Sen. Robert P. Casey Jr. (D-Pa.), chairman of the Senate’s Special Committee on Aging, is calling on the IRS to explain what it is doing to help fraud victims facing large tax bills after a Trump-era tax change.
In a letter Tuesday to IRS Commissioner Daniel Werfel, Casey asked the agency to provide data and documents by Jan. 18 showing the effects of a decision by congressional Republicans in 2017 to suspend a longstanding deduction that helped theft victims.
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.”
The Post described the case of Frances Sharples, a former White House science adviser who was scammed out of $655,000 by a global network of criminals, then was required to pay more than $100,000 in federal taxes on what was stolen. Other victims told The Post they faced hundreds of thousands of dollars in federal taxes after cashing out retirement accounts at the behest of thieves.
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In 2017, congressional Republicans embarked on the biggest overhaul of the tax code in decades. They gave themselves a budget of $1.5 trillion. They said that was the maximum amount they could reduce revenue to the federal government over a decade. But deep tax cuts and other changes they sought would cost far more than that, so GOP tax writers 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, citing his own investigation in recent months, as well as reports in The Post and other news media outlets. “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. 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 personal casualty loss deduction, which covers storms, fires, earthquakes and theft, was suspended through 2025. Earlier this year, more than 100 House Republicans co-sponsored legislation that would make the change permanent.
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“Tax provisions like this were removed to offset the cost of lowering tax rates for everyone,” according to an aide to a senior GOP member of the House Ways and Means Committee, who provided written answers to The Post about why the deduction helping theft victims was taken away. The change was part of “streamlining the tax code, broadening the tax base, lowering rates, and growing the economy,” according to a 2017 report from the GOP-controlled Ways and Means Committee.
The tax law still allows businesses and those seeking profit to deduct theft losses. It also has an exception allowing deductions for damage from presidentially declared disasters.
In his letter Tuesday, Casey requested that the IRS provide a state-by-state breakdown of the number of taxpayers who used the deduction for casualty and theft losses from 2010 until now, as well as the amounts claimed. He also asked the IRS to parse its data to break down who is taking the casualty loss deductions, differentiating between victims of thefts, disasters or other sudden events.
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In 2017, federal taxpayers claimed $3 billion in personal theft and casualty loss deductions, according to IRS estimates. That fell to about $600 million in 2020, according to agency estimates.
Casey also asked the IRS whether it has “any initiatives or campaigns specifically related to fraud, theft, or scams targeting older adults,” and is seeking documents that “describe the agency’s strategy to assist taxpayers” affected by those crimes.
The senator also wants data on the number of taxpayers who have contacted the IRS about the issue, and documentation on how the agency is tracking the effects of the law’s change on taxpayers.
“Fraud victims have found themselves subject to large federal tax bills that can total hundreds of thousands of dollars after suffering large theft losses,” Casey wrote.
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Former federal law enforcement officials have called on Congress to change the law. John Marston, a former federal prosecutor and an attorney at firm Foley Hoag who is representing Sharples pro bono, said lawmakers could rewrite the tax code to prevent older victims of online or telephone scams from being taxed on stolen retirement savings.
Casey, who like other Democrats opposed the Tax Cuts and Jobs Act in 2017, has not offered legislative proposals, but his investigation is examining the law and policy options.
“Victims of fraud deserve more avenues to recover their losses,” Casey wrote.
