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AARP-Backed Bill Would Provide Tax Relief for Fraud Losses

Phone Scam, fraud or phishing concept.
B4LLS/Getty Images/iStockphoto

En español | Imagine losing your life savings in a scam, then finding out you owe a huge tax bill on the losses. That’s the devastating reality for far too many fraud victims — and something AARP is fighting to change.

If someone withdraws money from a tax-preferred account, such as a 401(k) plan, the withdrawals are taxed as income even if those funds are transferred to a bogus investment platform or given to a criminal.

We wrote to federal lawmakers this month in support of the bipartisan Casualty Loss Deduction Restoration Act. The legislation, introduced in the U.S. House and Senate, would reinstate the casualty loss deduction, which allows taxpayers to deduct losses from unexpected disasters or theft, including fraud.

“These victims have already suffered grave financial and emotional harm. To owe taxes on financial assets they have lost to criminals is viewed by many as a double injury,” wrote Bill Sweeney, AARP senior vice president for government affairs.

In our letter, we shared stories from fraud victims who were shocked to learn that they face hefty tax liabilities on top of their losses — in some cases owing the IRS tens of thousands of dollars. The proposed legislation would allow past victims to deduct up to $50,000 retroactively.

“This will provide victims with some relief from the losses they have faced, even if they are unable to recover the funds that have been stolen from them,” Sweeney wrote.

AARP continues to fight for laws to prevent these scams and to ensure they are properly investigated when they do happen. We’ve long worked to educate older adults about how to protect themselves from these types of crimes, which cost Americans $10 billion in 2023. Through the AARP Fraud Watch Network Helpline, we offer support to victims and their families.

Read our letters to House and Senate lawmakers, and keep up with AARP’s fraud coverage.

Natalie Missakian covers federal and state policy and writes AARP’s Fighting for You Every Day blog. She previously worked as a reporter for the New Haven Register and daily newspapers in Ohio. She has also written for the AARP Bulletin, the Hartford Business Journal and other publications.

Also of Interest:

6 Top Scams to Watch Out for in 2024
13 Ways to Protect Yourself From Fraud
Many Victims Struggle With Mental Health in Scams’ Aftermath

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