Owe The IRS After A Scam? Here’s What You Can Do About It

Scams are unfortunately common, and when they involve taxes, the consequences can be severe.

Many people find themselves in trouble with the IRS after falling victim to fraudulent schemes. Whether it’s due to identity theft, romance scams, Employee Retention Credit (ERC) scams or tax fraud, dealing with the IRS after a scam can be overwhelming.

Fortunately, there are steps you can take to resolve the situation and protect your finances if you are the victim of a tax scam.

What Happens When You Owe The IRS After A Scam?

The IRS has a complex system in place for handling tax issues, and that includes situations where taxpayers appear to owe money due to the fraudulent activities of scammers.

The good news is that the IRS typically does not hold a taxpayer responsible for any taxes resulting from fraud, as long as you can provide evidence and prove that you were a victim of a scam.

When you find out that you’ve been scammed, there are steps you can take to clear your name and protect yourself from future issues.

Below are the steps you should take to handle your problem effectively:

1. Report The Scam To The IRS

The first step after discovering you’ve been scammed is to report the incident to the IRS.

• Identity Theft Hotline: Call the IRS Identity Theft Hotline at 1-800-908-4490.

• Identity Theft Affidavit: Complete IRS Form 14039, Identity Theft Affidavit.

By notifying the IRS and filing the affidavit, you’ll be taking the first step to ensure the IRS understands that you’re a victim.

Supporting documentation like police reports or scam correspondence can help your case. Once this information is processed, the IRS may flag your account for identity theft to prevent future issues.

2. Contact Your State Tax Authority

In addition to contacting the IRS, you may need to report the scam to your state’s tax authority if the fraud involved state-level tax filings.

Many state tax agencies have dedicated fraud units that can help resolve the issue more efficiently.

3. Review Your Tax Returns

After reporting the scam, review your tax returns for the affected years.

If the scammer used your identity to file a fraudulent return or falsely reported your income, you will need to file an amended return.

• Amend Your Return: Use IRS Form 1040X to correct inaccuracies.

If you were wrongfully taxed, you might be eligible to claim a refund for any fraudulent taxes paid. You must provide proof that the tax return was filed fraudulently, such as showing evidence of identity theft or scam involvement.

4. Take Action to Protect Your Information

Once you’ve reported the scam to the IRS and corrected your tax returns, it’s time to protect yourself from future fraud.

Here are some preventive steps to keep your personal information safe:

• Shred Sensitive Documents: Shred documents containing personal information, including your Social Security number, bank account details, or tax information.
• Use Strong Passwords: Strengthen your online security with unique, complex passwords.
• Monitor Your Credit: Review your credit reports for any unauthorized accounts or activities. Consider credit monitoring services to keep an eye on any suspicious activity.
• Report Suspicious Activity: Report any unsolicited requests for personal information to the appropriate authorities immediately.

Act Quickly To Minimize Your Financial Impact

If you’ve been scammed and are facing tax issues, acting quickly is critical. Reporting the scam, amending your returns, and clearing up any fraudulent tax issues promptly can help you minimize the financial impact and avoid additional penalties or interest.

When you’re a victim of a scam, you don’t have to navigate the process alone. Attorney Sammy Kim, a skilled IRS tax attorney, can guide you through the process, from filing your affidavit to ensuring your tax returns are amended correctly.

Sammy has helped many clients who have fallen victim to scams, providing expert assistance in resolving their tax issues, clearing up fraudulent tax debts, and protecting their financial futures.

Contact Tax Attorney Sammy Kim for a consultation today and start solving your tax problems now.

Frequently Asked Questions About Owing Taxes Due To A Scam

How do I know if I’ve been the victim of a tax-related scam?
The IRS will notify you if multiple returns have been filed in your name, or you may notice discrepancies in your tax return, such as missing refunds or accounts you didn’t open. If you suspect you’ve been targeted, report it to the IRS immediately.

If you’ve fallen victim to an investment scam like the so-called ‘pig butchering’ fraud—where scammers trick people into sending large sums to fake crypto or stock platforms—you may be able to claim a theft-loss tax deduction.

According to the IRS Office of Chief Counsel Advice Memorandum No. 202511015, issued March 14, 2025, a theft-loss deduction is allowed if the scam involved a clear intent to invest for profit and you discovered the loss in that year. The deduction is generally claimed on Form 4684, Section B, and it must be supported with detailed documentation like transaction records and police reports. And the deductible amount is limited to the taxpayer’s adjusted basis in the stolen funds.

Victims of scams without a profit motive—such as romance scams or fake kidnapping schemes—are not eligible to take deductions as their losses are treated as personal casualty, which are disallowed for tax years 2018-2025.

It’s important to report the scam to:

• The IRS (via your tax return),
• Your state taxing authority, and
• Law enforcement such as the FBI’s Internet Crime Complaint Center (IC3.gov) or local police.

What should I do if I owe taxes due to a scam, but I can’t afford to pay them?

While you may not be responsible for the debt caused by the scam itself, you may still have to take steps to resolve any tax issues that arise due to the scam. Work with an experienced tax attorney to ensure that the fraud is recognized by the IRS and to help you navigate collection alternatives like installment plans, Partial Pay Installment Agreement, Currently Not Collectible status, or an Offer in Compromise (OIC).

If you can’t take the theft-loss deduction because it did not have a profit motive or discovered the scam a bit too late, the chances are you may not be able to claim your loss for a certain tax year. And you will end up owing some taxes.

Will the IRS charge interest on tax debt caused by a scam?

While the IRS may work to correct issues related to fraud, interest on any unpaid tax debt may still accrue, even if the debt is the result of a scam. These problems can be complicated and confusing. That’s why it’s important to get help to resolve the situation as quickly as possible to avoid additional interest and penalties, and to ensure that you don’t face any further financial burden.