Passed
408 Yea17 Nay8 Not voting2/3 required
HR-9500-119
Received in the Senate and Read twice and referred to the Committee on Finance.
Sponsored by Max Miller (R-OH)
What it does
This bill would make three main 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 qualifying personal losses. Second, it would give fraud victims more flexibility in choosing which tax year to claim a theft loss deduction, and would extend the window to file for a refund to at least one year after the victim discovers the loss. Third, it would allow fraud victims to withdraw money from retirement accounts (such as IRAs or 401(k)s) to cover fraud-related losses without paying the standard 10% early withdrawal penalty, with an option to repay the distribution within one year.
Who benefits
Victims of financial fraud, scams, Ponzi schemes, and identity theft who suffered monetary losses. Taxpayers who experienced personal casualty losses (e.g., from fires, storms, accidents) outside of federally declared disaster areas — a group currently ineligible for the deduction. Homeowners in Connecticut and nearby states whose concrete foundations have been damaged by pyrrhotite mineral deterioration, who receive a retroactive effective date going back to 2021. Older or lower-income individuals who may need to tap retirement savings to recover from fraud losses. Tax preparers and attorneys who assist fraud victims with amended returns.
Who is hurt
The U.S. Treasury would collect less revenue, as expanded deductions reduce taxable income across a broader population. Taxpayers who do not experience fraud or casualty losses would indirectly bear the cost through the reduced revenue base. The IRS would face increased administrative burden in defining "fraud, deceit, or misrepresentation" and processing a larger volume of amended returns and refund claims. Taxpayers in states with conforming state income tax codes may see state revenue effects as well.
Supporters argue
Supporters argue that fraud victims suffer genuine financial harm through no fault of their own, yet current tax law — which has restricted casualty loss deductions to federally declared disasters since the 2017 Tax Cuts and Jobs Act — leaves most of them without meaningful relief. They contend that allowing victims to choose the most advantageous tax year for their deduction, and to access retirement savings penalty-free, restores basic fairness and prevents a second financial injury on top of the original crime. The bill's unanimous 39-0 committee vote suggests broad bipartisan recognition that the existing rules produce inequitable outcomes for crime victims.
Opponents argue
Opponents argue that broadly restoring the personal casualty loss deduction — beyond the targeted fraud context — opens the door to abuse and complexity that the 2017 restriction was designed to reduce, and that the IRS lacks sufficient resources to verify the legitimacy of a high volume of new claims. They contend that the bill's delegation to the Secretary of the Treasury to define "fraud, deceit, or misrepresentation" creates regulatory uncertainty and may produce inconsistent treatment of similarly situated taxpayers, while the revenue cost of restoring unrestricted casualty deductions could be substantial without a clear offset mechanism.
Constitutional context
Tax bills must originate in the House under the Origination Clause (Art. I, §7, cl. 1), which this bill satisfies. The Taxing and Spending Clause (Art. I, §8, cl. 1) requires that federal taxes be geographically uniform; the bill's nationwide applicability and its treatment of all similarly situated fraud victims under the same rules appear consistent with this requirement. No significant constitutional tension is present.
Checks and balances
Congress reduces executive branch revenue collection authority by expanding deductions; the IRS (executive branch) retains rulemaking authority to define key terms like "fraud, deceit, or misrepresentation," and taxpayers may challenge IRS interpretations through the Tax Court.
Historical precedent
The Tax Cuts and Jobs Act of 2017 restricted personal casualty loss deductions to federally declared disaster areas; this bill would partially reverse that change, returning to a broader deduction framework that existed prior to 2018.
Passed