Victims of sophisticated online scams suffer not just financial losses; they may also incur hefty tax bills on emptied retirement accounts. Recent IRS guidance offers clarity on which scams qualify for potential tax relief, particularly investment fraud and impersonation schemes. However, many types of fraud, such as romance scams and kidnapping schemes, remain excluded from tax deduction options. The disparity in treatment stems from changes made by the Tax Cuts and Jobs Act of 2017, which limited deductions for personal casualty and theft victims, leaving many scam victims without adequate recourse.
Victims of online scams face severe consequences, losing both money and potentially incurring significant tax liabilities due to IRS rules, complicating their recovery efforts.
Recent IRS guidance clarifies which scam victims can seek tax relief, highlighting investment schemes and impersonation fraud while excluding many common scams.
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