H.R. 9500, 119th Cong., 2d Sess. (2026), passed the House of Representatives on September 15, 2026

On September 15, 2026, the United States House of Representatives passed H.R. 9500, titled the “Tax Relief for Fraud Victims Act”. Introduced by Representative Max Miller (OH) alongside Representative Thomas Suozzi (NY), the proposed legislation enacts substantive modifications to Title 26 of the United States Code (Internal Revenue Code of 1986). The bill addresses long-standing practitioner concerns regarding the restrictive personal casualty loss rules imposed under the Tax Cuts and Jobs Act (TCJA) of 2017, while instituting unprecedented relief, elections, and extended refund statutes for taxpayers who suffer theft losses stemming from fraud, deceit, or misrepresentation.

Legislative Status Note: Tax practitioners must advise clients that while H.R. 9500 has passed the House of Representatives, it remains a proposed bill. To become law, H.R. 9500 must still be considered and approved by the United States Senate and subsequently signed into law by the President of the United States.

Key Statutory Amendments to the Internal Revenue Code

1. Internal Revenue Code Section 165 (Losses)

A. Total Repeal of the Disaster-Only Casualty Loss Limitation — I.R.C. § 165(h)(5)

Under current law established by the TCJA and subsequently extended, I.R.C. § 165(h)(5)(A) drastically restricts individual personal casualty loss deductions, providing that:

“In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)) or a State declared disaster.”

Section 2(a) of H.R. 9500 repeals this limitation entirely:

“REPEAL OF LIMITATION ON DEDUCTIONS FOR PERSONAL CASUALTY LOSSES.—Section 165(h) of the Internal Revenue Code of 1986 is amended by striking paragraph (5).”

Practitioner Impact: Striking paragraph (5) restores the pre-2018 deductibility of non-disaster personal casualty and theft losses under I.R.C. § 165(c)(3). Personal casualty and theft losses will once again be deductible by individual taxpayers, subject only to the standard statutory hurdles:

The $100 per casualty/theft floor under I.R.C. § 165(h)(1).
The 10% Adjusted Gross Income (AGI) aggregate floor under I.R.C. § 165(h)(2)(A).

B. Taxpayer Election for Theft Losses Involving Fraud — I.R.C. § 165(e)

Under existing I.R.C. § 165(e), the general rule for theft losses dictates that:

“For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.”

Section 2(b)(1) of H.R. 9500 completely rewrites I.R.C. § 165(e) to create a dual-track rule:

‘‘(e) THEFT LOSSES.—For purposes of subsection (a)— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss. ‘‘(2) THEFT LOSSES INVOLVING FRAUD, DECEIT, OR MISREPRESENTATION.—In the case of any loss arising from theft involving fraud, deceit, or misrepresentation (as defined by the Secretary), the taxpayer may elect to treat such loss as sustained during the taxable year in which such loss occurs.’’

Practitioner Impact: While general theft losses remain deductible strictly in the year of discovery under § 165(e)(1), new § 165(e)(2) grants taxpayers an explicit statutory election to deduct fraud-related theft losses in the taxable year the loss occurs. This provides CPAs and EAs with a powerful tax planning mechanism. Depending on a client’s marginal tax bracket, AGI limitations, and net operating loss (NOL) posture in the occurrence year versus the discovery year, practitioners can calculate and elect the most tax-advantageous year for claiming the loss deduction.

C. Extension of Limitation Period & Waiver of Lookback Caps — I.R.C. § 165(h)(4)(F)

To ensure taxpayers who discover past fraud are not barred from relief by standard statutes of limitation, Section 2(b)(2) of H.R. 9500 amends I.R.C. § 165(h)(4) by adding subparagraph (F):

‘‘(F) PERIOD OF LIMITATION FOR CREDIT OR REFUND CLAIMS FOR THEFT LOSSES INVOLVING FRAUD, DECEIT, OR MISREPRESENTATION.—In the case of a claim for credit or refund with respect to a deduction allowed under subsection (a) for any loss arising from theft involving fraud, deceit, or misrepresentation— ‘‘(i) the period of limitation prescribed by section 6511(a) for the filing of such claim shall be treated as not expiring earlier than the date that is 1 year after the date on which the taxpayer discovers such loss, and ‘‘(ii) section 6511(b)(2) shall not apply with respect to the filing of such claim.’’

Practitioner Impact: Under general tax administration rules, I.R.C. § 6511(a) limits refund claims to 3 years from the time the return was filed or 2 years from tax payment. Crucially, I.R.C. § 6511(b)(2) caps the dollar amount of any credit or refund to taxes paid within that immediate 3-year lookback window. Subparagraph (F) bypasses both barriers:

It guarantees that the statute of limitations for filing a refund claim based on a fraud theft loss deduction will not expire prior to 1 year after the date of discovery.
It explicitly disapplies I.R.C. § 6511(b)(2), enabling full refund recovery even if the taxes for the occurrence year were paid many years prior to discovery.

2. Internal Revenue Code Section 72 (Annuities and Qualified Retirement Plans)

Relief from 10% Early Distribution Penalty & Repayment Rules — I.R.C. § 72(t)(2)(O)

Under I.R.C. § 72(t)(1), distributions from qualified retirement plans taken prior to age 59½ are subject to a 10% additional tax. Section 2(c) of H.R. 9500 amends I.R.C. § 72(t)(2) by adding a new exception under subparagraph (O):

‘‘(O) DISTRIBUTIONS RELATING TO THEFT LOSSES INVOLVING FRAUD, DECEIT, OR MISREPRESENTATION.— ‘‘(i) IN GENERAL.—Any distribution to the extent it relates to any loss arising from theft involving fraud, deceit, or misrepresentation for which a deduction is allowed under section 165(a). ‘‘(ii) AMOUNT DISTRIBUTED MAY BE REPAID.—Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies, except that subparagraph (H)(v)(I) shall be applied by substituting ‘1-year period beginning on the day after the date on which the taxpayer discovers the loss described in subparagraph (O)(i)’ for ‘3-year period beginning on the day after the date on which such distribution was received’. ‘‘(iii) PERIOD OF LIMITATION FOR CREDIT OR REFUND CLAIMS.—In the case of a claim for credit or refund of the tax imposed by paragraph (1) with respect to a distribution described in clause (i)— ‘‘(I) the period of limitation prescribed by section 6511(a) for the filing of such claim shall be treated as not expiring earlier than the date that is 1 year after the date on which the taxpayer discovers the loss described in clause (i), and ‘‘(II) section 6511(b)(2) shall not apply with respect to the filing of such claim.’’

Practitioner Impact: This provision offers three crucial advantages for clients who withdrew retirement funds in connection with fraud losses:

Penalty Exemption: Eliminates the 10% early withdrawal tax under § 72(t)(1) for qualifying retirement distributions.
Repayment Mechanism: Adopts repayment mechanisms similar to Qualified Birth or Adoption Distributions under § 72(t)(2)(H)(v), allowing taxpayers to recontribute distributed funds into an eligible retirement plan within a 1-year period beginning the day after loss discovery.
Refund Claims for Early Distribution Taxes Paid: If a client previously paid the 10% penalty on a prior distribution, a refund claim may be submitted up to 1 year after discovery, completely free from the lookback financial restrictions of I.R.C. § 6511(b)(2).

3. Internal Revenue Code Section 6511 (Limitations on Credit or Refund)

Addition of Statutory Cross-Reference — I.R.C. § 6511(i)(8)

Section 2(d) of H.R. 9500 formally amends Subsection (i) of I.R.C. § 6511 by inserting a dedicated cross-reference paragraph:

“‘‘(8) For a period of limitations for credit or refund in the case of theft losses involving fraud, deceit, or misrepresentation, see sections 72(t)(2)(O)(iii) and 165(h)(4)(F).’’”

Practitioner Impact: Integrates the special fraud theft statute of limitation extensions into the general administrative code section governing refund claims, aiding tax researchers and revenue agents during audit and refund review.

Special Retroactive Relief: Pyrrhotite-Related Personal Casualty Losses

Section 2(e)(3) of H.R. 9500 provides specific, retroactive relief for homeowners suffering from crumbling concrete foundations caused by the mineral pyrrhotite.

Statutory Definition & Retroactive Effective Date

The bill defines a pyrrhotite-related personal casualty loss as:

“any personal casualty loss (as defined in section 165(h)(3)(B) of the Internal Revenue Code of 1986) arising in connection with damage to a principal residence (within the meaning of section 121 of such Code) by reason of deterioration of a concrete foundation adversely impacted by pyrrhotite.”

While the general provisions of H.R. 9500 apply to taxable years beginning after December 31, 2025, Section 2(e)(3)(A) establishes a special retroactive rule:

“In the case of any pyrrhotite-related personal casualty loss, paragraph (1) shall be applied by substituting ‘‘December 31, 2020’’ for ‘‘December 31, 2025’’.”

Extended Statute of Limitations for Pyrrhotite Claims

To allow affected homeowners to claim refunds for tax years stretching back to 2021, Section 2(e)(3)(C) provides:

“In the case of a claim for credit or refund with respect to a deduction allowed under section 165(a) of the Internal Revenue Code of 1986 by reason of subparagraph (A) for any pyrrhotite-related personal casualty loss— (i) the period of limitation prescribed by section 6511(a) of such Code for the filing of such claim shall be treated as not expiring earlier than the date that is 1 year after the date of the enactment of this section, and (ii) section 6511(b)(2) of such Code shall not apply with respect to the filing of such claim.”

Practitioner Impact: CPAs and EAs representing clients with pyrrhotite foundation damage (prevalent in regions like the Northeast) can prepare amended returns dating back to the 2021 tax year. The window for filing these refund claims remains open for 1 full year following the bill’s enactment date, and refunds will not be limited by the standard 3-year lookback cap under § 6511(b)(2).

Effective Dates Summary Table

Code Provision / Issue	Scope of Relief	Statutory Effective Date
I.R.C. § 165(h)(5)	Repeal of TCJA disaster-only personal casualty loss restriction	Taxable years beginning after Dec. 31, 2025
I.R.C. § 165(e)(2)	Election to deduct fraud theft loss in year of occurrence vs. discovery	Losses sustained in taxable years beginning after Dec. 31, 2025
I.R.C. § 165(h)(4)(F)	Extended statute (1 year post-discovery) & waiver of § 6511(b)(2) cap	Losses sustained in taxable years beginning after Dec. 31, 2025
I.R.C. § 72(t)(2)(O)	Exception to 10% penalty, 1-year repayment, & 1-year refund window	Distributions made after Dec. 31, 2025
Pyrrhotite Losses	Retroactive casualty loss relief for concrete foundation deterioration	Retroactive to taxable years beginning after Dec. 31, 2020; 1-year refund window post-enactment

Fact Sheet and Retroactive Effective Date

There appears to be a conflict between the bill as passed and what is outlined in the fact sheet released by the Ways & Means Committee. The fact for this bill states, in part:

“Lastly, allows fraud-related theft losses to be retroactively deductible if incurred after December 31, 2020, and distributions from qualified retirement plans made after that date are not subject to additional tax on early distributions.”

However the bill text only makes reference to a December 31, 2020 retroactive deduction for a pyrrhotite-related personal casualty loss. It would appear that the bill would need to be modified if the intent is to allow retroactive loss claims for such fraud-related theft losses.

Actionable Practice Recommendations for CPAs and EAs

Identify High-Risk Victims of Fraud & Scams: Review client files for individuals who suffered investment fraud, cryptocurrency scams, romance scams, or real estate misrepresentations. If enacted, H.R. 9500 will allow these taxpayers to claim deductions and potentially amend prior-year returns without regard to closed statutory periods under § 6511(b)(2).
Evaluate Occurrence vs. Discovery Year Modeling: Practice staff should build comparative tax models for affected clients. Determine whether electing under proposed § 165(e)(2) to claim the theft deduction in the year of occurrence yields greater tax savings than taking the loss in the discovery year.
Audit Past Retirement Account Withdrawals: Identify clients who incurred early retirement distribution penalties under § 72(t) to fund losses caused by fraudulent schemes. Prepare to file refund claims for the 10% penalty under proposed § 72(t)(2)(O)(iii) and advise clients on the 1-year recontribution window upon enactment.
Monitor Senate Proceedings: Because the bill must pass the Senate and receive Presidential approval before enactment, CPAs should track H.R. 9500 through the Senate Finance Committee to ensure statutory language remains unchanged as well as if a retroactive effective date is added for fraud-related theft losses.

Prepared with assistance from Gemini Notebook.