MW 'I'm asking for a friend': Will the IRS write off $60,000 lost in a romance phishing scam?

By Quentin Fottrell

'The bank did try to stop them from executing the transfers'

"The perpetrator of this crime told my relative not to tell anyone." (Photo subject is a model.)

Dear Quentin,

I'm trying to find an answer for a family member who fell victim to an online romance scam. Following several months of correspondence and grooming, they wired $60,000 to the scammer before realizing there was not a real person who was interested in them. Very sad, but it happened. A police report was filed and the FBI was notified. Copies of all correspondence and the transactions have been maintained.

The bank did try to stop them from executing the transfers, but this person believed it was true love. No recourse back to the bank, as the wire transfers were willingly executed. No coverage on homeowners insurance for this type of scam either. Our question is this: Is this loss by theft deductible on their federal tax return? I am unable to get through to a live agent at the IRS to inquire. The publication on this was not very clear.

The last tranche of funds sent comprised several transactions from a loan taken out against their 401(k). It's horrible to have been told to do that in order to help a "true love" out of a hard spot. The perpetrator of this crime told my relative not to tell anyone. Those are all red flags. Now the loan has to be paid back. No tax recourse for this either, I suppose?

I'm asking for a friend (really).

Standing By

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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

Taxpayers who transferred funds when there is no profit motive for the transaction may not deduct the loss on their federal income taxes.

Dear Standing,

Three things make people vulnerable to such scams: isolation, isolation, isolation.

That's why the thief told your relative not to tell anyone about either the romance or the bank transfers. What makes this situation worse is that people are even less likely to talk about their experience after they realize they've been duped because - sad as it seems - an avalanche of scorn and ridicule and laughing emojis awaits them if they do go public. People tend to be humbled when something like this happens to them, but if it happens to someone else, it brings out a flood of mockery and ire.

Phishing scams are associated with older people in the public imagination. Studies have suggested that young people are more likely to fall for online scams, despite - and perhaps because of - the fact that they tend to be more Internet savvy. Generation Z - those born between 1995 and 2012- is more than three times more likely to fall for online scams than baby boomers, according to a 2023 Deloitte report. A 2025 Pew Research Center report found that online scams were evenly distributed across all age groups with those aged 65-plus reporting slightly less online scams.

People are less likely to talk about being scammed - sad as it seems - because an avalanche of scorn, ridicule and laughing emojis awaits them if they do go public.

I'm sorry this happened, and I'm glad that this person has a relative they have confided in and they can rely on. But because this was a romance scam and the money was handed over willingly, I have some bad news. First, regarding the loan from their 401(k): If your friend does not repay the loan, they will have to pay a 10% penalty if they are younger than 591/2, and will also have to pay income tax on that withdrawal.

Second, for taxpayers who were motivated to transfer funds as part of a non-investment scam - such as a romance scam or kidnapping scam - where there is no profit motive for the transaction, "the loss is a disallowed personal casualty loss," according to this memo released by the IRS last March. "For taxpayers who did not authorize any distribution or transfer, the loss does not result from the actions of the taxpayer, so that the relevant transaction for determining the character of the loss is the original investment and the motive of the taxpayer at that time."

Lack of sympathy for victims

Consumer advocates have sympathy for people like your friend, but the Tax Cuts and Jobs Act of 2017 restricted deductions on losses to federally declared disasters. The Taxpayer Advocate Service disagrees with this change, saying: "Congress should allow the TCJA restriction to expire at the end of this year. Scam victims shouldn't be treated differently based on whether the scam involved a false investment or a false personal relationship."

"Many victims are ordinary taxpayers misled by increasingly sophisticated frauds," the organization adds. "Restoring the broader theft loss deduction would allow all victims a chance to deduct their losses." As for the 401(k) issue: "This mismatch is inherently unfair to taxpayers," it adds. "Congress should revise the law to allow taxpayers to amend the original tax return to claim the loss deduction in the same year they reported the additional income."

Your relative sent wire transfers after suspending their disbelief and becoming emotionally invested in this scenario, however unlikely it may now seem.

Why do people fall for such scams? Your relative sent wire transfers after suspending their disbelief and becoming emotionally invested in this scenario, however unlikely it now seems, like they might be in a movie or a play. This is called "pig butchering," because the scam artists take their time fattening up their mark, establishing trust and feeding the victim information, promising bigger and better returns, whether they be financial or emotional. Slowly, the victim's instincts are compromised by the prospect of romance or, in other cases, a return on their "investment."

MetLife conducted a major study on the subject and found that women were nearly twice as likely as men to be victims of elder financial abuse. Most victims lived alone, which may point to the fact that lonely people are more likely to seek out a connection online. "In almost all of the cases, there existed a combination of tenuous, valued independence and observable vulnerability that merged in the lives of victims to optimize opportunities for abuse by every type of perpetrator," the study concluded.

This may serve as a reminder to other people who find themselves on the brink of pressing "send."

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You can learn more about consumer issues and scams from the Federal Trade Commission and can file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). AARP also has a Fraud Watch Network Helpline (877-908-3360). AARP says signs of a scam include "a phone call asking for money or personal information, such as your Social Security number; a request to buy gift cards to pay a purported debt or to send money to someone whom you've only met online or an unauthorized charge on your credit card.

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-Quentin Fottrell

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September 01, 2025 10:55 ET (14:55 GMT)

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