An attorney representing victims of domestic violence and tech-facilitated crimes is calling on Congress to overhaul federal tax rules that treat romance scam victims more harshly than those duped by investment fraud, even as lawmakers consider how to respond to the growing threat of AI-enabled scams.
Lindsay Lieberman, a Washington-based lawyer, wrote in a recent commentary that one of her clients lost hundreds of thousands of dollars to a romance scammer who manipulated her on an online dating site. The victim withdrew funds from retirement accounts and other savings to send money to the scammer, who was later traced to an overseas criminal enterprise. Despite law enforcement investigations, no arrests were made and the money was never recovered.
Then came an additional blow: the IRS issued a tax bill on the early withdrawals, treating the victim as if she had voluntarily cashed out her retirement savings. Under current IRS guidance issued in 2025, victims of investment-related scams — including so-called “pig butchering” schemes — may be eligible for theft-loss deductions because they entered the transaction with a profit motive. But romance scam victims are explicitly excluded, because they were motivated by personal connection, not financial gain.
“Two victims can lose the same amount of money to the same sophisticated criminal enterprise and receive different tax treatment simply because one was deceived with promises of wealth while the other was deceived with promises of love,” Lieberman wrote. She argued that the distinction is increasingly untenable as technology transforms fraud. “Modern romance scams are not merely failed relationships. They are sophisticated financial crimes.”
According to the FBI, there were 17,910 reports of romance scams in 2024, with reported losses exceeding $672 million. A recent Gallup and Stop Scams Alliance report found that 12% of successful scams in the past year involved AI or deepfake technology. Scammers now use generative AI to draft persuasive messages, maintain conversations with multiple victims simultaneously, and create realistic video and audio impersonations of romantic partners or trusted professionals.
Lieberman is urging Congress to restore broader theft-loss deductions for all fraud victims, regardless of whether the fraud involved an investment opportunity or a personal relationship. She also wants to eliminate tax penalties on retirement fund withdrawals made in response to documented scams. “My client emptied her retirement account because she was manipulated by criminals,” she wrote. “She should not face additional tax penalties for being their victim.”
The push for reform comes as Congress weighs responses to AI-enabled fraud, but Lieberman argues the tax code’s unequal treatment of victims is a more immediate issue. “Fraud is fraud,” she said. “Our tax code should judge fraud by what criminals do — not by why victims trust them.”
For context on how fraud schemes are evolving, see our coverage of Medicaid home healthcare fraud and USDA’s SNAP fraud crackdown.
