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Local News

Casey report details how Trump-era tax change devastated elderly victims of scams


Kim Lyons, Pennsylvania Capital-Star
April 11, 2024

Kate Kleinert was not looking for romance when “Tony” sent her a friend request on Facebook in the summer of 2020. She had been widowed for several years and was not in the habit of accepting friend requests from strangers online. 

The request included photos of a handsome man in a white coat, like a doctor, and another of him in scrubs. “He said he had read my profile and he wanted to get to know me,” she told the Capital-Star in an interview. “And there was just something about it that intrigued me and I wish I could go back to that day and not push the ‘accept’ button. But I did.”

After moving their conversation to an encrypted messaging app — which “Tony” requested — the two began chatting online, with him declaring his love, and his children calling her “mom.”

“I did not have children in my marriage, and I waited all my life for somebody to call me mom. So this was all just fabulous to me. You know, we were going to have this life and he had me going out looking at houses,” Kleinert said.

“Tony” started asking for sums of money here and there — he said he was a doctor stationed in Iraq and it was not easy to send or receive money — for his kids, for supplies, and eventually to bribe someone so he could more easily come visit her at her home in Delaware County. 

But the day he was supposed to arrive at the Philadelphia Airport, he never showed. By this time, Kleinert had made a total of $39,000 in withdrawals from her retirement account, and realized she had been scammed. 

It was bad enough she had lost her love, and her money, Kleinert said, but she figured she would be able to get a tax deduction on the lost money. However, the accountant friend who usually does her taxes delivered the bad news: She would have to pay taxes on that lost income, as well.

If Kleinert, now 71, had been scammed before December 2017, she would not have had to pay taxes on the money the scammer stole from her. But with the passage of the Tax Cuts and Jobs Act (TCJA), the Trump administration and Republican-controlled Congress repealed the IRS rule that allowed people who lost money due to a scam to deduct that amount, and not have to pay additional tax on the funds.

The provision repealing that deduction, like many other provisions of the TCJA, is set to expire at the end of 2025. But as Kleinert notes, December 2025 is two more tax seasons that scam victims would miss out on the deduction. For someone in their retirement years, that time and money is not easily replaced.

U.S. Sen. Bob Casey (D-Pa.) chair of the Senate Special Committee on Aging, released a report Thursday that lays out how the repeal of that rule, known as the casualty and theft loss deduction, has affected elderly scam victims like Kleinert. 

Through interviews with senior citizens’ organizations, legal aid groups and other stakeholders, the report details numerous grim stories like Kleinert’s, from seniors who had their life savings stolen in scams and then had to pay taxes on the lost income.

“This report is yet another example of how, in their rush to cut taxes for the nation’s wealthiest people and largest corporations, Republicans left working families and seniors out in the cold,” Casey said Thursday. “Congress ought to be protecting victims of fraud and scams — not adding insult to injury by forcing them to pay taxes on their stolen savings to offset fat cat tax breaks.”

According to the report, before 2017, some version of the casualty and theft loss deduction had been in effect since passage of the Revenue Act of 1913. 

At the time of its passage, Casey and other Democrats decried the Tax Cut and Jobs Act — which passed with a near party line vote. The law cut the corporate tax rate from 35% to 21%, while eliminating the theft loss limitation and other tax breaks. And the Congressional Budget Office estimated at the time that the TCJA would increase the federal deficit by nearly $1.9 trillion over 10 years.

“The most troubling part of the theft loss limitation is that for victims of theft it leaves them feeling as if they have been victimized twice: once by the criminals; and then by the United States government which made them pay tax on the stolen income and now will not let them deduct their losses,” tax attorney James Creech of San Francisco told the Committee on Aging.

In March, Democratic Sens. Tammy Baldwin of Wisconsin and Peter Welch of Vermont introduced a bill that would reinstate the tax deduction for personal casualty and theft losses. The Tax Relief for Victims of Crimes, Scams, and Disasters Act, which Casey supports, would also provide retroactive coverage to taxpayers who suffered losses since the passage of the TCJA, and would ensure that scam victims who suffered losses after the 2017 law would be able to file amended tax returns accounting for the personal casualty loss.

Casey said in the report he also plans to push Congress to ensure that  federal agencies have the resources and funding needed “to crack down on scammers and increase awareness of their deceptive practices.”

In addition to the emotional trauma and loss of her retirement savings, Kleinert suffered additional tragedy as a result of the scam, she said; after losing her money, she did not have sufficient resources to fix her home’s air conditioning unit, so she bought a portable one that caught fire one evening, killing her dogs, and burning her home to the ground. 

But she is determined to speak out about what happened to her because she knows many people who fall victim to these kinds of scams are embarrassed to come forward. She testified about her experience before the U.S. Senate Special Committee on Aging in 2021. And she has contracted with the AARP to discuss her experience with seniors around the country. She now lives in Manheim Township, and has been able to get back on solid financial footing, but it took time. 

Kleinert wants seniors who fall victim to romance scams and other types of financial deceptions schemes  to know what red flags to watch for.

“The one line of humor I use is: If you get a picture of someone really ugly? That’s going to be your flag that it’s a scam,” she said. “Scammers send pictures of a handsome man in the medical field, the military or or a hunk from an oil rig.” She said to ask someone to do facial recognition search on any images an online contact sends, and to remember that the scammers are pros who follow a handbook. 

“They are good at what they do,” she said. “They have 10 different answers for everything you protest or push back against.  And they are very, very patient.”

Casey said he hopes the report serves as a cautionary tale for future proposed changes to U.S. tax law. 

“I hope the devastation unveiled in this report helps ensure that we never make these mistakes again, and instead use the tax code to uplift working families and those in need,” he said. 

Pennsylvania Capital-Star is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor Kim Lyons for questions: info@penncapital-star.com. Follow Pennsylvania Capital-Star on Facebook and Twitter.

This article is republished from Pennsylvania Capital-Star under a Creative Commons license. Read the original article.