HR-6999-119
Referred to the House Committee on Ways and Means.
Sponsored by Max Miller (R-OH)
What it does
This bill would make three changes to federal tax law. First, it would repeal the current restriction that limits personal casualty loss deductions to federally declared disaster areas, restoring the deduction for all personal casualty losses. Second, it would give fraud victims the option to claim their theft loss deduction in the tax year the loss actually occurred — rather than only the year it was discovered — and would extend the window to file refund claims to at least one year after the loss is discovered. Third, it would exempt early retirement account withdrawals made to cover fraud-related theft losses from the standard 10% early withdrawal penalty, and would allow those funds to be repaid within one year of discovering the loss.
Who benefits
Victims of financial fraud, scams, Ponzi schemes, and investment fraud who suffered losses in prior tax years and missed the standard refund filing window. Individuals who experienced personal casualty losses (e.g., from storms, fires, or accidents) outside of federally declared disaster areas — a group currently ineligible for the deduction. Retirement savers who tapped 401(k) or IRA funds to cover fraud losses and would otherwise owe the 10% early withdrawal penalty. Older adults, who are disproportionately targeted by financial fraud schemes. Tax preparers and attorneys who specialize in casualty and theft loss claims.
Who is hurt
The federal government would collect less tax revenue, shifting the fiscal burden to other taxpayers or increasing the deficit. Higher-income taxpayers would receive larger absolute deduction benefits, since deductions are worth more at higher marginal tax rates — lower-income fraud victims who do not itemize deductions may see little or no benefit. The IRS would face increased administrative burden verifying fraud-related claims, potentially diverting resources from other enforcement activities. Taxpayers who do not itemize deductions (the majority of filers since the 2017 standard deduction increase) would not benefit from expanded deductions at all.
Supporters argue
Supporters argue that fraud victims are penalized twice — first by the criminal who stole from them, and then by a tax code that denies them relief. The 2017 Tax Cuts and Jobs Act eliminated the personal casualty loss deduction outside of disaster areas, leaving victims of fires, floods, and accidents with no recourse unless their state was federally declared a disaster zone — an arbitrary distinction. They further contend that fraud schemes, particularly those targeting retirees, often unfold over years, making the current "year of discovery" rule inadequate; allowing victims to elect the year of loss gives them flexibility to maximize relief when they need it most.
Opponents argue
Opponents argue that the 2017 restriction on casualty loss deductions was a deliberate policy choice to simplify the tax code and reduce abuse of hard-to-verify personal loss claims, and that repealing it reopens a deduction that is difficult for the IRS to audit at scale. They contend that allowing taxpayers to elect which year to claim a theft loss — rather than using a fixed rule — creates planning opportunities that sophisticated taxpayers and their advisors can exploit to minimize taxes in ways unrelated to genuine victim relief. They also argue that the bill's benefits flow disproportionately to higher-income itemizers, making it a poorly targeted mechanism for helping fraud victims compared to direct assistance programs.
Constitutional context
This bill amends the Internal Revenue Code under Congress's broad taxing and spending authority (Art. I, §8, cl. 1). No significant constitutional tension is present; the bill reduces tax liability rather than imposing new exactions, so the tax-vs-penalty distinction from NFIB v. Sebelius (2012) is not implicated. The Origination Clause (Art. I, §7, cl. 1) is satisfied as the bill was introduced in the House.
Checks and balances
Congress gains authority to define the scope of deductible losses; the IRS (executive branch) retains enforcement and audit authority, and the Treasury Secretary is delegated authority to define "fraud, deceit, or misrepresentation" for purposes of the new provisions.
Historical precedent
The Tax Cuts and Jobs Act of 2017 (P.L. 115-97) restricted personal casualty loss deductions to federally declared disaster areas; this bill would directly reverse that restriction. Prior to 2017, the broader deduction existed for decades under IRC §165(h).