Tax Relief for Fraud Victims

Summary#

This bill would change parts of the Internal Revenue Code about casualty and theft tax deductions. It would remove a current limitation on deductions for personal casualty losses. For theft losses, it changes when a loss is treated as happening: generally a theft loss is treated as happening when the taxpayer discovers it, but if the theft involved fraud, deceit, or misrepresentation (as defined by the Secretary of the Treasury), the taxpayer can choose to treat the loss as happening in the year the loss actually occurred. The bill also extends the time limits for filing tax credit or refund claims tied to theft losses involving fraud, and applies related timing and repayment rules to certain retirement account distributions used for such losses. The bill includes a special rule for pyrrhotite-related foundation damage to a primary residence that applies to earlier years.

What it means for you#

• If you have a personal casualty loss, the bill repeals a limitation that previously reduced how much you could deduct. This may change how much of a loss you can claim on your tax return.
• For most theft losses, losses are treated as sustained when you discover them. But if the theft involved fraud, you may elect to treat the loss as sustained in the year the loss occurred instead of the year you discovered it.
• If you claim a deduction for a theft loss involving fraud, you get more time to file a claim for a credit or refund. The time limit will not end earlier than one year after you discover the loss, and a related short-stop rule (section 6511(b)(2)) will not apply to those claims.
• If you took a distribution from a retirement plan related to a theft loss involving fraud, you may have special rules allowing repayment and extended time to claim refunds tied to that distribution.
• The Secretary of the Treasury will define what counts as "fraud, deceit, or misrepresentation." A special rule treats certain pyrrhotite-related foundation damage to a primary residence as eligible for earlier relief.

Expenses#

No publicly available information.

Proponents' View#

Proponents frame the bill as increasing taxpayer relief for people who suffer personal casualty and theft losses, especially where theft involved fraud. The bill gives victims more flexibility on which tax year to claim certain theft losses, extends time to seek refunds or credits tied to those losses, allows repayment and relief options for certain retirement distributions related to fraudulent theft losses, and provides a special catch-up rule for pyrrhotite-related residence damage.

Opponents' View#

No publicly available information.