My client lost her life savings to a romance scammer. Then she got a tax bill.

A woman came to me after losing hundreds of thousands of dollars to a romance scam. 

Like many victims of such scams, she had been looking for companionship, connection and a meaningful relationship. A scammer targeted her on an online dating site, and over time gained her trust, manipulated her emotions, and convinced her to send him money. To do so, she withdrew funds from retirement accounts and other savings. 

By the time she realized the relationship was a fraud, her money was gone. 

Law enforcement took the matter seriously. The scam was investigated, escalated to state authorities, and ultimately traced to an overseas criminal enterprise. Despite diligent investigative efforts, no one was arrested. My client’s money was never recovered. 

Then came the next surprise — not only had she lost her savings, she was confronted with significant tax consequences from the withdrawals she had made to pay the scammer. 

In 2025, the IRS issued guidance clarifying that victims of certain scams may be entitled to claim theft-loss deductions. Victims of investment-related scams, including “pig butchering” scams, may qualify, because the transactions were entered into with a profit motive. 

These theft-loss deductions specifically do not apply to victims of romance scams because they were not motivated by profit. In other words, our tax system is more forgiving when a victim is seeking financial gain than when a victim is seeking human connection.

The tax code is........

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