After losing hundreds of thousands of dollars to a romance scam, a woman sought legal help. Her story is familiar to many victims who seek companionship and end up targeted by scammers. A fraudster, posing on a dating site, manipulated her trust and emotions, eventually persuading her to withdraw savings and retirement funds to send money. By the time the deception was clear, her finances were devastated.
Law enforcement took the case seriously, escalating it to state authorities. The investigation traced the scam to an overseas criminal network. Despite efforts, no one was arrested, and the victim’s money was not recovered. Additionally, she faced serious tax consequences due to the withdrawals made to pay the scammer.
In 2025, the IRS clarified that certain scam victims might be eligible for theft-loss deductions. This applies to investment-related scams but not to romance scams, as the latter are not considered profit-motivated. This tax distinction raises questions since it differentiates victims based on their motivations rather than the scam’s nature.
Modern romance scams are sophisticated financial crimes. Criminals invest significant time in creating fake identities and convincing victims to transfer money. These scams employ advanced technologies like artificial intelligence (AI). A recent Gallup and Stop Scams Alliance report highlighted that 12 percent of successful scams involved AI or deepfake technology. These tools enable scammers to create realistic personas and manage multiple victims at the same time.
Congress must rethink how the tax code treats fraud victims, regardless of whether the fraudulent activity revolved around financial gain or personal relationships. In 2024, the FBI received almost 18,000 reports of romance scams, with losses exceeding $672 million. These victims often drain savings and incur significant debts.
Romance scams should be classified as cyber-enabled financial crimes. This reclassification calls for two main legislative changes. First, Congress should allow broader theft-loss deductions for all scam victims, irrespective of the fraud type. Second, victims who withdraw retirement funds due to scams should receive relief from tax penalties typically applied to early withdrawals. Those coerced into such financial decisions by scammers deserve recognition as victims.
Fraud should be identified by the perpetrators’ actions, not the victims’ reasons for trust. Such an approach will ensure fair treatment for those deceived and convey a more comprehensive understanding of these scams. Lindsay Lieberman, the author of this call for action, is an attorney who represents victims of domestic violence and technology-based crimes.
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