House bill would restore tax deduction for fraud victims

The House passed HR 9500, the Tax Relief for Fraud Victims Act, on a 408-17 vote. The bipartisan bill, sponsored by Rep. Max Miller (R-Ohio) and Rep. Tom Suozzi (D-N.Y.), restores the broader application of section 165(a), the tax code’s personal casualty loss deduction, and removes limits tied to declared disasters.

A provision narrowed after the 2017 tax law and further limited in 2018 currently prevents many victims from claiming a deduction when they liquidate retirement accounts after fraud. Under current rules, liquidation of 401(k) accounts following fraud typically does not qualify for a casualty loss deduction.

HR 9500 would waive the 10% early withdrawal penalty for certain distributions taken because of theft, extend the deadline to file refund claims for fraud losses, lift some limits on refund amounts and allow taxpayers up to one year from the date they discover a theft to repay early distributions so those amounts are not treated as taxable income.

The CFP Board supported the bill in a written statement, noting that certified financial planners often work with clients whose finances have been damaged by fraud and that measures preventing victims from facing tax bills are a policy priority.

The Financial Services Institute, which represents independent financial advisors and firms, endorsed the legislation. FSI President and CEO Dale Brown issued a statement saying victims should not face an additional tax burden after suffering financial losses.

The CFP Board estimated Americans lost $68 billion to financial scams in 2025, a figure the group noted may undercount losses because many victims do not report them.

HR 9500 now goes to the Senate for consideration.