H.R. 2163: No Penalties for Victims of Fraud Act

The bill, known as the No Penalties for Victims of Fraud Act, proposes an amendment to the Internal Revenue Code. Its main purpose is to eliminate early withdrawal penalties from retirement accounts for individuals who have been victims of fraud. Here’s a breakdown of what the bill entails:

Overview of the Amendment

The proposed amendment to Section 72(t)(2) of the Internal Revenue Code includes a new subparagraph that specifically addresses distributions from retirement plans for individuals identified as victims of fraud. The key points are as follows:

• Withdrawal Without Penalty: Individuals who have been victims of fraud can withdraw funds from their retirement accounts without incurring the typical early withdrawal penalties.
• Definition of Victim of Fraud: To qualify as a victim of fraud under this bill, the individual must:
  • Submit an application to the Secretary of the Treasury, which needs to include specific documentation.
  • Be officially designated as a victim of fraud by the Secretary.
• Documentation Requirements: The applicant must provide evidence from a law enforcement agency or a court that proves they are a victim of fraud associated with the distribution from their retirement plan.
• Repayment of Withdrawn Amounts: There are provisions indicating that amounts withdrawn under this clause may be repaid, similar to existing rules regarding repayments for other forms of withdrawals.
• Eligible Retirement Plans: The term “applicable eligible retirement plan” is defined to include various retirement plans but excludes defined benefit plans.

Implementation Timeline

The provisions of this amendment will apply to distributions made after the bill is enacted.

Guidance and Public Awareness

The bill requires the Secretary of the Treasury to:

• Issue guidance within 180 days of enactment on the process for claiming the waiver of early withdrawal penalties.
• Conduct a public awareness campaign to inform the public about these new protections and relief options available under the amended tax code.

Relevant Companies

None found