Victims can be considered liable for serious tax consequences for money stolen by financial predators. In such cases, victims and their family members are encouraged to consult with a tax professional or the IRS about if, when, and how such losses may be deducted as a loss. When doing so, it is helpful to have documentation proving the fraud has been reported, such as police reports, as well as reports sent to the Federal Trade Commission (FTC), the Federal Bureau of Investigation’s (FBI) Internet Crime Complaint Center via IC3.gov, the IRS, and state tax authority.
The IRS has an independent Taxpayer Advocate Service (TAS) to inform taxpayers of their legal rights and assist with resolving complicated tax issues. Contacting them may help provide a tax relief remedy for victims, especially if 401K accounts were accessed or other taxes owed as a direct result of the crime.
TAS phone number (for general questions): 1-877-777-4778
TAS Online (for identifying local offices): https://taxpayeradvocate.irs.gov/
We would like to acknowledge the Los Angeles Scam Working Group and Bet Tzedek, whose research informed this article.