A woman sought help after losing a significant sum to a romance scam. She was searching for companionship online when a scammer lured her in. Over time, this individual gained her trust and manipulated her feelings, eventually convincing her to transfer money. She withdrew funds from retirement and savings accounts before realizing the deception. By then, her money was gone.
Authorities took the case seriously, investigating and escalating it to state officials. They traced it to an overseas criminal operation. Despite these efforts, no one was apprehended, and the woman’s money was not recovered. She then faced another shock: significant tax penalties due to the withdrawals made to pay the scammer.
In 2025, the IRS released guidance stating that victims of certain scams might claim theft-loss deductions. Those targeted by investment scams, such as “pig butchering” scams, could qualify since these involved profit motives. However, these deductions exclude victims of romance scams because their motives were not financial gain.
The tax code makes distinctions between victims based on motives. Two victims can face the same financial loss to similar criminal networks, yet receive different tax treatments. The reason hinges on whether they were deceived with promises of wealth or love.
Modern romance scams are sophisticated financial crimes. Criminal networks take months to build trust, create false identities, fabricate emergencies, and manipulate victims into sending money. These scams should be acknowledged as such under tax laws.
Romance scammers today use stolen photos, social media profiles, video calls, and artificial intelligence tools to fabricate convincing identities. A Gallup and Stop Scams Alliance report showed 12 percent of scams last year involved AI or deepfake technology. AI makes deception easier and more widespread. Scammers use AI-generated content to maintain communication with multiple victims, creating believable personas.
As Congress evaluates how to tackle AI-driven fraud, it must revisit a tax system that discriminates based on whether victims were promised wealth or love. In 2024, the FBI recorded 17,910 reports of romance scams, amounting to over $672 million in losses. Victims often drain retirement funds, liquidate assets, borrow against homes, and incur heavy debt.
These victims are often viewed through a lens of poor personal judgment rather than as targets of organized financial crime. As an attorney who supports victims of domestic violence and coercive control, the tendency to blame victims resonates. Romance scams are cyber-enabled financial crimes, not personal failings.
Fraud should be judged by what perpetrators do, not why victims trusted them.
Two practical changes are necessary. First, Congress should extend theft-loss deductions for fraud victims, regardless of the scam’s nature. Second, victims withdrawing retirement funds due to documented scams should not face tax penalties similar to voluntary early withdrawals.
The woman who emptied her retirement account was manipulated by criminals and should not endure further tax penalties. Fraud is fraud, and tax codes should reflect that.
Lindsay Lieberman is a Washington-based attorney who represents victims of domestic violence and technology-facilitated crimes.
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