A 58-year-old North Carolina woman who lost her retirement savings to an international fraud scheme now owes the IRS six figures in taxes on money she never got to keep, and Congress is only now moving to fix the problem.
Lori Flowers wired $400,000 from her 401(k) to a stranger she met on LinkedIn in 2022. The man claimed to be from Brussels and said he was relocating to her part of North Carolina. Over four months of messages on LinkedIn, then email, then phone calls, he built a relationship Flowers believed was genuine. She thought they were getting to know each other. What she knows now, she told USA Today, is that the person on the other end was likely using artificial intelligence to maintain the deception.
The ask came after the scammer told Flowers he had won a big business contract in the United States but claimed his investors were pulling out. He needed capital. Flowers said she pushed back at first.
"You're asking the wrong person. I don't have money like that."
But by then, the grooming had done its work. Flowers described the moment she agreed to send the money in terms that explain why these scams succeed so often against people who are neither careless nor gullible.
"It was as if my best friend had asked me."
She wired $400,000 from her retirement account. A month later, the scammer came back and said he was still $200,000 short. Flowers took out two personal loans to cover the gap. By June, when the first payments on those loans came due, $4,000 a month, she realized the money was gone and the man from Brussels did not exist.
Losing $600,000 was not the end of it. Because Flowers had withdrawn $400,000 from her 401(k) to fund the wire transfer, the IRS treated that withdrawal as ordinary income. The agency assessed $225,000 in taxes and penalties. Flowers now owed the federal government for the privilege of being robbed.
She filed for Chapter 13 bankruptcy. Her new monthly payment: $5,690, most of it going to cover the tax debt. As she put it: "This is my credit. This is my livelihood."
The reason Flowers has no recourse is a gap in the tax code that Congress created and then made permanent. The Tax Cuts and Jobs Act of 2017 eliminated the "casualty and theft loss" deduction, a provision that had previously allowed taxpayers to write off losses from theft, including fraud. The deduction was dropped as part of a broader simplification that introduced a higher standard deduction. In 2025, Congress made the elimination permanent.
Clark Flynt-Barr, the government affairs director for financial security at AARP, said he has struggled to find any policy rationale for the change beyond bureaucratic tidiness.
"I haven't been able to find reasoning other than, 'We were trying to clean up the tax code.'"
The result is straightforward: if a scammer steals your retirement savings, the IRS still counts the withdrawal as income. You pay taxes on money you no longer have. Flynt-Barr described the situation bluntly.
"You get scammed, and then the IRS comes after you. You have no money, and now you're going to owe more money."
Flynt-Barr said members of Congress are typically stunned when AARP explains how the current law works: "They're typically pretty shocked: 'What do you mean, we're taxing people on money that was stolen from them?'"
The House passed the Tax Relief for Fraud Victims Act on September 15, sending it to the Senate. The bill would restore legal protections for scam victims and lift the burden of paying taxes on stolen funds. Chuck Bell, programs director for advocacy at Consumer Reports, said the measure has broad support on both sides of the aisle.
"I think it has strong bipartisan support. I think no one wants to defend this awful provision of the tax code."
The same day, the House also passed the GUARD Act, the Guarding Unprotected Aging Retirees from Deception Act, sponsored by Rep. Zach Nunn, a Republican from Iowa. That bill would steer federal funds to local law enforcement agencies to hire and train staff and acquire technology to investigate international fraud operations. Both bills now await Senate action, with no scheduled vote.
Scam operations targeting older Americans have grown into a sprawling national problem. AARP, citing federal data, reported that Americans age 60 and over lost $7.7 billion to fraud in 2025. The organization estimates the true figure is closer to $80 billion when under-reporting is factored in.
Nunn cited a case from his own state to explain why the problem demands more than a tax fix. An Iowa farmer lost $1 million in a pig-butchering scam, the term refers to schemes in which scammers build trust over time before extracting large sums, fattening the victim like a pig before the slaughter. When the farmer could no longer pay, the operation sent people to collect in person.
"They literally hired three mercenaries out of New York City."
Nunn said the farmer survived because he "was smart enough to lock himself in the barn." The episode illustrates how these fraud networks operate: they are international in scope, technologically sophisticated, and increasingly willing to use physical intimidation. Local police departments, as AARP's Bill Sweeney noted, "are often overwhelmed by the sheer volume of cases and hamstrung by a lack of specialized tools and trainings."
The GUARD Act is designed to close that gap. As Nunn put it: "We want to empower our local guys to be our first responders." The bill would give local and state agencies the resources to pursue cases that currently fall through the cracks between underfunded local departments and overloaded federal agencies.
Nunn also pointed to the shame that keeps many victims silent. "A lot of these folks are rightfully embarrassed," he said. That silence benefits the scammers and makes accurate data collection nearly impossible, which is one reason AARP believes the real losses dwarf the reported figures by a factor of ten.
The mechanics of Flowers's case follow the standard pig-butchering pattern. The scammer made first contact on a professional platform, LinkedIn, where an unsolicited message from a stranger carries less suspicion than it might on a dating app. He claimed to be relocating to her area, which gave the relationship a plausible future. He sent a photo of himself with another man clinking wine glasses, a small detail meant to make him feel real.
Scams like these increasingly rely on digital deception tools that make fraudulent communications harder to detect. Flowers herself suspects the scammer used AI to maintain the months-long correspondence. "I thought we were really getting to know each other," she said. "What I think I know now is, he was using AI."
When Flowers went to her bank to wire the $400,000, the bank manager asked whether she actually knew the recipient. Flowers was insulted.
"I was offended by the question. Of course, I know this person."
She did not. And when the truth became clear, the emotional toll matched the financial one. "I was honestly frozen," she said. "I couldn't believe it."
Flowers told no one at first. The combination of financial ruin and personal humiliation is part of what makes these scams so effective, and so difficult for law enforcement to track. Victims who do not report the crime do not appear in federal data, and the broader landscape of consumer fraud continues to expand faster than enforcement can keep pace.
The Tax Relief for Fraud Victims Act and the GUARD Act both cleared the House with apparent bipartisan support. Whether the Senate acts before the end of the current session remains an open question. For Flowers, the timeline matters. She is paying $5,690 a month, mostly in taxes on money a scammer took from her four years ago.
The tax code's treatment of fraud victims is not a partisan issue. It is a straightforward failure of policy design, a deduction eliminated for administrative convenience, with no apparent consideration of what happens when a retiree's stolen savings get taxed as income. Consumer groups, advocacy organizations, and members of both parties agree the provision makes no sense. The only question is whether the Senate will act on that consensus or let it sit.
Fraud operations targeting older Americans have also driven states to act independently. Hawaii recently banned cash deposits at crypto kiosks specifically to cut off a payment channel that scammers exploited to drain victims' accounts. Other fraud schemes, including gift card scams targeting everyday consumers, continue to proliferate.
When the federal government taxes a citizen on money that was stolen from her, it is not enforcing the law. It is compounding the crime. The House voted to fix it. The Senate should do the same.