According to AARP, this is a common scam that has cost grandparents millions of dollars. Unfortunately, the tax rules don’t help in any way. The deduction for a theft loss—assuming such scam is a theft under state law—cannot be claimed in 2018 through 2025.
The tax on the investment income in excess of $1,700 (may change after 2007) of a child under age 18, based on the parents’ marginal tax rate and computed on Form 8615.