- House committee approved the Tax Relief for Fraud Victims Act unanimously on July first.
- The bill would waive the ten percent penalty on early retirement withdrawals stolen by scammers.
- Proposed rules would restore theft-loss deductions for various scams beyond current disaster-related limitations.
Lawmakers advanced a bill July 1 that would let many scam victims claim tax deductions for stolen money and avoid a 10% penalty on certain retirement withdrawals. The House Ways and Means Committee approved the Tax Relief for Fraud Victims Act, H.R. 9500 unanimously.
Chairman Jason Smith said the measure would allow victims to deduct fraud losses and seek refunds through amended returns when they uncover the crime later. It would apply to future tax years.
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The proposal is not yet law. For tax year 2026, it would not provide a new deduction or penalty waiver because Congress has not enacted it.
The legislation addresses two separate costs. One is the loss itself. The other can arise when a victim takes money from a tax-deferred account and sends it to a criminal.
A retirement withdrawal can leave victims owing tax on vanished money
A person younger than 59½ who withdraws retirement funds to pay a scammer may owe ordinary income tax on the distribution. Current rules can also impose a 10% additional tax for taking the money early.
The savings may be gone. The tax bill remains.
The bill would waive that additional charge when retirement funds are stolen by scammers. It would also restore theft-loss deductions for many fraud cases that current law excludes.
A Pennsylvania retiree identified as Larry lost $765,000 in a Social Security impersonation scam, according to an April 11, 2024, report from the Senate Special Committee on Aging. He owed the IRS more than $220,000 in taxes after the money disappeared.
“After over 50 years in the workforce, my retirement dreams. have been stolen.”
Larry’s account shows how a scam can produce two financial injuries: the criminal takes the funds, and the withdrawal can create taxable income. The proposed relief would target both parts of that problem.
Current rules distinguish among scams, leaving many losses personal
The Tax Cuts and Jobs Act of 2017 narrowed the federal casualty and theft-loss deduction. In general, the deduction became available only for losses tied to federally declared disasters.
That restriction leaves many fraud victims without a deduction. A May 2025 IRS guidance document, CCA 202511015, allows some investment-related scams involving a profit motive, including “pig butchering” schemes.
Other fraud categories generally receive personal-loss treatment under the current framework. Their tax treatment differs from investment scams.
| Scam category | Treatment described in the research |
|---|---|
| Investment-related “pig butchering” scams | Some losses may qualify when the victim had a profit motive |
| Romance scams | Generally treated as personal losses and not deductible |
| Government impersonator scams | Generally treated as personal losses and not deductible |
| Kidnapping/Emergency scams | Generally treated as personal losses and not deductible |
The bill would restore deductions across fraud types. It would also let victims pursue claims after ordinary refund deadlines have passed, according to the committee action.
Scam losses have grown while older adults draw on savings
Consumers reported $15.9 billion in scam losses during 2025, a 27% increase from 2024, according to FTC figures cited in the research. An estimate that adjusted for underreporting placed 2024 losses as high as $195.9 billion.
Older people recorded the largest high-dollar losses. Adults 60 and older lost $1.6 billion in cases involving losses of $100,000 or more during 2024. Those cases represented 68% of all money lost by that age group in the cited figures.
Retirement accounts can become a source of funds when criminals demand immediate payment or promote fake investments. That decision may create a taxable distribution even after the scammer receives the money.
Representative Jamie Raskin said the legislation grew from a constituent’s experience. The constituent lost her entire retirement savings and then faced a large tax bill, he said.
“When Americans fall victim to dreadful scams at the hands of criminals, fraudsters and hucksters, they shouldn’t be revictimized by the IRS. This legislation was inspired by one of my constituents who was defrauded of her entire retirement savings and then faced a hefty tax bill.”
Representatives Jim McGovern and Jimmy Panetta made the same broader case from different angles. McGovern said victims of scams, fraud or disasters should not be punished for conduct that was not their fault, while Panetta said seniors can face federal taxes on savings they no longer possess because of a flaw in the tax code.
The proposal still faces the rest of the legislative process
The July 1 committee action came under Smith’s chairmanship and with Richie Neal serving as ranking member. The vote advanced the measure without opposition from committee members.
A separate proposal, H.R. 3469, would address tax treatment for victims of crimes, scams and disasters. It is part of the broader congressional effort to revisit the limits created by the 2017 tax law.
The Senate Finance Committee is scheduled to mark up S. 3931, the Taxpayer Assistance and Service Act, on July 30, 2026. The bill contains broader tax-administration reforms and protections supported by the National Taxpayers Union.
That Senate markup would not itself change scam-loss rules. The House proposal remains in Congress and has not become law.
IRS officials are urging vigilance as criminals change their pitches
Frank J. Bisignano used the agency’s Slam the Scam Day message on March 5, 2026, to warn taxpayers that criminals continue to alter their methods.
“Today, Slam the Scam Day [March 5], provides a great opportunity to remind everyone to remain vigilant. thieves continuously adjust the pitches they use to take advantage of honest taxpayers.”
The warning focuses on avoiding fraud before money leaves an account. The House measure focuses on the tax consequences afterward.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
