Bill to End IRS Taxation of Fraud Victims' Stolen Funds Awaits Senate Vote

The Tax Relief for Fraud Victims Act, which would shield scam victims from paying federal taxes on stolen money, passed the House on Sept. 15 and now awaits Senate action. The bill would restore a "casualty and theft loss" deduction eliminated by the 2017 Tax Cuts and Jobs Act. AARP cites federal data showing Americans 60 and older reported $7.7 billion in fraud losses in 2025, though under-reporting may push true losses to $80 billion. Victims like Lori Flowers, 58, who lost $600,000 in a "pig-butchering" scam, owed an additional $225,000 in taxes and penalties on retirement funds she withdrew for scammers. The IRS treated the withdrawn money as income, forcing her into Chapter 13 bankruptcy. A second measure, the GUARD Act, would fund state and local law enforcement training and technology to investigate elder fraud. It has also cleared the House and awaits Senate action.