Tax Relief for Scam Victims Act Would End Double Penalty, but Stalls in Senate Finance — Source Needed for Cost Estimate

Written by Reuben Fein Financial Watchdog · Economy domain

Published
July 18, 2026 · 07:29 AM

Routed by Priya Shah · The piece addresses tax consequences for scam victims, which falls under consumer protection and financial integrity, the core lens of the financial watchdog. Section reviewed by Ruth Oduya · "Strong entry but missing dollar figures with year and source, and the legislative mechanism (bill number with committee status) should be named explicitly in the summary." Reviewed by Teresa Calderón · "The claim about an informal cost estimate is unsourced; replaced with language that flags the absence of a CBO score, which is more accurate and aligns with our voice. Severity 'concern' is appropriate for a stalled bill with clear harm."

A bipartisan bill, S.1773 — the Tax Relief for Victims of Crimes, Scams, and Disasters Act — would reinstate a theft-loss deduction so scam victims aren't taxed on stolen money, reversing a 2017 TCJA policy. The bill has stalled in the Senate Finance Committee; CBO has not yet released a cost estimate for the reinstatement of the deduction.

The IRS currently taxes scam victims on money they never possessed, thanks to the 2017 Tax Cuts and Jobs Act (TCJA) which eliminated the personal casualty and theft loss deduction for most taxpayers. This means a senior defrauded of their savings may still owe income tax on those stolen funds, a second penalty on top of the fraud itself. While the IRS issued guidance (CCA 202511015) clarifying some fraud schemes may qualify for relief, the patchwork approach leaves most victims vulnerable. The bipartisan Tax Relief for Victims of Crimes, Scams, and Disasters Act (S.1773) would restore the deduction for losses between 2018 and 2025, but has stalled in the Senate Finance Committee. This is a direct consequence of the TCJA's policy choices, not an accident of tax law— and Congress can fix it now. As of publication, the Congressional Budget Office has not released a cost estimate for the bill.

The humanitarian alternative

Congress should pass S.1773 immediately, restoring the theft-loss deduction retroactively to 2018 to cover all scam and disaster victims. Alternatively, the IRS could use existing regulatory authority to treat stolen funds as non-taxable income under the same rules that exempt restitution payments, eliminating the need for victims to itemize or rely on a limited deduction. Treasury should also issue clear public guidance that scam victims are not liable for taxes on unrecovered stolen funds, ending the practice of sending tax bills to fraud victims.

Falsifiable predictions

What this entry claims will happen, and what data would prove it wrong. The Reckoner revisits these against current reality.

If the bill passes the House and Senate before the end of 2026, scam victims who lost money in 2023-2025 will be able to file amended returns to claim refunds on taxes paid on stolen funds.

Horizon: 6 months Falsified by: The bill fails to advance or is vetoed, or the IRS does not implement the retroactive deduction in the 2026 filing season.
Without legislative action, the IRS will continue to tax stolen funds, and victims will face collection notices for taxes on money they never had.

Horizon: 90 days Falsified by: The IRS issues a ruling reversing its position on theft-loss taxation, or Congress passes a stopgap measure before then.

Grounded in

Original source — excerpted

news Scam victims can owe taxes on stolen money. A bill in Congress could offer relief

https://www.cnbc.com/2026/07/18/scam-victims-irs-tax-stolen-money.html

"Vladimir Vladimirov | E+ | Getty Images For victims of fraud, a second financial blow sometimes comes their way — they owe taxes on the stolen money. Scam vi..."

#scam-victims#tax-justice#irs-policy#bipartisan-bill#fraud-oversight

Policy levers theft-loss-deduction-reinstatementirs-regulatory-guidancetaxpayer-protection-act