Tax experts say that ransomware victims' ransom payments are probably tax deductible in the US, unless they were paid by an insurance company
Alan Suderman / Associated Press :
Context & Ripple Effects
The ransomware economy has been mapped piece by piece in this coverage: data recovery firms quietly passing ransoms through to clients, cyber insurers found preferring to pay up even when backups existed, and the US Treasury warning facilitators about sanctions exposure. What was missing was the victim's own ledger entry — and this reporting supplies it: a ransom paid from the company's own funds is probably deductible as an ordinary business loss, while one paid by an insurer is not.
That distinction lands on top of an already active enforcement front. Treasury has been tightening the screws on anyone touching these payments, including forensics firms acting for victims, while its own data shows flagged payments are a small fraction of the estimated total flowing out.
First-order effects
- Victims who pay ransoms directly now have a plausible path to recover part of the cost at tax time, softening the financial argument against paying — with average payments having climbed steeply across 2019, that deduction scales with the size of the demand.
Second-order effects
- Cyber insurers gain a fresh selling point: a policy converts a non-deductible ransom into a covered claim handled by someone whose payment is structured differently, reinforcing the pattern where insurers prefer settling rather than funding lengthy recovery work.
Third-order effects
- With Treasury already fining facilitators over sanctioned recipients and investigators tracing payments to Moscow-linked operators, a formal IRS position on deductibility would give policymakers a third lever — tax treatment — in the broader effort to reshape whether paying ransoms makes economic sense at all.
The trend: US authorities are approaching ransomware payments from every administrative angle at once — sanctions, financial surveillance, and now tax treatment — gradually raising the total cost of paying.