Maine may spare some scam victims from paying taxes on losses

Maine is poised to stop collecting income tax on money stolen from victims of certain types of scams under legislation that moved forward Thursday with strong bipartisan support.

LD 714 would align state law with federal income tax changes adopted last year by the Internal Revenue Service, which now allows some victims to claim a theft deduction.

The Legislature’s taxation committee voted 12-0 to send the bill to the House and Senate with an “ought to pass” recommendation. If it becomes law, it would apply to scams that began after Jan. 1, 2023.

To qualify for a theft deduction, the IRS stipulates that the loss must result from criminal conduct classified as theft under state law; the taxpayer must have no reasonable expectation of recovering the stolen funds; and the loss must arise from the theft of funds while invested.

The deduction doesn’t apply to losses from romance scams, false kidnappings and other frauds where victims transfer funds to scammers for non-investment purposes, Steven Langlin, a legislative analyst, told the taxation committee.

Committee member Rep. Gary Friedmann, D-Bar Harbor, noted that older Mainers are especially vulnerable as residents of the oldest state, with a median age of 44.8, according to the U.S. Census.

“I’m moved that we do all we can to protect our seniors,” Friedmann said.

Rep. Thomas Lavigne, R-Berwick, also a committee member, described a recent online scam he experienced. “It was terrible and it can happen to anybody,” he said.

The legislation was drafted after the Portland Press Herald reported on a China couple who lost $1.3 million in a government impersonation scam.

From October 2023 to April 2024, Larry and Barbara Cook drained their retirement accounts and transferred the money as bitcoin and gold bullion to scammers posing as Federal Trade Commission investigators. The scammers convinced the couple that it was the only way to protect their savings, which became taxable income once they cashed out their retirement accounts.

“Unlike the IRS, the current Maine tax law does not allow deduction for fraud from gross income,” Larry Cook, 82, said in written testimony to the tax committee. “The fraud and its ongoing consequences have impacted us financially, emotionally and even physically.”

Committee member Rep. Kristina Smith, R-Palermo, represents the Cooks and submitted a copy of the Press Herald article with her written testimony.

“This bill protects the most vulnerable among us — seniors with substantial but finite savings, people with limited technological familiarity, and anyone who falls prey to highly organized criminal schemes,” Smith said.

Scams are on the rise. The number of complaints about government impersonation scams in particular increased 50% in recent years, from 11,554 incidents worth $240.6 million in 2022 to 17,367 incidents worth $405.6 million in 2024, according to the latest FBI data.

Among people age 60 and up, scams involving cryptocurrency more than tripled in the same period, from 9,991 incidents worth $1 billion to 33,369 incidents worth $2.8 billion.