TL;DR: The Tax Relief for Fraud Victims Act (H.R. 9500) passed the House of Representatives by a 408-17 vote in September 2026. It would restore tax deductions for money lost to fraud, scams, and theft, remove the disaster-only restriction on personal casualty losses, and give fraud victims more time to file refund claims. The bill now awaits a Senate vote before it can become law.
By Fresh Start Initiative
If you have ever been targeted by a Ponzi scheme, investment scam, or financial fraud, you already know how devastating the losses can be. What many people do not realize until it is too late is that the IRS can also hand you a tax bill on money that was stolen from you. That is not a rumor. It is the way the current tax code has worked since 2018, and it has left millions of fraud victims paying taxes on income or assets they no longer have.
That may be about to change. Bipartisan legislation working its way through Congress is designed specifically to stop the federal government from punishing fraud victims twice. Whether you are dealing with an IRS bill tied to someone else’s scheme or you are trying to understand what this new law could mean for your financial future, this guide breaks it all down in plain language.
Even if this legislation does not resolve your current IRS situation on its own, there are tax debt relief options available to you right now. Keep reading to understand both the new law and the relief programs that exist today.
What Is the Tax Relief for Fraud Victims Act?
The Tax Relief for Fraud Victims Act (H.R. 9500) is a bipartisan bill introduced by Representative Max Miller (R-OH) and Representative Thomas Suozzi (D-NY). The House passed it on September 15, 2026, by a sweeping 408 to 17 margin. It has since been sent to the Senate Committee on Finance, where it awaits further action before it can be signed into law.
At its core, the bill does something straightforward: it changes the Internal Revenue Code so that Americans who lose money to fraud, scams, or theft can actually deduct those losses on their federal tax returns. Under the rules put in place by the Tax Cuts and Jobs Act of 2017, that ability was largely eliminated unless the loss was tied to a federally or state-declared disaster. Ponzi scheme victims, romance scam victims, and investment fraud victims were left with no way to deduct their losses, even when those losses were catastrophic.
The bill addresses that inequity directly by amending Section 165 of the Internal Revenue Code, which governs deductible losses. It would restore the ability to deduct theft and casualty losses that have nothing to do with declared disasters, and it adds several new protections specifically designed for fraud victims.
The Four Key Changes This Law Would Make
Understanding the specific provisions helps you figure out whether and how this law might apply to your situation. Here is what H.R. 9500 would actually do if it becomes law:
- Repeal the disaster-only limitation on personal casualty losses. Right now, you can only deduct personal casualty and theft losses if they are linked to a federally or state-declared disaster. This bill removes that requirement entirely, restoring the pre-2018 rules for losses from fraud, deceit, or misrepresentation.
- Allow flexible reporting of when the loss occurred. Currently, theft losses are typically reported in the tax year the loss is “discovered,” not when it actually happened. H.R. 9500 would let victims choose to report the loss in the year it occurred, which can make a significant difference in how much tax relief you receive.
- Extend the time window to file for refunds. The standard IRS deadline to file a refund claim is three years from when you filed the return. Fraud cases are often complex and take years to unravel. This bill extends that window specifically for theft loss refund claims, so victims are not left out because the fraud was discovered too late.
- Waive the 10% early withdrawal penalty for stolen retirement funds. If a scammer convinced you to liquidate your 401(k) and the money was stolen, you should not also owe a 10% penalty on top of regular income tax. H.R. 9500 would waive that penalty and allow victims to repay those distributions and seek refunds for taxes previously paid on them.
Importantly, the bill would apply to losses in tax years beginning after December 31, 2025, and it also includes retroactive relief for victims scammed between 2021 and 2025 through specific provisions.
How This Law Compares to What Existed Before 2018
To understand why this bill matters so much, it helps to see what changed and what H.R. 9500 would restore. The table below summarizes the key differences across the three eras of this tax rule.
| Rule | Pre-2018 (Before TCJA) | Current Law (2018-Present) | Under H.R. 9500 (If Enacted) |
|---|---|---|---|
| Theft loss deductible? | Yes, subject to AGI threshold | Only if tied to declared disaster | Yes, restored for fraud/theft losses |
| Ponzi/investment fraud losses | Deductible under IRC Sec. 165 | Not deductible for most victims | Deductible, flexible timing rules apply |
| Refund claim deadline | Standard 3-year window | Standard 3-year window | Extended window for fraud theft losses |
| Early retirement withdrawal penalty | 10% applies in most cases | 10% applies in most cases | Waived for funds stolen by scammers |
| Year of loss reporting | Year of discovery | Year of discovery | Election: year of occurrence OR discovery |
| Retroactive relief available? | N/A | No | Yes, for qualifying losses from 2021-2025 |
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Check Your Eligibility →What This Means If the IRS Is Chasing You for a Fraud-Related Tax Debt
This is the part that gets complicated for many people. The Tax Relief for Fraud Victims Act specifically addresses the deductibility of losses you suffered as a fraud victim. But if the IRS is currently pursuing you for unpaid taxes that grew out of someone else’s fraudulent scheme, the situation may involve a different set of rules entirely.
For example, if you were a knowing or unknowing participant in a scheme that generated falsely reported income, or if a crooked tax preparer filed fraudulent returns in your name, you may have a tax debt that is not simply erased by a new deduction law. In that case, you may need to look at existing IRS programs for tax debt relief. You can explore your tax debt relief options to see which programs may apply to your situation.
The good news is that the IRS already has multiple pathways designed for people who are being held responsible for taxes they did not knowingly incur. The key is knowing which one fits your circumstances and acting before the IRS escalates collection activity against you.
Existing IRS Tax Debt Relief Programs for Fraud Victims
While the Tax Relief for Fraud Victims Act is still working through the Senate, there are programs available right now that may help you reduce or eliminate a tax debt connected to fraud. Here is an overview of the most relevant ones:
Innocent Spouse Relief. If you filed a joint tax return with a spouse or former spouse who committed fraud or misreported income without your knowledge, you may qualify for Innocent Spouse Relief. According to the IRS Publication 971, this relief can release you from responsibility for the tax, interest, and penalties on a joint return where the error or fraud belongs entirely to the other person. You file using IRS Form 8857, Request for Innocent Spouse Relief.
Offer in Compromise (OIC). If you genuinely cannot pay the full amount the IRS says you owe, the Offer in Compromise program may allow you to settle your tax debt for less than the total balance. The IRS considers your ability to pay, income, living expenses, and asset equity when reviewing an offer. You can check your preliminary eligibility using the IRS’s own Offer in Compromise Pre-Qualifier Tool on their website. This is one of the most powerful forms of tax debt relief available, though it requires thorough documentation and careful preparation.
Currently Not Collectible (CNC) Status. If paying your tax debt right now would prevent you from meeting basic living expenses, the IRS may place your account in Currently Not Collectible status. This pauses collection activity temporarily, giving you breathing room while you recover financially.
Installment Agreement. If you can pay over time but not all at once, an IRS installment agreement allows you to make monthly payments on your balance. This does not reduce what you owe, but it stops more severe collection actions like levies and wage garnishments. You can see how IRS payment plans work and whether one fits your budget.
Free Eligibility Check
See if you qualify for tax debt relief
Take 60 seconds to find out which IRS programs you may qualify for. No obligation, no cost.
Check Your Eligibility →Is H.R. 9500 Law Yet? What You Should Do Right Now
This is an important question, and the honest answer is: not yet. The Tax Relief for Fraud Victims Act passed the House with overwhelming bipartisan support, but it still needs to pass the Senate and be signed by the President before it becomes law. The Senate referred it to the Finance Committee in September 2026, and its final timeline remains uncertain.
That means you should not wait for this legislation to solve an existing IRS problem. If you currently have a tax debt that is connected to fraud, a scam, or a situation where you believe you should not owe what the IRS is claiming, the time to act is now. Here is what you should do immediately:
- Document everything. Gather all records related to the fraud, including communications, financial statements, court filings, and any evidence that shows you were a victim rather than a willing participant.
- Request your IRS transcripts. Pull your tax transcripts to see exactly what the IRS has on file for you and which tax years are at issue. This gives you a clear picture of what you are dealing with.
- Do not ignore IRS notices. Every IRS notice has a response deadline. Missing it can cost you the right to appeal or dispute the debt. Read each notice carefully and note the deadline on the front page.
- Determine which relief program fits your situation. Are you being held responsible for a spouse’s fraud? Innocent Spouse Relief may apply. Do you owe more than you can ever realistically pay? An Offer in Compromise might be the right path. A tax professional can help you assess this quickly.
- File any unfiled tax returns. You must be current on your tax filings to qualify for most IRS tax debt relief programs. If you have years where returns were never filed, address that first.
- Act before collection escalates. The IRS can issue wage garnishments, bank levies, and liens if a debt goes unaddressed. Getting in front of the problem always produces better outcomes than waiting.
Frequently Asked Questions
Has the Tax Relief for Fraud Victims Act become law?
Not yet. The Tax Relief for Fraud Victims Act (H.R. 9500) passed the House of Representatives on September 15, 2026, by a vote of 408 to 17. It was then sent to the Senate Committee on Finance. It must still pass the full Senate and be signed by the President before it becomes law. No Senate vote has been scheduled at the time of this writing.
Who would benefit most from H.R. 9500?
The bill is designed to help individuals who lost money to financial fraud, Ponzi schemes, investment scams, identity theft, and similar crimes. Victims who were also hit with a tax bill because they liquidated retirement accounts at a fraudster’s direction, or who cannot claim any deduction for stolen funds under current law, stand to benefit significantly if the bill becomes law. The retroactive provisions may also help victims who suffered losses between 2021 and 2025.
If I am being chased by the IRS for a fraud-related debt, does this new law help me right now?
Not directly, because the bill has not yet been enacted. However, existing IRS programs like Innocent Spouse Relief, the Offer in Compromise, Currently Not Collectible status, and installment agreements are available right now. If your debt stems from fraud, deceit, or someone else’s misrepresentation, these programs may already provide substantial tax debt relief. Consulting a tax professional is the fastest way to identify which option applies to your specific circumstances.
What is Innocent Spouse Relief and how do I apply?
Innocent Spouse Relief is an IRS program that can release you from responsibility for taxes, interest, and penalties on a joint return when the errors or fraud on that return belong entirely to your spouse or former spouse. To apply, you file IRS Form 8857 and provide supporting documentation showing you did not know about, and did not benefit from, the underreported income or fraudulent entries. The IRS reviews all facts and circumstances before granting relief.
Can the IRS really tax me on money that was stolen from me?
Under current law, yes. If you received income that was later stolen, or if you liquidated an account that a fraudster then emptied, the IRS can still count that as taxable income because the theft loss deduction is largely suspended for non-disaster losses under the 2017 tax law changes. That is exactly the problem that H.R. 9500 is designed to fix. Until it becomes law, however, the existing rules apply, and professional guidance is essential.
What is the 10% early withdrawal penalty and how does H.R. 9500 address it?
If you withdraw money from a 401(k) or IRA before age 59 and a half, the IRS generally charges a 10% penalty on top of regular income tax on the distribution. Scammers often pressure victims into these early withdrawals. H.R. 9500 would waive that penalty when the withdrawal was the result of fraud or theft, and it would allow victims to repay those funds into a qualified retirement account and seek a refund of taxes already paid on those distributions.
