The IRS reached an agreement with a New York couple that they no longer owed taxes or penalties, after previously disallowing their $965,000 theft loss deduction related to a cryptocurrency investment scam, according to a US Tax Court decision Friday.

Brian and Lucy Leidy said the IRS shouldn’t have disallowed their 2022 theft loss deduction because Lucy was a victim of a “pig butchering” cryptocurrency investment scam in which she was coerced into transferring her IRA funds to a fraudulent platform. The couple also contested almost $67,000 in penalties.

• Three months after filing the petition, the parties agreed there is …