She lost $600,000 in a pig-butchering scam. Then came the tax bill

When the man from Brussels asked Lori Flowers to lend him $400,000 from her 401(k), she thought she was bailing out her best friend.

By the time the "pig-butchering" scam was over, Flowers had forked over $600,000, funds she would never see again.

American tax law used to protect victims of theft such as Flowers – until Congress gutted the provision when it passed the Tax Cuts and Jobs Act in 2017.

Still reeling from the 2022 theft, Flowers learned she owed another $225,000 in taxes and penalties on money she had withdrawn from her retirement account for the scammers. The IRS treated it as income. Flowers declared bankruptcy.

"This is my credit," she said. "This is my livelihood."

Now, a bill in Congress would restore legal protections for scam victims like Flowers, lifting the burden of paying taxes on stolen funds.

The Tax Relief for Fraud Victims Act won House approval on Sept. 15. It awaits action in the Senate.

"I think it has strong bipartisan support," said Chuck Bell , programs director for advocacy at Consumer Reports. "I think no one wants to defend this awful provision of the tax code."

Did Congress inadvertently strip away tax protections for scam victims?

Congress stripped away the tax deduction for theft victims in 2017, then did it again in 2025, making a temporary measure permanent.

Most lawmakers apparently didn't grasp the real-world significance of the law change until recently, when victims like Flowers came forward.

"You get scammed, and then the IRS comes after you," said Clark Flynt-Barr, government affairs director for financial security at AARP. "You have no money, and now you're going to owe more money."

When Flynt-Barr explains current law to members of Congress, she said, "They're typically pretty shocked: 'What do you mean, we're taxing people on money that was stolen from them?'"

The "casualty and theft loss" deduction was one of many items Congress and President Donald Trump cut from the tax code in 2017 as they introduced a higher standard deduction.

"I haven't been able to find reasoning other than, 'We were trying to clean up the tax code," Flynt-Barr said.

And why did it take nearly a decade for Congress to make it right?

One reason, Flynt-Barr and others said, is that scam victims often hide their victimhood even from loved ones and closest friends, out of shame.

In 2025, Americans age 60 and over reported $7.7 billion in losses to fraud, according to AARP, citing federal data. But the true figure might be closer to $80 billion, because of under-reporting.