The U.S. House of Representatives voted 408-17 on Tuesday to pass the Tax Relief for Fraud Victims Act (H.R. 9500), a bipartisan measure that would let victims of financial fraud deduct their losses on federal tax returns and withdraw retirement funds without incurring the usual 10% early-distribution penalty. The bill now moves to the Senate, where its fate is uncertain given the chamber's abbreviated calendar before the midterm elections.
Under current Internal Revenue Code rules, individual taxpayers can claim a deduction for personal casualty and theft losses only if the loss stems from a federally declared disaster. That restriction, enacted as part of the 2017 Tax Cuts and Jobs Act, has left most fraud victims with no federal tax relief for stolen savings, even when the theft is well-documented. H.R. 9500 would carve out an exception for losses arising from fraud, deceit, or misrepresentation, allowing victims to deduct the amount exceeding 10% of their adjusted gross income in the year the fraud occurred or was discovered.
The bill also proposes a new exception under IRC Section 72(t) that would waive the 10% early-withdrawal penalty for distributions from retirement accounts—such as IRAs and 401(k)s—when the withdrawal is directly tied to a fraud-related theft loss. This provision is designed to help victims access remaining funds to cover living expenses without adding a tax penalty on top of their losses. Additionally, the legislation would extend the statute of limitations for filing amended returns and claiming refunds, with relief applying retroactively to losses incurred after December 31, 2020.
Sponsor Rep. Max Miller (R-Ohio) highlighted the scale of the problem, citing FBI Internet Crime Complaint Center data showing that cyber-enabled crime losses reached nearly $21 billion in 2025, including $7.7 billion lost by individuals over 60. The Certified Financial Planner Board of Standards estimates that Americans lost $68 billion to financial scams last year—roughly $186 million per day—underscoring the urgency of the measure.
Financial advisor trade groups have rallied behind the bill. The Financial Services Institute, which represents independent broker-dealers and advisors, issued a statement urging the Senate to act quickly. "Victims of financial fraud should not face an additional tax burden after already suffering significant financial losses," said FSI President and CEO Dale Brown. The CFP Board, which has made fraud prevention a formal public policy priority, submitted letters of support to the House Ways and Means Committee in June and again in July when the committee advanced the bill.
The legislation has drawn bipartisan backing, with co-sponsors including Rep. Tom Suozzi (D-N.Y.), Rep. Greg Steube (R-Fla.), and Rep. Jamie Raskin (D-Md.). The bill's passage comes amid a broader regulatory push to protect investors from fraud, including recent SEC enforcement actions against alleged fraudsters and a bipartisan call for FINRA to mandate ACATS fraud protections. Advisors often serve as "financial first responders" for clients who have been victimized, and the CFP Board has noted that its certificants frequently encounter fraud cases that leave clients with both depleted savings and unexpected tax liabilities.
If enacted, the relief would be retroactive to January 1, 2021, meaning victims who have already paid taxes on stolen funds could file amended returns to recover those amounts. The bill's future in the Senate is unclear, as a companion measure has previously stalled. With the Senate expected to recess in early October for the midterm campaign, the timeline for passage is tight. Still, the overwhelming House vote—408 in favor, with only 17 against—signals strong bipartisan support that could pressure Senate leadership to bring the measure to the floor.
