ATLANTA — Scam victims tell Channel 2 Action News they have been targeted by criminals and then again by the IRS.
Money stolen from retirement accounts by crooks is viewed by the IRS as income earned by the victim and taxed accordingly.
For decades a provision called the Theft Loss Deduction protected crime victims from the unearned tax penalty, but that deduction was eliminated by President Donald Trump’s 2017 Tax Cuts and Jobs Act.
A metro Atlanta senior citizen’s closest family still does not know that $280,000 was stolen from his Vanguard retirement and investment accounts.
Someone posing as a federal agent was behind the scam.
“It was like my heart sank and I felt like I was in a deep pit,” the man told Channel 2 consumer investigator Justin Gray.
But now the real federal government, the IRS, will likely be coming for even more money.
The government looks at all that money stolen out of his retirement accounts as income.
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“I’m looking at possibly $60,000 on top of $280,000 already gone. And I’m also looking at the possibility of my Medicare Part B jumping because of this phantom income,” he said.
Christina Wease runs the low-income tax clinic at Michigan State University School of Law. She has seen several clients come in facing similar tax debts after scams.
“Before, with the theft loss deduction they were just listed as a deduction on their tax return, and therefore wouldn’t even owe the tax to start with,” Wease said.
But the Republican-led 2017 tax overhaul changed the deduction to only apply to losses related to a federally declared disaster.
According to a 2024 report from the Senate Aging Committee, “Victims of fraud and scams can no longer deduct those losses and are often obligated to pay taxes on money that has been stolen.”
“Sometimes Congress has actions, and they don’t quite understand the repercussions. So now that they’ve seen them, hopefully, this is something they will correct,” Wease said.
For now, for the metro Atlanta victim, the IRS views all that money that was stolen, as money he made last year.
“It appears on paper that I did, but I never received it. That’s the bad part. And I don’t know how I can prove that,” he said.
Legally, without that theft loss deduction on the books, the IRS must collect the tax debt.
There are some programs to try to get debts reduced or get on a payment plan, but Wease said those can be very complicated and are limited.
Many of the provisions of that 2017 tax law expire this year.
So Wease and other advocates say there is an opportunity this year to revisit the deduction.
A bill proposed last year by Democrats in the House of Representatives would restore the theft loss deduction if passed.
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