A fraud tax fix that lands at the decumulation desk

The House passed a fraud-victim tax bill 408-17, and for retirement advisors the operative provision is the 10% penalty a client can owe today on a 401(k) distribution a scam convinced them to take.

The Tax Relief for Fraud Victims Act, HR 9500, would restore the section 165(a) deduction for personal casualty losses and remove the limits attached to it, including the requirement that a deductible loss arise from certain disasters. The 2017 tax law narrowed that deduction as of 2018, and most fraud victims have been shut out since, barring narrow exceptions such as victims of specific kinds of investment fraud, according to the CFP Board's Erin Koeppel, its managing director of government relations and public policy counsel. Her example is the one that repeats at the desk: a client talked into liquidating a 401(k) cannot deduct that loss under current law, so the tax bill survives the theft.

Beyond the deduction, the House-passed bill waives the 10% penalty, extends the deadline for filing a refund claim, cuts certain restrictions on refund amounts, and gives taxpayers a year from discovery of a theft to repay early distributions. Reps. Max Miller, an Ohio Republican, and Thomas Suozzi, a New York Democrat, co-sponsored the measure, which now awaits a Senate vote.

Both the CFP Board and the Financial Services Institute, a nonprofit whose members are independent financial advisors and independent financial services firms, backed the bill. The board described CFP professionals as the people families turn to first when fraud disrupts their finances, and FSI President and CEO Dale Brown said victims should not carry a tax burden on top of their losses. The CFP Board's year has run on several tracks — the pay study that put the certification premium at 11%, the scholarship aimed at career changers — and this is the one that touches client balance sheets directly.

The exposed population is not small: scam losses for Americans reached $68 billion in 2025, per the CFP Board, which treats the figure as a floor because embarrassment keeps many victims from reporting at all.

For retirement-age clients, the penalty waiver and the repayment window will matter more than the deduction, and the right desk move is to treat HR 9500 as a decumulation tool rather than a policy item to file away. A retiree who liquidates an IRA under pressure has already converted a stolen asset into taxable income; the one-year repayment right is what keeps one fraud from becoming two tax events. That reads as a planning judgment, not a legislative detail, and it holds regardless of what the Senate does, because no deduction, waiver, or repayment right survives a client who cannot show when the loss was discovered.

Tax complexity has replaced investment return as the visible edge in this business, and this bill is another rule most clients will never read about. The Senate is the variable now, and the practices that open a fraud-response file today — the police report, the transaction trail, the date discovery happened — are the ones that can put a number on it when the Senate moves.