Can you reduce tax liability due to scam

[jfjefts]

T/p received phone call and was told to transfer $80K from IRA into a crypto account. Sadly, he did.

Realized his error and reported it to the police and was able to recover $8,000 which he did not put back in the IRA.  He has now received a 1099R for the $80,000. Is there anyway to reduce his tax liability?

[Just-Lisa-Now-]

sadly, TCJA took away personal casualty losses.  I had an elderly man a couple years ago that got hit for much more than that, FBI recovered a portion, but the majority was lost.

[Terry53029 · Accepted solution]

Not sure your client can take this, but you should research it.

 losses available outside of a trade or business is a loss related to a “transaction entered into for profit,” as described in section 165(c)(2) of the Code. This deduction has several key differences from the deduction under section 165(c)(3). The section 165(c)(2) deduction is not subject to limitations on the amount of the deduction and is not subject to the TCJA suspension for tax years 2018 through 2025. Further, the deduction under section 165(c)(2) is deductible in the year that the loss is discovered.

[jfjefts]

Thank you

[jfjefts]

Just as a follow-up, I filed an amended return for the T/P with the following explanation

"T/P WAS A VICTIM OF A SCAM WHICH IS DEDUCTIBLE UNDER IRS SEC 165 AS PER OFFICE OF CHIEF COUNSEL MEMORANDUM # 202511015 RELEASED 3/14/25"

The T/P received a full refund within 2 months.

[Accountant-Man]

Thanks, jfjefts. In case anyone want to read on this, just search for 

OFFICE OF CHIEF COUNSEL MEMORANDUM # 202511015 

[BobKamman]

That doesn't mean anyone took a close look at the facts and circumstances.  You can file an amended return claiming dog food as a medical expense, and likely get a rapid refund when IRS has just laid off half its auditors.  Or course, it might be an allowable expense for a support animal.