Lethe200
Senior Member
- Location
- San Francisco Bay Area
What many don't realize - I did not - is that a previous IRS forgiveness rule was eliminated by Trump's Tax Reform Act. Two Democrats have proposed legislation to restore the tax forgiveness rule for scamming victims. Sadly, it's unknown what its chance are for passing under the new administration.
Scams are becoming increasingly sophisticated, and technology is a crucial asset to crime. FYI, the AARP has a special support group forum for seniors who have been scammed, as often their own family/friends react with disdain and contempt. There is a tendency to "blame the victim" - which may be innate, but is never helpful.
This is especially important as Americans continue to age, and so many of us see mild cognitive declines begin in those around us.
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Americans lose billions to scams, then get taxed on stolen money
Meanwhile, Congress stalls on relief bills
Washington Post Columnist Michelle Singletary December 5, 2024
The Lawmakers: Part five of seven in the Scammed series.
Judith Boivin lost well over a half-million dollars to a government impostor scam. Now she’s bracing for the tax bill. Unless lawmakers act, she will owe nearly $180,000 in state and federal taxes on stolen retirement money.
With traditional 401(k) retirement accounts and IRAs, your contributions are made with pretax dollars. So, when you take a distribution, it becomes part of your taxable income. And if you’re younger than 59½, the distribution also is subject to a penalty that would shave off an additional 10 percent.
The cruel reality of financial scams is that victims who tap tax-advantaged accounts still must pay taxes on funds they never used for themselves.
This wasn’t the case before the 2017 Tax Cuts and Jobs Act, which scrapped a deduction that fraud victims like Judith could use to offset their losses. The write-off fell under a provision of the tax code that made allowances for personal casualty, disaster and theft losses not connected to a moneymaking enterprise. But Congress eliminated the theft part for tax years 2018 through 2025.
Oddly, lawmakers left a carveout for victims of Ponzi-type investment schemes, who can take the write-off under certain conditions.
Unless Congress acts to restore the deduction, Judith will owe the IRS more than $137,000 and the state of Maryland more than $42,000 for the 2023 tax year. That’s on top of the nearly $600,000 she lost in the scam itself.
The 80-year-old retiree can’t cover the combined $179,783 bill and may have to sell her Maryland home. Though she and her husband still have Social Security and some savings, their annual income has been slashed from more than $70,000 to $31,000 because of the stolen retirement funds.
Judith hopes she might qualify for some tax forgiveness through the IRS Offer in Compromise (OIC) program, which is intended to help people experiencing economic hardship. It allows the federal government to settle a tax debt for less than the amount owed.
But securing an OIC is difficult because the agency weighs an applicant’s income, expenses and, most importantly, such assets as a home with equity. As a result, it rejects more applicants than it approves: Of the 30,163 OICs sought in 2023, the IRS accepted 12,711, or 42%, amounting to $214.5 million.
Any movement to help crime victims like Judith has languished in Congress, despite the magnitude of financial fraud. Adults 60 and older were scammed out of $1.9 billion in 2023, according to the Federal Trade Commission. For all Americans, losses surpassed $10 billion.
Reps. Jamie Raskin (D-Maryland) and Jim McGovern (D-Massachusetts) introduced the Tax Relief for Victims of Crimes, Scams, and Disasters Act, which would reinstate the tax deduction for victims of crimes, natural disasters and other personal casualty losses. It also would enable taxpayers affected after the 2017 law was passed to file an amended return to reflect theft losses.
But the legislation has stalled.
“There was a perfectly sensible and indeed compelling provision in the tax code, which says if you’ve worked your entire life, you’ve saved up $600,000 … and that money gets stolen from you in a scam by a rip-off artist, then you can deduct that money for the purposes of paying taxes,” Raskin said in an interview. “In the Republicans’ efforts to look for money to offset tax cuts for the wealthiest citizens and for big corporations, … the provision which allows people to deduct the cost of money lost through a scam in a con was eliminated."
President-elect Donald Trump has said he wants to extend many of the provisions of the 2017 Tax Cuts and Jobs Act. “I am really hoping when we get back [in January], we can get this done and we can correct this change,” Raskin said.
Scams are becoming increasingly sophisticated, and technology is a crucial asset to crime. FYI, the AARP has a special support group forum for seniors who have been scammed, as often their own family/friends react with disdain and contempt. There is a tendency to "blame the victim" - which may be innate, but is never helpful.
This is especially important as Americans continue to age, and so many of us see mild cognitive declines begin in those around us.
=======
Americans lose billions to scams, then get taxed on stolen money
Meanwhile, Congress stalls on relief bills
Washington Post Columnist Michelle Singletary December 5, 2024
The Lawmakers: Part five of seven in the Scammed series.
Judith Boivin lost well over a half-million dollars to a government impostor scam. Now she’s bracing for the tax bill. Unless lawmakers act, she will owe nearly $180,000 in state and federal taxes on stolen retirement money.
With traditional 401(k) retirement accounts and IRAs, your contributions are made with pretax dollars. So, when you take a distribution, it becomes part of your taxable income. And if you’re younger than 59½, the distribution also is subject to a penalty that would shave off an additional 10 percent.
The cruel reality of financial scams is that victims who tap tax-advantaged accounts still must pay taxes on funds they never used for themselves.
This wasn’t the case before the 2017 Tax Cuts and Jobs Act, which scrapped a deduction that fraud victims like Judith could use to offset their losses. The write-off fell under a provision of the tax code that made allowances for personal casualty, disaster and theft losses not connected to a moneymaking enterprise. But Congress eliminated the theft part for tax years 2018 through 2025.
Oddly, lawmakers left a carveout for victims of Ponzi-type investment schemes, who can take the write-off under certain conditions.
Unless Congress acts to restore the deduction, Judith will owe the IRS more than $137,000 and the state of Maryland more than $42,000 for the 2023 tax year. That’s on top of the nearly $600,000 she lost in the scam itself.
The 80-year-old retiree can’t cover the combined $179,783 bill and may have to sell her Maryland home. Though she and her husband still have Social Security and some savings, their annual income has been slashed from more than $70,000 to $31,000 because of the stolen retirement funds.
Judith hopes she might qualify for some tax forgiveness through the IRS Offer in Compromise (OIC) program, which is intended to help people experiencing economic hardship. It allows the federal government to settle a tax debt for less than the amount owed.
But securing an OIC is difficult because the agency weighs an applicant’s income, expenses and, most importantly, such assets as a home with equity. As a result, it rejects more applicants than it approves: Of the 30,163 OICs sought in 2023, the IRS accepted 12,711, or 42%, amounting to $214.5 million.
Any movement to help crime victims like Judith has languished in Congress, despite the magnitude of financial fraud. Adults 60 and older were scammed out of $1.9 billion in 2023, according to the Federal Trade Commission. For all Americans, losses surpassed $10 billion.
Reps. Jamie Raskin (D-Maryland) and Jim McGovern (D-Massachusetts) introduced the Tax Relief for Victims of Crimes, Scams, and Disasters Act, which would reinstate the tax deduction for victims of crimes, natural disasters and other personal casualty losses. It also would enable taxpayers affected after the 2017 law was passed to file an amended return to reflect theft losses.
But the legislation has stalled.
“There was a perfectly sensible and indeed compelling provision in the tax code, which says if you’ve worked your entire life, you’ve saved up $600,000 … and that money gets stolen from you in a scam by a rip-off artist, then you can deduct that money for the purposes of paying taxes,” Raskin said in an interview. “In the Republicans’ efforts to look for money to offset tax cuts for the wealthiest citizens and for big corporations, … the provision which allows people to deduct the cost of money lost through a scam in a con was eliminated."
President-elect Donald Trump has said he wants to extend many of the provisions of the 2017 Tax Cuts and Jobs Act. “I am really hoping when we get back [in January], we can get this done and we can correct this change,” Raskin said.