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Senator Asks IRS for Info on Impact of TCJA's Repeal of Deduction for Theft Loss

S.J. Steinhardt
Published Date:
Dec 20, 2023

iStock-495755592 Congress US Capitol Washington DC

Sen. Robert P. Casey Jr. (D-Pa.), chairman of the Senate’s Special Committee on Aging, is asking for information from the IRS about what it is doing to help fraud victims facing large tax bills resulting from a Trump-era tax change, The Washington Post reported.

The change in question, a provision of the 2017 Tax Cuts and Jobs Act (TCJA), significantly narrowed a longstanding deduction that helped victims of theft and natural disasters, such as storms, fires and earthquakes. The casualty and theft loss deduction was significantly limited, through 2025, by the TCJA  to losses only from federally declared disasters. The Post reported that  more than 100 House Republicans co-sponsored legislation earlier this year that would make the change permanent.

Casey cited reporting in The Washington Post last week “highlighting the experiences of older adults who have found themselves on the hook for large federal tax bills after having money stolen by fraudsters.” One such victim, Frances Sharples, a former White House science adviser who was scammed out of $655,000 by a global network of criminals, was subsequently required to pay more than $100,000 in federal taxes on what was stolen. Other victims told the Post that they faced hundreds of thousands of dollars in federal taxes after cashing out retirement accounts at the behest of thieves.

Before the passage of the TCJA, this kind of loss would have been claimed as a deduction. Its repeal was born of congressional negotiators working on the legislation, the biggest overhaul of the tax code in decades, the Post reported. Finding that they could not achieve a self-imposed maximum reduced revenue amount of $1.5 trillion with the deep tax cuts and other changes they wanted, they rolled back many itemized deductions that targeted specific groups of taxpayers, including crime victims.

“Following the removal of this provision, older adults and their families from across the Nation have faced the shock and financial burden of enormous federal tax bills after having their life savings drained by thieves and fraudsters,” Casey wrote in a letter to IRS Commissioner Daniel Werfel. “This issue is particularly concerning as older adults appear to have disproportionately used the theft deduction before its elimination.”

The IRS has previously declined to comment on specific cases and said questions “touching on appropriate tax policy are better directed to legislators." The IRS also stated, "If there are unintended consequences from legislation passed into law, outside of flexibilities granted to the [Treasury] Secretary, the IRS does not have the authority to resolve them,” the Post reported.

The tax law still allows businesses and those seeking profit to deduct theft losses, and also has an exception allowing deductions for damage from presidentially declared disasters, the Post reported.

In his letter, Casey asked the IRS to provide specific information about the casualty and theft loss deduction:

"Please provide any available data regarding the number of taxpayers who have contacted the IRS about this issue, such as through the Taxpayer Assistance Centers, help lines, and the Offer in Compromise program. Has IRS been documenting how the change to the tax code’s casualty and theft losses deduction is affecting taxpayers? For example, is IRS tracking the number of taxpayers who are no longer able to take the deduction for money lost to frauds and scams?

Does the IRS have any initiatives or campaigns specifically related to fraud, theft, or scams targeting older adults? Does the IRS have tax guidance for taxpayers who fall victim to financial fraud schemes? If so, please provide all documents related to these efforts, and describe the agency’s strategy to assist taxpayers who have experienced theft, scams, or fraud. 

To the extent that IRS has additional data about the number of filers using the deduction and the amount claimed for tax years 2020-2022, please provide it. What, if any, information can the IRS provide about the reasons for the declining use of the deduction following the 2017 change in the tax code? What, if any, data do the IRS have regarding the reason that taxpayers claimed the deduction prior to the 2017 change to the tax code? Does the IRS have visibility into whether filers were using the deduction in response to theft, disaster, or some other event? To the extent IRS has such data, please provide it to the Committee. c. Please provide a state-by-state breakdown of the number of taxpayers using the deduction, and the amount claimed, for each available year dating back to 2010. 

Please provide any available IRS data that include the median amounts and amounts at quartiles that filers have deducted as casualty/theft losses."

To learn how to reduce the risk of fraud, attend the Foundation for Accounting Education's Winning the Fraud Battle in the Digital Age: Prevention and Detection Webcast on May 9.

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