My client lost her life savings to a romance scammer. Then she got a tax bill.

July 19, 2026 - 22:17

As lawmakers weigh new rules to combat AI-powered fraud, advocates say the tax code itself is adding insult to injury for victims. The case of one elderly woman highlights a cruel twist: after losing her life savings to a romance scammer, she then received a tax bill from the IRS.

The woman, whose name has not been disclosed, was manipulated over months by a fraudster posing as a romantic partner. He convinced her to drain her retirement accounts and send him hundreds of thousands of dollars. When the scam was discovered, the money was gone. But the IRS treated the withdrawn retirement funds as taxable income, issuing a demand for taxes on money she no longer had.

Under current law, victims of scams involving promises of wealth or investment returns can sometimes deduct their losses. But victims of romance scams, where the fraudster uses emotional manipulation rather than a fake business proposal, often face a different outcome. The IRS generally views the stolen money as a personal loss, not a theft loss deductible against income, unless the victim itemizes and meets strict thresholds.

Consumer advocates argue this creates an unfair disparity. A person tricked into a fake investment can claim a theft loss, while someone manipulated by a romantic con artist gets a tax bill. As AI makes it easier to create convincing fake personas and deepfake videos, the number of romance scams is rising sharply. The Federal Trade Commission reported losses of over $1.1 billion to romance scams in 2023 alone.

Lawmakers are now considering the "Romance Scam Prevention Act," which would require social media companies to verify user identities. But advocates say the tax code needs an update too. They want Congress to allow all fraud victims, regardless of the scammer's method, to claim a theft loss deduction without the current limitations. Until then, victims like the elderly woman face a double loss: their savings and a tax bill for money they never really had.