Revisiting Tax Treatment for Romance Scam Victims

A woman lost hundreds of thousands of dollars to a romance scam while seeking companionship. Criminals targeted her on an online dating site and manipulated her for money. She withdrew funds from her retirement accounts and savings. When she realized she was defrauded, her money was gone. Law enforcement traced the scam to an overseas criminal enterprise, but no arrests were made, and her money wasn’t recovered. To her surprise, she faced tax consequences for the withdrawals.

In 2025, the IRS clarified that victims of investment-related scams could claim theft-loss deductions. These deductions do not apply to romance scam victims because they were not motivated by profit. The tax system favors victims seeking financial gain over those seeking human connection. Two victims can lose the same amount but receive different tax treatment based on their deception’s nature.

This distinction is hard to justify with the technology-driven fraud landscape. Romance scams are sophisticated financial crimes. Criminals spend months building trust, creating false identities, and manipulating victims. Today’s scammers use advanced tools like stolen photographs, video calls, and artificial intelligence.

A report by Gallup and Stop Scams Alliance found 12% of scams last year involved artificial intelligence or deepfake technology. AI makes deception scalable, with scammers able to draft messages and create believable personas. Deepfake technology could soon allow realistic video impersonations.

Congress, while addressing AI-enabled fraud, should reconsider a tax code that differentiates victims based on their manipulation’s promises. In 2024, the FBI reported over 17,910 romance scams with losses exceeding $672 million. Victims lose retirement funds, sell investments, take loans, and incur debt. Yet, they are perceived as making poor personal choices rather than being victims.

Victim-blaming is common, similar to domestic violence and coercive control cases. Romance scams should be acknowledged as cyber-enabled financial crimes. Practical changes are needed. Congress should allow broader theft-loss deductions for all scam victims, regardless of the fraud’s nature. Additionally, victims who lost their retirement funds due to scams shouldn’t face tax penalties for early withdrawals. These penalties only punish victims further.

Our tax code should evaluate fraud based on criminals’ actions, not victims’ trust. Lindsay Lieberman is a Washington attorney representing victims of domestic violence and technology crimes.