presented, giving you enough pause to not become a victim.

What to Do If You Suspect a Scam

If you believe you may be the victim of a romance scam, the first step is to stop communicating with the potential scammer (definitely do not send any additional funds). The second step is to notify your financial institutions. Banks and credit card issuers may be able to freeze accounts, flag suspicious activity, or prevent further unauthorized transactions.

Reporting to law enforcement is also important, Ficco stresses. Many romance scams involve perpetrators outside the United States. Federal agencies, including IRS-CI, have broad jurisdiction and established channels for international cooperation (as well as relationships with local law enforcement). While not every report results in prosecution, if law enforcement can detect patterns among victims, they can pursue and hopefully stop some of the larger crime rings.

Victims should also file a complaint with the FBI’s Internet Crime Complaint Center (IC3). In 2024, IC3 received 859,532 complaints totaling $16.6 billion in reported losses—a 33% increase from 2023. These reports help law enforcement identify trends and coordinate investigations.

Finally, victims should inform their tax preparer. Even when no tax deduction may be available (more on that in a moment), the movement of funds—particularly withdrawals from retirement accounts—can have tax consequences that must be addressed properly.

The Tax Treatment of Scam Losses

Historically, casualty and theft losses have been part of the federal tax system. By 1913, taxpayers could deduct losses sustained during the year that were not compensated by insurance. That framework changed significantly beginning with the Tax Cuts and Jobs Act (TCJA) signed by President Donald Trump in 2017. Under the TCJA, personal casualty and theft losses were generally deductible only if attributable to a federally declared disaster. That treatment didn’t change under the One Big Beautiful Bill Act (OBBBA) Trump signed in July of 2025.

As a result, scam victims often feel victimized all over again come tax time. Last year, the IRS Office of Chief Counsel issued a memo clarifying how existing law applies to scam-related losses. The memo suggests that tax relief may be available if a loss resulted from a “transaction entered into for profit.” There is no statutory definition of that phrase, but courts have required a primary profit motive. If a taxpayer engaged in a transaction with the intention of making money—or of protecting existing assets in a profit-oriented context—the loss may qualify.

Examples of scam-related losses that may be deductible include traditional investment scams in which the taxpayer believed they were investing for financial gain, as well as “pig butchering” schemes in which fraudsters encourage victims to invest in cryptocurrency or other ventures with the promise of profits. The IRS also noted that impersonation scams, in which taxpayers transfer funds to “protect” accounts they believe have been compromised, reflect an intent to preserve investment assets, making losses deductible to the extent of the taxpayer’s basis in the property.

Where Relief Is Typically Not Available

Unfortunately, romance scams generally do not meet the profit-motive requirement necessary to claim a loss. In the memo, the IRS cites an example of a taxpayer who transferred funds to someone they believed was in a romantic relationship with them. Because the taxpayer’s motive was not to earn or protect profit but to support a personal relationship—even if based on fraud—the loss did not qualify as a transaction entered into for profit.

There is some saving grace. If a romance scam evolves into an investment scheme (for example, where the taxpayer is encouraged to invest funds in exchange for a financial return), the taxpayer may be able to claim a loss. But in purely personal relationship scenarios, there’s no loss allowed on your tax return.

The Retirement Account Complication

The tax consequences can be worse when victims withdraw funds from tax-deferred retirement accounts, such as IRAs or 401 (k) plans, to send to a scammer. Even if the funds were clearly stolen, the withdrawal may still be taxable income. If the taxpayer is under age 59½, a 10% additional tax may apply unless another statutory exception applies.

Importantly, current law does not provide a specific exception for scam-related withdrawals. That means a victim can lose the distributed funds and still owe income tax—and potentially a penalty—on the withdrawal.

Protecting Yourself

If you believe you may have been a victim, in addition to reporting the crime to law enforcement, you should consider additional safeguards, such as placing credit freezes with major credit bureaus, enabling multi-factor authentication on financial accounts, and setting up transaction alerts for your bank and brokerage accounts. You should also ask for an IRS Identity Protection PIN (a six-digit number issued by the IRS that prevents someone else from filing a tax return using your Social Security number) to prevent fraudulent tax filings.

While these measures can be inconvenient in the short-term, they can also prevent larger losses down the road.

The Practical Takeaway

Romance scams are organized, increasingly sophisticated financial crimes. Enforcement activity has accelerated, and sentences are significant. But even with a focus on the scammers, your chances of clawing back money that’s already moved are typically limited. That makes prevention, early detection, and prompt reporting even more important.

If a situation seems unusually urgent, secretive, or overly dependent on transferring funds to someone you have never met, Ficco advises taxpayers to take a pause. Taking a moment to step back and check your gut may feel uncomfortable, but it is far less uncomfortable than attempting to unwind the financial and emotional consequences of fraud. And if it feels too good to be true, it probably is (except for chocolate, of course).

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