For people who lose retirement savings to a scam, the financial hit may not end when the money disappears. Some victims can also face an IRS tax bill on funds criminals forced them to withdraw, and Congress is now weighing a fix.
On Wednesday, WSB-TV reported that a bipartisan House effort could provide relief to scam victims, including seniors who lost large sums from retirement accounts and later faced taxes and early-withdrawal charges.
The proposal is H.R. 9500, the Tax Relief for Fraud Victims Act. The House Ways and Means Committee approved the measure 39-0 on July 1 after it was introduced by Rep. Max Miller, an Ohio Republican, with Rep. Thomas Suozzi, a New York Democrat, as a co-sponsor.
Why A Scam Can Produce A Tax Bill
The problem traces back to the 2017 Tax Cuts and Jobs Act, which sharply limited personal theft-loss deductions beginning in 2018. The National Taxpayer Advocate says current rules generally leave victims without a deduction unless the loss involved a business or a transaction entered into for profit.
Retirement-account scams can create especially ugly math. If someone is tricked into withdrawing money from a 401(k) or IRA, the distribution may be taxable, and people younger than 59½ can also face a 10% additional tax, even when the money was immediately handed to a criminal.
That does not mean the IRS is treating stolen cash as a paycheck. The issue is that the retirement withdrawal can count as income while the victim may be unable to claim a matching theft deduction, leaving the tax code pointed in the wrong direction.
What H.R. 9500 Would Change
The legislation would restore theft-loss deductions for money lost through scams and fraud schemes. It would also waive the additional tax on qualifying retirement distributions, allow more flexible timing for claiming certain losses, and extend the window for some refund claims, according to the committee.
The bill is not law yet. As written, it would apply to future tax years, but lawmakers discussed making the relief retroactive, potentially covering taxpayers affected during the past eight tax years, WSB-TV noted.
A Growing Scam Problem Behind The Push
The policy fight comes as reported fraud losses continue to climb. The Federal Trade Commission said consumers reported losing nearly $16 billion to fraud in 2025, including $3.5 billion to imposter scams alone.
For now, victims remain subject to existing tax rules while Congress considers the proposal. If H.R. 9500 advances, its retroactive provisions and the treatment of retirement-account losses will likely be among the most consequential details for people who have already suffered the double blow of losing money and receiving a tax bill afterward.
