A 2017 tax law is hurting cybercrime victims — now Congress wants to make it permanent  

The Tax Cuts and Jobs Act of 2017 (TCJA) punishes victims of cybercrime. These unintended consequences will need to be addressed in the pending tax cut extension bill as Congress returns for the 2024 session.

The Washington Post recently reported on the impact of the current U.S. tax system on victims of cybercrime.In one incident, the victim faced a six-figure tax bill Alleges withdrawals from retirement accounts were stolen by fraudsters. In another case, the victim had to: take out a mortgage To cover taxes on retirement withdrawals and other financial transactions.

I was also a victim of a similar scam and lost over 10% of my net worth. My insurance only covered $200 of the loss. Fortunately, my retirement funds were not affected, but I am facing tax liability for other investment sales made by the scammer to raise quick cash.

These cybercrimes are particularly vicious. These not only psychologically force people to part with their savings, but also make victims feel shame, guilt, and stupidity. I had to consult a psychologist to understand why this happened to me. The current U.S. tax system increases anxiety, fear, and depression. Victims of fraud must pay taxes on funds withdrawn from retirement accounts and other transactions made to procure cash that was effectively stolen at the time of the transaction. This tax provision is not neutral. Its effect is to punish the victim for the loss.

Cybercrime is different from other causal losses, such as a fire or a tree falling from a roof. These include taxable financial transactions, which Congress recognized in the TCJA by allowing a deduction for Ponzi-style theft losses. However, the average cybercrime victim is unable to even deduct enough losses to offset the tax liability incurred due to fraud.

Prior to 2017, losses from cybercrime fraud were deducted from federal income taxes as personal losses.but Section 11044(1) The TCJA eliminated all deductions for miscellaneous losses for tax years 2018-2025.

The Washington Post reports that in 2017, all casualty loss deductions totaled 3 billion dollarsOver nine years, the discontinuation of the casualty deduction offset only 1.6 percent of the law's total $1.5 trillion in tax cuts. Of course, if we look only at cybercrime allegations, the percentage would be even smaller. Removing financial fraud from this law would not have a significant impact on federal revenue, but it would be a lifeline for many fraud victims.

The current law is pending in Congress Extend the TCJA and make it permanent beyond 2025. If the casualty loss provision is extended, fraud victims will continue to be punished forever. Rather, this is an opportunity to address unfair and harmful casualty deduction policies for cybercrime victims. Three practical alternative remedies are possible.

First, Congress would simply remove the casualty deduction provision from the tax cut extension bill, allowing it to expire at the end of December 2025 and allowing taxpayers to once again claim itemized deductions for uncompensated personal injury and theft losses. can do.

Second, lawmakers could amend Section 11044(1) to allow a deduction for victims of cybercrime fraud up to the amount of tax owed from related financial transactions.

Third, Article 11044(1) may be repealed retroactively or amended to allow offset deductions for losses and taxes occurring between 2017 and 2025 and in the future.

While both of these alternatives correct the unintended consequences of section 11044(1), this third strategy protects future fraud victims from having taxes piled on top of their fraud losses. , the fairest remedy for recovering deductibles for fraud victims caught in 2017. -2025 Dead Zone.

Whichever option Congress chooses, it must address the bill's unintended, inequitable, and harmful consequences.

Douglas Brook is a public policy researcher at Duke University.