U.S. House bill seeks to restore tax relief for scam losses

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House bill restores scam tax relief

Highlights

The Tax Relief for Fraud Victims Act, H.R. 9500, approved by the House Ways and Means Committee on July 1 with a 39-0 vote, would restore tax deductions for scam losses and waive 10% early withdrawal penalties for affected retirement account holders.
FTC reports showed U.S. consumers suffered $15.9 billion in fraud losses in 2025, up 27% from $12.5 billion in 2024, marking a record high and nearly 430% increase since 2020.
Imposter scams were the most reported fraud type, with 1 million reports and 20% of victims losing a collective $3.5 billion, disproportionately impacting adults age 60 and older.

Legislation targets fraud-related tax burdens

As first reported by CNBC, the Tax Relief for Fraud Victims Act, H.R. 9500, is moving through Congress after the House Ways and Means Committee approved it on July 1 by a 39-0 vote. The bill would remove current limits on deducting fraud losses, excluding the narrow treatment that already applies in some investment fraud cases, and would also waive the 10% early withdrawal penalty when victims tapped tax-deferred retirement accounts as part of a scam.

Since 2018, victims of scams other than investment fraud have generally been unable to deduct losses on their tax returns unless the loss stemmed from a declared disaster. The restriction traces to changes under the Tax Cuts and Jobs Act of 2017, and the text says legislation enacted last year made that shift permanent.

An IRS memorandum issued in March 2025 says investment fraud losses may be deductible, but losses tied to other schemes such as impersonator and romance scams are not, experts said. Victims who withdrew money from a traditional 401(k) or individual retirement account to satisfy scammers may also owe income tax on that distribution, and those younger than 59½ can face an additional 10% penalty.

Rising fraud losses raise pressure for relief

The push for tax relief comes as reported scam losses continue to climb across the U.S. According to the Federal Trade Commission, consumers reported $15.9 billion in fraud losses in 2025, the highest level on record and about 27% above the $12.5 billion reported in 2024.

Since 2020, reported losses have risen nearly 430%, driven in part by a growing share of consumers who say they lost $100,000 or more. The FTC says that pattern is most prevalent among adults age 60 and older.

Imposter scams rank as the most reported type of fraud in the FTC's latest data. While about 80% of the roughly 1 million people who filed an imposter scam report did not lose money, the remaining 20% reported collective losses of $3.5 billion.

Our earlier report on a Tennessee tax fraud indictment covered federal prosecutors’ case against Memphis tax preparer Lynette Hogue, who is accused of filing false returns for clients while failing to file her own returns for multiple years. The indictment alleges the returns included fabricated items designed to generate improper refunds, and it outlines potential prison time if she is convicted.

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