US seniors scammed out of retirement funds face tax woes

They were conned by skilled online criminals into draining their retirement savings.

- Tara Siegel Bernand and Ron Lieber

After the shock, shame and grief that followed, the victims were often left with something else: an enormous income tax bill.

Ms Mary Ellen Strange, a 75-year-old widow who was deceived by fraudsters impersonating federal investigators, now owes the IRS (Internal Revenue Service) an estimated US$100,000 (S$133,400) in 2025.

Ms Linda Gilmore, an 80-year-old former nurse, has to pay nearly US$50,000.

Cindy, 62, and Tina, 51, a married couple in California, owe roughly US$250,000 to the federal and state governments.

Lori, a sales executive in North Carolina who owed US$225,000 in the 2023 tax season, saw filing for bankruptcy as her best option.

Like thousands of others, they were drawn into cyber criminals' fabricated worlds, which are built upon intricate plot lines and a mastery of manipulation. They had been led to believe that the scammers were government officials, Amazon fraud investigators or potential love interests, and they were tricked into transferring large sums for any number of concocted reasons.

The punishing tax bills arise because the victims pulled from individual retirement accounts or 401(k) plans, where money is taxed when it's taken out. The withdrawals inflated their incomes, even though the funds disappeared shortly after being passed to the criminals. The victims are left with few options. Ms Strange lost nearly US$378,000—and that's before taxes.

"It is a double punch," she said. "It is a gut punch from your own government after you have been robbed blind."

The current structure of the deduction now treats victims unevenly. It can be used only with certain types of scams, even though all scams are built on a similar foundation of lies, often spun by organized criminals in faraway scam factories overseas.