loan scam and 1099C

[schirallicpa]

I may have asked this before, but cannot find.

I have a client who was scammed and took out a loan for some dumb thing that she was taken for.  When she realized that it was a scam, she contacted the lender and made arrangements to make a settlement on the account.  This was in 2017 and 2018.  She is an older woman and taken advantage of.  Now, in 2020 she has received a 1099C for the settlement.  Theft losses are not an option since no federal disaster.  The reporting of the 1099 is creating about $5500 of fed tax.  I can't use 982 - I don't think - because she really wasn't insolvent.  

Any suggestions?

[Lee B]

Her loss may deductible as a fraudulent investment scheme if it qualifies under the safe harbor as defined by Rev Proc 2009-20 as modified by Rev Proc 2011-58.

This is not something that I have used so any further research is up to you.