’t offset this income with a deduction for the scam loss unless it qualified under narrow exceptions (e.g., Ponzi schemes or federally declared disasters). This has left many victims, especially seniors, with massive tax bills on money they no longer have, exacerbating financial ruin and sometimes affecting Medicare premiums or eligibility for benefits like Medicaid or SNAP.

For example, a retiree scammed out of $655,000 from her retirement account faced a $148,000 tax liability, including penalties, as highlighted in introducing the bill. Similarly, a Wisconsin victim lost over $200,000 from her 401(k) and owed $15,000 in taxes.

What the Bill Would Do

The bill would reinstate the pre-TCJA deduction for personal casualty and theft losses under IRC Section 165(c)(3), effective retroactively for tax years 2018–2025. For scam victims with early retirement withdrawals:

• Offset Income Tax Liability: Qualifying scam losses (e.g., funds sent to fraudsters) could be deducted as a “theft loss” on Schedule A (itemized deductions), subject to limits: a $100 floor per event and reduction by 10% of adjusted gross income (AGI). This deduction would directly offset the taxable income from the withdrawal, potentially reducing or eliminating the income tax owed on it.
  • Example: If you withdrew $50,000 from an IRA (taxed as income) to pay a scammer and the full amount qualifies as a theft loss, the deduction could wipe out the $50,000 in added taxable income, saving you income taxes (e.g., 22–37% depending on your bracket, or $11,000–$18,500).
• Retroactive Application and Amended Returns: Victims could file amended returns (Form 1040-X) for prior years to claim refunds on overpaid taxes, with an extended deadline tied to the bill’s enactment date. This is crucial for those who already paid taxes on scam-related withdrawals since 2018.
• Broader Scam Coverage: Unlike current narrow relief (e.g., IRS safe harbors for Ponzi schemes), this would cover common scams like pig butchering or romance fraud, as long as they meet theft criteria (e.g., criminal intent, no recovery prospect, documented with police/FTC reports).

In our opinion, this relief aligns with recent IRS guidance (Chief Counsel Memorandum 202511015, March 2025), which already allows theft loss deductions for certain scams but is limited by TCJA restrictions. Reinstating the broader deduction would make it more accessible.

What the Bill Would NOT Do

• No Waiver of the 10% Early Withdrawal Penalty: The bill does not exempt scam-related withdrawals from the 10% penalty under IRC 72(t). In the $50,000 example above, you’d still owe ~$5,000 in penalties (unless you qualify for other exceptions, like certain medical expenses or first-time homebuying). Advocacy groups, including the National Taxpayer Advocate and AARP, have pushed for penalty waivers in scam cases, but this isn’t included here. (Note: A related amendment by Sen. Chuck Grassley in 2025 proposed penalty relief but wasn’t enacted.)
• No Automatic Relief or New Programs: Victims must itemize deductions (not available for standard deduction users) and substantiate claims (e.g., via Form 4684). Smaller losses might not exceed thresholds, and timing issues (e.g., withdrawal in one year, discovery in another) could complicate offsets.
• Not Yet Law: As of February 2026, the bills remain stalled in committee. Post-2025, TCJA limits expire naturally, but retroactivity requires passage.

Practical Information for Scam Victims

If this becomes law, consult a tax professional or use IRS resources (e.g., Publication 547 on casualties/thefts) to amend returns. In the meantime, document everything (police reports, bank records) to support potential claims under current IRS guidance. For many, this could help victims recover 20–40% of losses in tax savings, but pushing for penalty waivers in future legislation remains key.

As always, discuss these issues with your tax professionals and attorneys.

Will Existing Scam Victims Be Able to Benefit Once It Is Active?

Yes, if the bill becomes law, existing scam victims from tax years 2018 through 2025 would be eligible to benefit through retroactive application. They could file amended tax returns (Form 1040-X) to claim the deduction for prior years, potentially receiving refunds for overpaid taxes. However, the statute of limitations generally allows amendments within 3 years of the original filing date (or 2 years from payment), so some older losses (e.g., from 2018) might be time-barred unless the bill extends this period. Victims from 2026 onward would claim it on regular returns, but since the TCJA expires after 2025, the deduction would revert naturally without this bill, though retroactivity is the key value here.

Note: Separate IRS guidance from March 2025 already allows some scam victims (e.g., certain impersonation or investment schemes) to claim theft losses under existing rules, but this bill would broaden it beyond Ponzi schemes or disasters.

How Will It Work? Processes for Scam Victims

If passed, the process would integrate into existing IRS tax filing procedures, with no new bureaucracy created:

1. Verify Eligibility: Confirm the loss qualifies as a “theft” (e.g., via police report, FTC complaint, or evidence of fraud). Losses must be discovered in the tax year claimed, and unreimbursed.
2. Calculate the Deduction: Subtract recoveries (e.g., insurance), apply $100 floor per event, then reduce by 10% of AGI. Add to other itemized deductions on Schedule A.
3. File or Amend Return: For past years, submit Form 1040-X with supporting docs (e.g., bank statements, affidavits). For current/future, include on annual Form 1040. Processing could take 3-6 months for refunds.
4. IRS Review: Claims may trigger audits, especially large ones; victims should consult tax pros to substantiate.
5. Potential Timeline: If enacted in 2026, IRS would issue guidance (e.g., via Revenue Procedure) on implementation, similar to post-TCJA adjustments.

Victims should keep records and possibly seek help from tax advisors or free clinics (e.g., VITA program) to avoid errors.

Likely Unforeseen Consequences

• Positive: Could deter scams by reducing net victim losses (scammers might target elsewhere) and encourage reporting, aiding law enforcement.
• Negative: Surge in amended returns could overwhelm IRS, delaying processing/refunds and increasing audit backlogs. Potential for abuse (e.g., fraudulent claims misclassifying bad debts as thefts), raising enforcement costs. Might incentivize riskier behaviors if people assume tax relief, or create disparities (e.g., Ponzi victims already have relief, but this broadens unevenly). If not passed, continued advocacy could lead to piecemeal IRS guidance, fragmenting relief.

Conclusion

The proposed Tax Relief for Victims of Crimes, Scams, and Disasters Act addresses a long-standing inequity in how the U.S. tax system treats people who suffer financial losses through fraud and other crimes. By restoring the personal casualty and theft loss deduction that existed before the Tax Cuts and Jobs Act, the legislation recognizes that scam losses are not discretionary mistakes but the result of criminal acts that impose lasting financial and psychological harm. For many victims, particularly older adults and those who liquidated retirement assets to comply with scammers’ demands, the current tax framework has compounded loss with additional penalties, interest, and long-term financial instability.

Reinstating this deduction would not undo the damage caused by fraud, nor would it replace stolen funds. However, it would remove a secondary punishment that forces victims to pay taxes on income they no longer possess. The bill’s retroactive application is especially significant, as it acknowledges years in which victims were denied relief and offers a path to partial recovery through amended returns. At the same time, the limits of the proposal remain clear. Relief is restricted to itemized filers, subject to income thresholds, and does not address early withdrawal penalties or broader victim support needs.

Even with these constraints, the legislation represents a meaningful step toward fairness. It reframes scam losses as a public policy issue rather than a private failure and aligns the tax code with the realities of modern financial crime. Whether or not it advances legislatively, the proposal has already clarified the scale of harm caused by scams and reinforced the need for policies that reduce long-term damage to victims, families, and the broader economy.

Take Action

Scam victims and their families play a crucial role in advancing legislation like the Tax Relief for Victims of Crimes, Scams, and Disasters Act (S. 1773 / H.R. 3469), which aims to restore tax deductions for losses from fraud and theft. By sharing personal stories of financial devastation—such as owing taxes on retirement withdrawals sent to scammers—victims can humanize the issue and build bipartisan support in Congress. Start by contacting your elected officials to urge them to cosponsor or vote for the bill; personalized letters, emails, or phone calls emphasizing the “double hit” of scams and taxes are particularly effective. Joining or supporting advocacy groups like the SCARS Institute or consumer protection organizations can amplify voices through petitions, social media campaigns, and testimony at congressional hearings. Public awareness efforts, such as posting on platforms like X (formerly Twitter) with hashtags like #ScamVictimRelief or tagging key sponsors (e.g., Sen. Tammy Baldwin or Rep. Greg Steube), can pressure committees like Senate Finance and House Ways and Means to advance the stalled bills.

To take action, identify your representatives using official directories: for Senators, visit https://www.senate.gov/senators/senators-contact.htm; for House members, use https://www.house.gov/representatives/find-your-representative. Provide specific details about your scam experience, including financial impacts, and reference the bill numbers. Families can rally community support by organizing local events or partnering with victim support networks to collect signatures for letters to Congress. Persistence is key; follow up on responses, track the bill’s status on Congress.gov, and encourage others affected by scams to join the effort. This grassroots push not only aids passage but also empowers victims, turning personal hardship into broader systemic change.

Glossary

• Adjusted Gross Income (AGI) — Adjusted gross income is a tax measure used to set eligibility limits for certain deductions. Under the pre-2018 theft loss rules, the deductible amount is reduced by 10 percent of the taxpayer’s adjusted gross income, which can sharply limit relief for moderate losses.
• AI-Driven Deepfakes — AI-driven deepfakes are synthetic audio, video, or images that can mimic real people and make a scam feel credible. The article describes them as a growing tactic that increases victimization and expands the overall financial harm.
• Amended Return — An amended return is a corrected tax filing submitted after the original return, often used to claim deductions that were not taken. The article explains that victims could use amended returns to seek refunds if retroactive tax relief becomes available.
• Audit Risk — Audit risk is the chance that a return will be examined more closely by the IRS, often when claims are large or complex. The article notes that theft loss claims may trigger extra scrutiny, so organized documentation matters.
• Bank Records — Bank records include statements, wire confirmations, and account activity that show what money left and when. The article frames these records as core proof when a victim needs to substantiate a theft loss claim.
• Bicameral Support — Bicameral support means related legislation exists in both the Senate and the House, which can increase perceived viability. The article describes a Senate bill and a companion House bill working toward the same tax change.
• Bipartisan Cosponsors — Bipartisan cosponsors are lawmakers from more than one political party who formally support the bill. The article highlights cross-party support as a sign the issue is recognized beyond a single political bloc.
• Budget Reconciliation — Budget reconciliation is a special congressional process that can shape which tax provisions move forward and which stall. The article suggests competing legislative priorities like reconciliation can slow progress on targeted relief bills.
• Capital Gains from Sold Assets — Capital gains are taxable profits that can arise when victims sell investments to raise money, including money later stolen by scammers. The article explains that victims can owe taxes on these gains even when the proceeds are lost.
• Casualty Loss — A casualty loss is a loss from events like fires, storms, or accidents, treated differently under tax law depending on current rules. The article contrasts broader pre-2018 casualty rules with the current disaster-only limitation.
• Chief Counsel Memorandum 202511015 — This IRS legal guidance is cited in the article as recognizing theft loss treatment for certain scams, while still being constrained by the current TCJA limits. It is presented as helpful context but not a complete solution for most victims.
• Chilling Effect on Trust — A chilling effect on trust describes how widespread fraud can reduce confidence in online commerce and financial systems. The article frames this as a societal cost that goes beyond individual losses.
• Companion Bill — A companion bill is a parallel proposal introduced in the other chamber of Congress to advance the same policy idea. The article notes a House companion bill alongside the Senate measure.
• Consumer Confidence Erosion — Consumer confidence erosion refers to a decline in the public’s willingness to engage financially due to fear of fraud. The article presents this as a measurable social harm driven by scam prevalence.
• Criminal Intent Requirement — Criminal intent is the concept that a theft loss generally requires proof that the perpetrator intended to steal, not merely that an investment failed. The article cautions that voluntary payments or non-fraud losses do not qualify.
• Cryptocurrency Lures — Cryptocurrency lures are scam tactics that use crypto language, wallets, or fake trading platforms to create urgency and legitimacy. The article describes these lures as a modern driver of rising losses and complex recovery.
• Deduction Thresholds — Deduction thresholds are rules that reduce or eliminate tax benefits unless losses exceed specific floors or percentages. The article highlights the $100 floor and the 10 percent of AGI reduction as major barriers for smaller losses.
• Discovery Year Rule — The discovery year rule is the tax concept that a theft loss is typically claimed in the year the loss is discovered, not when money was sent. The article notes that timing issues can complicate how a victim offsets income from a withdrawal.
• Disaster-Only Limitation — Disaster-only limitation refers to the current rule that generally restricts personal casualty and theft deductions to federally declared disasters. The article describes this limitation as the core reason most scam victims receive no deduction today.
• Economic Productivity Loss — Economic productivity loss describes the broader impact of fraud on household stability, work capacity, and financial participation. The article frames scams as harming the economy through debt, bankruptcy, and long-term instability.
• Early Withdrawal Penalty — The early withdrawal penalty is an added tax charge, often 10 percent, applied when retirement funds are taken before age 59 and a half. The article emphasizes that the proposed bill does not remove this penalty.
• Federally Declared Disaster — A federally declared disaster is an event officially designated by the federal government that can unlock special tax relief. The article explains that, under current law, most personal losses are excluded unless tied to this designation.
• Federal Trade Commission (FTC) Loss Estimates — FTC loss estimates are reported figures describing the scale of scam losses, such as the $10 billion cited for 2023. The article notes that reported numbers may substantially undercount true losses due to underreporting.
• File Form 1040-X — Form 1040-X is the standard IRS form used to amend an individual income tax return. The article presents it as the mechanism victims would use to seek refunds if retroactive deductions become available.
• Form 4684 — Form 4684 is the IRS form used to calculate casualty and theft losses. The article identifies it as part of the substantiation process when a victim claims a theft loss deduction.
• Government Impersonation Scheme — A government impersonation scheme is a scam in which criminals pretend to be officials to pressure payments through fear or urgency. The article lists this as a common fraud type that could be covered if theft loss deductions return.
• R. 3469 — H.R. 3469 is the House bill number paired with the Senate proposal, describing the same overall tax relief goal. The article frames it as part of the bicameral effort to restore deductions.
• Internal Revenue Code Section 165 — Section 165 is the part of federal tax law that governs certain loss deductions, including casualty and theft losses. The article explains that the bill would amend this section to restore pre-2018 rules.
• Introductory Stage — Introductory stage means the bill has been introduced and referred to committee but has not advanced through hearings, amendments, or votes. The article states the proposal remains at this early procedural point.
• IRS Publication 547 — IRS Publication 547 is an IRS resource that explains casualty, disaster, and theft losses, including documentation expectations. The article recommends using it alongside professional guidance if the law changes.
• IRS Safe Harbor for Ponzi Schemes — An IRS safe harbor is a simplified method for calculating certain losses, and the article notes this exists mainly for Ponzi schemes. It explains that most everyday scams do not qualify under these narrow pathways.
• Itemized Deductions — Itemized deductions are specific deductible expenses listed on Schedule A instead of taking the standard deduction. The article notes that theft loss relief mainly benefits people who itemize, limiting access for many taxpayers.
• IRA and 401(k) Withdrawals — IRA and 401(k) withdrawals are distributions from retirement accounts that typically become taxable income when taken. The article explains that scam victims can face taxes on these withdrawals even when the money is immediately stolen.
• Loss Substantiation — Loss substantiation is the process of proving that a scam loss qualifies as a theft loss and that it is unreimbursed. The article emphasizes police reports, FTC complaints, and financial records as practical evidence.
• Medicare Premium Impacts — Medicare premium impacts refer to the way higher taxable income can increase premium costs through income-based rules. The article mentions that scam-triggered taxable withdrawals can ripple into health cost burdens.
• Medicaid and SNAP Eligibility — Medicaid and SNAP eligibility can be affected when taxable income rises due to retirement withdrawals or asset sales. The article highlights this as a downstream harm that can deepen instability after a scam.
• No Automatic Refunds — No automatic refunds means victims would not receive money back without taking action, even if the law changes. The article explains that victims would need to claim the deduction through filing or amending returns.
• No Penalty Waiver Provision — No penalty waiver provision means the bill does not remove the 10 percent early withdrawal penalty for scam-related distributions. The article notes that separate proposals have discussed penalty relief, but it is not included here.
• Personal Property Loss — Personal property loss refers to stolen or damaged personal assets that may qualify for a theft loss deduction under certain rules. The article frames scam payments as theft losses when criminal deception is involved.
• Police Report — A police report is an official record that can document the crime and support a claim that a theft occurred. The article presents it as one of the most practical tools for building a credible deduction file.
• Public Law 115–97 — Public Law 115–97 is the formal name tied to the Tax Cuts and Jobs Act that changed the theft and casualty deduction landscape. The article uses it to identify the exact legal change the bill seeks to reverse.
• Retroactive Application — Retroactive application means the change would apply to past tax years, not just future filings. The article states the proposed relief would cover tax years 2018 through 2025, allowing amended returns.
• Romance Scam — A romance scam is a fraud that exploits emotional connection to obtain money, often through escalating requests and manufactured crises. The article describes romance scams as a major category of harm, especially for older adults.
• 1773 — S. 1773 is the Senate bill number for the proposed tax relief measure described in the article. It is presented as the primary legislative vehicle for restoring pre-2018 loss deductions.
• Schedule A — Schedule A is the tax form schedule used to list itemized deductions, including eligible theft losses under the older rules. The article notes that victims generally must itemize to benefit from the proposed change.
• Senate Committee on Finance Referral — A committee referral is the step where a bill is sent to a relevant committee for review, hearings, and potential markup. The article states the measure was referred to the Senate Committee on Finance and has not advanced.
• Standard Deduction Barrier — Standard deduction barrier describes how many taxpayers do not itemize, which can prevent them from benefiting from theft loss deductions. The article explains that only losses large enough to make itemizing worthwhile may yield relief.
• Statute of Limitations for Amendments — The statute of limitations sets deadlines for amending returns, commonly three years from filing or two years from payment. The article notes this may block some older claims unless the law extends deadlines.
• Tax Extenders Packages — Tax extenders packages are larger legislative bundles that renew or adjust multiple tax provisions at once. The article suggests that broader packages can crowd out smaller targeted bills.
• Taxable Ordinary Income — Taxable ordinary income is income subject to standard income tax rates, including many retirement distributions. The article explains that scam victims can be taxed on distributions even when the funds are stolen immediately.
• Taxpayer Relief Limits — Taxpayer relief limits are the constraints that reduce how much benefit a person can receive, even with a valid deduction. The article points to the per-event floor, the AGI reduction, and itemizing requirements as key limits.
• Theft Loss Deduction — A theft loss deduction is a tax deduction for qualifying losses caused by theft, including scams that meet IRS theft standards. The article explains that restoring this deduction would reduce taxable income and may produce refunds.
• Unreimbursed Loss — An unreimbursed loss is the portion of a loss not covered by insurance, chargebacks, recoveries, or restitution. The article notes that only unreimbursed amounts can be deducted under the described framework.
• Victim Advocacy Groups — Victim advocacy groups (such as the SCARS Institute) are organizations that support victims with reporting, documentation, and recovery navigation. The article describes these groups as part of the strained support system responding to the scale of scams.
• VITA Program — The VITA program is a free tax assistance service that may help eligible taxpayers prepare returns accurately. The article references it as a potential resource for victims who need support navigating forms and amendments.
• Wire Transfer Scam — A wire transfer scam is a fraud method that moves funds quickly and often irreversibly once sent. The article mentions wire transfer scams as a common form of deception that could qualify as a theft loss if proven.

Reference

Difference between the Senate and House of Representatives Version

The House (H.R. 3469) and Senate (S. 1773) versions of the “Tax Relief for Victims of Crimes, Scams, and Disasters Act” are companion bills and appear to be identical in substance.

Both bills were introduced on the same day—May 15, 2025—as part of a coordinated bipartisan, bicameral effort:

• Senate version (S. 1773): Sponsored by Sen. Tammy Baldwin (D-WI), with cosponsors including Sen. Ashley Moody (R-FL) and Sen. Peter Welch (D-VT).
• House version (H.R. 3469): Sponsored by Rep. Greg Steube (R-FL-17), with Rep. Jamie Raskin (D-MA-08) noted in announcements as a lead introducer (though official records list Steube as primary sponsor; no additional cosponsors are prominently listed in current summaries).

Key Similarities (and Likely Identical Text)

The core purpose of both bills is the same: to amend the Internal Revenue Code (specifically Section 165) to reinstate the pre-2017 deduction for personal casualty and theft losses as they existed before the Tax Cuts and Jobs Act (TCJA) of 2017 limited them to federally declared disasters only. This would:

• Allow deductions for unreimbursed losses from theft (including most scams and fraud), casualties (e.g., accidents, fires), and non-disaster events.
• Apply the traditional limitations: $100 floor per event and reduction by 10% of adjusted gross income (AGI).
• Provide retroactive relief for losses from 2018 through 2025 (the period the broader deduction was suspended), enabling victims to file amended returns for refunds on overpaid taxes.

Public announcements from sponsors (e.g., Sen. Baldwin’s press release and Rep. Steube’s office) describe the bills using identical language: reinstating the deduction, providing retroactive coverage since 2017/2018, and addressing the “double hit” for victims of scams, theft, fraud, disasters, etc. Advocacy groups like AARP refer to them interchangeably as the “bipartisan, bicameral” package (H.R. 3469 / S. 1773), with no mentions of substantive differences in text, scope, or provisions.

No sources (including Congress.gov summaries, GovTrack, press releases, or advocacy updates) indicate any textual variations, additional sections, different effective dates, or unique amendments in one version versus the other. Companion bills introduced simultaneously on the same topic are typically drafted to match exactly to facilitate reconciliation.

Current Status (as of late February 2026)

• Both bills remain introduced but have seen no further action:
  • S. 1773: Referred to the Senate Committee on Finance on May 15, 2025.
  • H.R. 3469: Referred to the House Committee on Ways and Means on May 15, 2025.
• No hearings, markups, amendments, votes, or floor consideration in either chamber.
• They were not included in major 2025 tax/reconciliation packages (e.g., the “One Big Beautiful Bill Act” passed in July 2025 or related disaster relief acts).
• No evidence of progress toward passage or inclusion in any 2026 reconciliation efforts so far.

What Is Likely in Reconciliation?

Very little at this point—the bills are not positioned for near-term reconciliation.

• Reconciliation context: Budget reconciliation allows passage with simple majorities (avoiding filibusters in the Senate) but is typically reserved for major fiscal packages tied to budget resolutions. In 2025, a significant reconciliation bill (the “One Big Beautiful Bill Act”) passed in July but excluded this scam-victim relief, despite related amendments (e.g., Sen. Chuck Grassley’s proposal for retirement account scam victims to avoid early-withdrawal penalties and use Ponzi-like deductions). Some advocates hoped for a “second reconciliation package” focused on bipartisan tax items, but no such package has materialized or been scheduled as of February 2026.
• Likelihood: Low to moderate in the short term. The bills enjoy bipartisan support (including from groups like AARP, AICPA, and scam-victim advocates), and the TCJA’s individual provisions (including the casualty/theft limit) are set to expire after 2025 anyway—meaning the broader deduction would return naturally in 2026 without legislation. However:
  • Retroactive relief (for 2018–2025 losses) is the unique value here, and that would require explicit action.
  • With midterms approaching later in 2026, Congress may prioritize bigger-ticket items (e.g., full TCJA extensions, debt ceiling, or other tax fights) over standalone niche relief.
  • If attached to a must-pass vehicle (e.g., year-end tax extenders, disaster package, or a slimmed-down reconciliation), it could move quickly due to its low cost and broad appeal—but there’s no active push or committee momentum visible.
• Best-case scenario: Inclusion in a year-end 2026 omnibus or tax-relief bill, especially if scam awareness rises or victim advocacy intensifies. Without that, the bills could stall and die at the end of the 119th Congress (January 2027), though sponsors could reintroduce in the 120th.

In summary, the House and Senate versions are functionally the same companion bills with no material differences, both stalled in committee. Reconciliation prospects remain uncertain and not imminent, hinging on whether lawmakers bundle it into larger fiscal deals amid competing priorities. If you’re tracking this for scam victims (e.g., via SCARS support), monitoring Ways & Means/Finance Committee activity or sponsor updates would be key.

Current U.S. Investment Scams Deduction – Updated

The current deduction for Ponzi schemes is a special safe-harbor theft loss treatment under IRC Section 165, available through Revenue Procedure 2009-20 (as modified by Revenue Procedure 2011-58). This optional safe harbor simplifies claiming a theft loss deduction for losses from “specified fraudulent arrangements” (classic Ponzi-type schemes), even under the post-2017 Tax Cuts and Jobs Act (TCJA) restrictions that generally limit personal theft losses through 2025.

Key features of the current Ponzi safe harbor (as of 2026):

• It applies to qualified investors in a specified fraudulent arrangement where a “lead figure” receives investments, reports fictitious income, pays some investors with funds from others, and appropriates the money.
• Requirements include criminal charges (indictment, information, or complaint) against the lead figure for fraud/embezzlement/theft (or equivalent civil actions/freezes in cases involving the lead figure’s death).
• Deduction timing: Claimed in the “discovery year” (when charges are filed or equivalent events occur).
• Amount: Simplified calculation allows a 95% deduction of the qualified loss if no recovery efforts are pursued, or 75% if pursuing third-party recovery (e.g., via bankruptcy or clawback). This often includes net invested amounts plus fictitious income reported on prior returns, minus withdrawals/recoveries.
• Reported on Form 4684 (Casualties and Thefts), Section C, with reference to Rev. Proc. 2009-20.
• It’s an ordinary loss (not capital), deductible against ordinary income without the usual $3,000 capital loss limit.
• This safe harbor remains available in 2026 (and beyond), as it’s not affected by the TCJA’s personal casualty/theft limits, which expire after 2025 anyway.

Without using the safe harbor, victims can still claim a theft loss under general rules (Rev. Rul. 2009-9), but it requires more proof (e.g., no reasonable prospect of recovery, exact timing/amount), and it’s harder to substantiate.

Pig butchering scams generally do NOT qualify under the Ponzi safe harbor (Rev. Proc. 2009-20).

Pig butchering (also called cryptocurrency investment) scams involve building trust (often via romance or social contacts), then luring victims into fake cryptocurrency or investment platforms with small “wins” to encourage larger transfers—ultimately stealing the funds. These are fraudulent investment schemes, but they typically lack the core Ponzi structure: no pooling of multiple investors’ funds to pay “returns” to earlier ones, and usually no fictitious income reporting over years.

Per IRS guidance (especially Chief Counsel Memorandum 202511015, released March 2025):

• The IRS explicitly addressed a pig butchering scenario and ruled that victims can deduct the loss as a theft under §165(c)(2) — because it involves a transaction entered into for profit (the victim believed they were investing for gains).
• However, the memo states that such victims do not qualify for the Ponzi safe harbor, as the scam doesn’t meet the “specified fraudulent arrangement” criteria (no classic Ponzi mechanics, no criminal charges against a “lead figure” in the required form, etc.).
• Instead, it’s treated as a standard theft loss in a for-profit transaction, deductible in the discovery year if there’s criminal theft under state law, no reasonable recovery prospect, and proper substantiation (e.g., police/FTC reports, transaction records).
• This deduction is available through 2025 (and naturally broader post-2025 if TCJA limits sunset), but it’s not the simplified 75%/95% safe harbor—victims must calculate the full unreimbursed loss (limited to basis) without the Ponzi shortcuts.

In short: Ponzi victims get a streamlined, generous safe harbor. Pig butchering victims can often still deduct losses (as the IRS confirmed in 2025 guidance), but they must use general theft loss rules on Form 4684 (Section B), which may involve more documentation and potential IRS scrutiny. Consult a tax professional for your specific case, as eligibility depends on facts like profit motive, documentation, and recovery prospects. If pursuing the broader casualty/theft reinstatement via pending bills (like S.1773/H.R.3469), that could expand options further for non-Ponzi scams.