How Congress leaned on crime victims to pay for Trump-era tax cuts
Congressional Republicans had a gaping hole to fill. Some crime victims ended up falling in.
To find savings to cover some of the cost of deep tax cuts in 2017, GOP lawmakers scaled back or eliminated many itemized deductions that targeted specific groups of taxpayers, including those that help crime victims like Florida retirees Suzy and Dennis Gomas.
In a succession of scams tied to a pet food operation called Purrfectly Raw, the couple was defrauded out of nearly $2 million by Suzy Gomas's daughter, who is serving a 25-year sentence, according to federal court filings in Tampa.
In a July decision, U.S. District Judge Tom Barber, who was appointed by President Donald Trump, ruled that, "astonishingly," the couple was required to pay federal income tax on the stolen money.
He cited the Tax Cuts and Jobs Act that Trump signed in 2017, which temporarily repealed deductions for losses from storms, fires, earthquakes - and theft. Known as personal casualty loss deductions, they were suspended through 2025.
When they learned the law was changed and the deduction was gone, "we lost hope," said Suzy Gomas, a former church secretary. The move "ended up squeezing the little guy, which was us," added Dennis Gomas, a retired IBM software engineer.
After taking big distributions from their pretax retirement accounts as part of the scam, they paid hundreds of thousands of dollars to the IRS to cover the resulting taxes, adding to their financial devastation, they said. They survived on debt, prayer and dinners with neighbors who would send them home with leftovers.
As members of the House and Senate GOP raced to craft their tax cut bill, they were eyeing a different kind of accounting. They had given themselves a $1.5 trillion budget to work with.
That was the most the new bill could reduce revenue to the federal government over a decade, according to a deal among Republicans and special budget rules that allowed Senate passage with 51 votes.
But the tax cuts they wanted were a lot deeper.
Cutting the corporate tax rate to 21 percent alone would cost the government $1.35 trillion. Many other changes they wanted to make in taxing individuals, including lowering rates, increasing the standard deduction, doubling the child tax credit and eliminating personal exemptions, pushed them far beyond their budget.
Capping deductions for state and local taxes raised large sums to cover some of the difference. Crime victims were also put on the hook.
A victim of a government impersonation scam told The Washington Post she is facing more than $200,000 in taxes on her stolen money. Because of Congress's 2017 change, she's living through crime and "extra punishment," said the retiree, who lives in Maryland and spoke on the condition of anonymity to avoid affecting an investigation.
"It was just dealmaking, with no consideration of the taxpayer or the victim," the retiree said, calling the results unethical. "The crime is growing. IRS just milks the money. . . . There is no mercy for little old ladies."
Fine print in a report from the House tax-writing committee outlined Republicans' objectives.
The repeal of many existing tax incentives, including the theft and casualty deductions, "makes the system simpler and fairer for all families and individuals," the 2017 report from the GOP-controlled Ways and Means Committee read. It was part of "streamlining the tax code, broadening the tax base, lowering rates, and growing the economy."
Former law enforcement officials and some tax experts said the real-world results of Congress's actions have been unfair.
"It was a cash grab," said Leslie Book, a Villanova University law professor who served as a professor-in-residence at the IRS's Taxpayer Advocate Service, an independent organization within the agency that helps to solve taxpayer problems.
Book said taxpayers "don't choose to have property stolen or a tree falling on the house. There's an equity side the tax law is meant to take into account, and that goes away."
While business interests had a heavy hand in shaping the tax cuts, Book said, would-be crime victims lacked lobbyists on their side.
"There were lots of winners and losers" in the 2017 law, Book said. "This was a loser that wasn't organized, because someone didn't have a loss right now. This is a future loser. And they're not as loud."
A spokesperson for Rep. Jason T. Smith (R-Mo.), chairman of the House Ways and Means Committee, who also was a member of the committee in 2017, referred an inquiry on the rationale for the repeal to Barbara Angus, the Republicans' chief tax counsel at the time who helped to design the bill. Angus, now the global tax policy leader at accounting and consulting firm Ernst & Young, declined to comment.
An aide to a senior GOP member of the Ways and Means Committee provided written answers about why a deduction helping theft victims was taken away.
"Tax provisions like this were removed to offset the cost of lowering tax rates for everyone," the aide wrote to The Post on the condition of anonymity to describe Republicans' reasoning.
As to whether taxing victims on stolen money is fair, the aide noted safeguards to protect consumers. Fraud is taken into account "at the institutional level" through deposit insurance, the aide said, adding that special provisions aid victims of Ponzi schemes.
The tax law still allows businesses and those seeking profit to deduct theft losses, and with good reason, the aide said, because it's easier for a business to account for what's been taken and the losses are more likely to be insured.
The 2017 law also has an exception allowing deductions for damage from presidentially declared disasters.
A Democratic Ways and Means Committee staff member, speaking on the condition of anonymity to discuss policy disputes, said that distinction is nonsensical. Treating taxpayers differently based on arbitrary considerations, or because they hadn't lobbied for their cause, is bad tax policy, he argued.
In 2017, federal taxpayers claimed $3 billion in personal theft and casualty loss deductions, according to IRS estimates. That fell to about $600 million in 2020.
Even before the law changed in 2017, the deductions didn't address all losses, just those above 10 percent of annual income, a modification dating back decades as part of a deficit reduction effort.
The theft deduction was a tool that helped taxpayers snared by broad definitions of what can be taxed. In 1913, the 16th Amendment gave Congress power to tax income "from whatever source derived."
The Supreme Court said in 1955 that can occur when taxpayers gain "complete dominion" over their new wealth, noted James Creech, an attorney at accounting firm Baker Tilly.
From the government's perspective, Creech said, a victim receiving an influx from a tax-deferred retirement account "could have as easily bought a boat with it as sent it to the scammers."
While that makes conceptual sense while administering taxes on the entire country, Creech added, for victims facing horrific circumstances, such notions "don't do any justice."
One victim of an India-based robocall scam told a federal judge in Virginia in 2021 about the trauma of losing $380,000 from his retirement account, plus $61,000 in other savings.
"I had to take a mortgage out on my home of $104,000 in order to pay the taxes due for 2019 because they told me that I would lose my bank accounts and 401K if I didn't cooperate with them," wrote the victim, identified as J.H.
Another victim, former White House science adviser Frances Sharples, was scammed out of $655,000 last year and paid more than $100,000 in federal taxes on the stolen funds.
"It seems extraordinarily wrong," said John Marston, a former federal prosecutor and an attorney at the firm Foley Hoag, and who is representing Sharples pro bono. He said Congress could rewrite the law to prevent older victims of online or telephone scams from being taxed on stolen retirement savings.
Treasury Department representatives declined to comment on whether the U.S. government should require crime victims to pay such tax bills. In a statement, the department said it works to protect older adults and hold perpetrators to account, including through its Financial Crimes Enforcement Network.
In a statement, the IRS said withdrawals from tax-deferred accounts get taxed, even in sad circumstances, and that questions on appropriate tax policy are better directed to lawmakers.
In the case of the Florida couple, Barber wrote "it is unfortunate that the IRS is unwilling - or believes it lacks the authority - to exercise its discretion and excuse payment of taxes on the stolen funds."
Even without financial hardship, the IRS has the power to slash tax bills in exceptional cases. According to documents in the IRS's Offer in Compromise program, for example, that may be done where "collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner."
Rep. Adrian Smith (R-Neb.), who was on the Ways and Means Committee in 2017 and remains a member, declined to address whether it is fair to tax theft victims.
Stopping the victimization of older adults will depend on prevention, Smith said, adding that he is encouraged by work at the federal level to target "these disgusting criminals." Smith said he supports legislation to crack down on illegal robocalls and the falsification of caller ID information.
A tax-cut extension bill introduced in February, co-sponsored by more than 100 House Republicans, includes a provision making repeal of the theft and casualty loss deductions permanent.
Supporters argue that doing so would help to maintain the higher standard deduction, which increases the amount of tax-free income families can earn and allows the vast majority of Americans to continue receiving tax benefits without the hassle of saving receipts or itemizing.
At stake for the Gomases in the case was their attempt to recoup the $400,000 they paid in taxes from the scam. They had already reached a settlement with the IRS on a second tax bill.
Suzy Gomas's daughter, according to court records, kept making up reasons she needed money: to fix a freezer, buy chicken, pay lawyers. Gomas said she knew to be alert for international scammers, but didn't think to fear her daughter.
"She's dead," Gomas said. "I don't know who this person is anymore."
Despite calling the situation unjust, the judge denied the couple's bid for a refund. The Gomases are appealing.
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