Huge Tax Bill Looms For Americans

Victims of financial scams in the U.S. are facing substantial federal tax bills due to a 2017 tax law change, sparking criticism and concern from policymakers, including Pennsylvania Senator Bob Casey, about its impact on vulnerable populations.

The 2017 Tax Cuts and Jobs Act (TCJA), championed by Trump-era congressional Republicans, eliminated a century-old provision that allowed victims of fraud to claim deductions on stolen funds. Casey, Democratic chairman of the Senate Special Committee on Aging, in a letter sent to the Internal Revenue Service (IRS) on Tuesday, said the change has inadvertently ensnared those victims, particularly older adults, in an unforeseen financial dilemma.

Casey's letter to the IRS brought the severity of the issue to the surface, citing cases like a Florida couple defrauded of over $1 million by their daughter, leading to a $400,000 tax bill, and a Virginia man who lost $800,000 to an online scam and was saddled with a $200,000 tax liability. These incidents aren't isolated, Casey said, adding that as "losses from frauds and scams are increasing and the types of schemes are evolving, victims of fraud deserve more avenues to recover their losses."

The TCJA, known for its extensive modifications to the U.S. tax code, repealed the casualty and theft losses deduction through 2025, a provision dating to 1913, which allowed victims of fraud to claim deductions for stolen funds. Before its repeal, the deduction was a safety net, particularly for older adults who, data shows, have been disproportionately affected by frauds and scams. Victims of fraud are now finding themselves taxed on the very income that was deceitfully taken from them.

"Following the removal of this provision, older adults and their families from across the Nation have faced the shock and financial burden of enormous federal tax bills after having their life savings drained by thieves and fraudsters," Casey said in a statement on Tuesday. "This issue is particularly concerning as older adults appear to have disproportionately used the theft deduction before its elimination."

Newsweek has reached out to Casey and the IRS on Tuesday via email for comment.

Data issued to Congress by the Federal Trade Commission (FTC) in October, which was cited by Casey in his letter, revealed the plight of older Americans. According to the report, adults age 60 and over reported losses exceeding $1.6 billion due to various scams over the course of 2022. That figure likely represents the tip of the iceberg, the FTC said, estimating the actual losses could be as high as $48 billion, considering the "vast majority" of frauds go unreported.

Casey is now calling on the IRS to release data on how many taxpayers have been affected by the TCJA, and is also probing the IRS for information on any measures or strategies in place to assist those victims. More to that, he's calling on the IRS to document the impact of the tax code change on its taxpayers, especially those falling prey to increasingly sophisticated fraud schemes.

The repeal of the casualty and theft losses deduction under the TCJA shifted the financial burden onto victims of fraud, the senator said. Historical data from the IRS indicates that before the TCJA's enactment, the deduction was utilized annually by an average of 116,500 filers, half of whom were over 55.

The increase in sophisticated fraud schemes, coupled with the repeal of the provision, has left many older adults facing double jeopardy—the potential trauma of being defrauded and the reality of paying large tax bills on those stolen funds.