A woman lost hundreds of thousands of dollars to a romance scam. Looking for companionship and connection, she was targeted by a scammer on an online dating site. Over time, he gained her trust and convinced her to send him money. She withdrew funds from her retirement accounts to comply. By the time she realized the relationship was fraudulent, her savings were gone.

Law enforcement investigated the case thoroughly. It was traced to an overseas criminal enterprise, but no arrests were made. Her money was never recovered. Moreover, she faced significant tax consequences due to the withdrawals made to pay the scammer.

In 2025, the IRS clarified that victims of certain scams could claim theft-loss deductions. Those involved in investment-related scams were eligible because their transactions were entered into with a profit motive. However, victims of romance scams were excluded as their motive was not financial gain.

This tax code distinction is problematic. Two victims can lose the same amount to the same criminal enterprise but receive different tax treatment. One deceived by wealth promises, another by love promises. The code bases the decision on why they were manipulated instead of how.

Modern romance scams are more than just failed relationships. They are sophisticated financial crimes. Criminals spend months building trust and creating false identities to manipulate victims into transferring money. These should be treated as such under tax laws.

Today’s scammers use advanced tools like AI to create convincing false identities. Gallup and Stop Scams Alliance reported 12% of scams last year involved AI or deepfake technology. AI enables cheap, scalable deception, allowing scammers to draft persuasive messages and maintain multiple victim conversations simultaneously. Deepfake technology can create convincing impersonations.

As Congress addresses AI-enabled fraud, it should revise the tax code to treat all victims equally. In 2024, the FBI received 17,910 romance scam reports, with losses over $672 million. Behind these numbers are victims draining accounts, liquidating investments, and taking on debt. Yet, their situations are treated as poor judgment rather than sophisticated financial crime.

Romance scams should be seen as cyber-enabled financial crimes, not personal failures. Two actions should follow. First, Congress must restore theft-loss deductions for all fraud and scam victims, regardless of type. Second, victims withdrawing retirement funds due to scams should not face tax penalties akin to voluntary early withdrawals. Being a scam victim should not lead to additional tax burdens.

Fraud should be judged by criminal actions, not victim motivations.

Lindsay Lieberman is a Washington attorney representing victims of domestic violence and technology-facilitated crimes.

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