Ways & Means debates H.115, weighs tax relief options for fraud victims

Members of the Vermont House Ways & Means Committee discussed H.115 on April 17, examining whether state tax rules give victims of financial scams an adequate path to avoid tax liability on money they did not keep. The committee heard from the state taxpayer advocate, the Vermont Attorney General’s Office and a banking industry representative but took no formal vote on H.115.

The committee opened by asking how current law treats taxable income that results from a fraudster’s taking a taxpayer’s funds. Jeff Dooley, taxpayer advocate for the Vermont Department of Taxes, told the committee that "Under current law, what they can do is apply for extraordinary relief" and that the commissioner of taxes may, at his discretion, exclude income that arose solely because of fraud so the victim does not incur tax liability on funds they no longer possess.

Dooley said the relief exists in practice but is underused because many victims and some department intake staff do not recognize the option. He described a recent rise in cases: "in the first probably 8 years that I was in this position, I think I maybe had 2 cases of people been defrauded come across my desk ... And now maybe that's just because people didn't know ... But this year, I had 6 cases come across my desk." Dooley urged better outreach and said his office is planning coordinated communications with the department’s communications staff and partners such as Vermont Legal Aid.

Todd Delos, assistant attorney general and director of policy and legislative affairs for the Vermont Attorney General’s Office, urged caution about adopting a statutory deduction without resolving definitional and evidentiary questions. "How are you gonna define a scam? How are we gonna draw the right parameters around? What is the kind of loss the state of Vermont wants to recognize is not the direct fault," Delos told the committee, calling the topic a "thicket" that raises audit and proof challenges and cross‑jurisdictional enforcement problems. He also pointed members to recent federal guidance from the Internal Revenue Service dated Jan. 17 that lays out scenarios for federal tax treatment of scam losses and said he would provide that guidance to committee staff.

A banking industry representative described what bank employees are seeing in the marketplace and the operational constraints banks face when customers insist on withdrawing funds. The representative said scams have grown more sophisticated and widespread in the last 18–24 months, cited large reported losses and explained why local law enforcement or cross‑border criminal investigations often cannot recover funds for victims.

Committee members and witnesses discussed non‑statutory tools being developed elsewhere and in Vermont. Staff noted that the General Assembly has authorized study language in H.100 and H.307 to examine whether to give financial institutions authority to place limited "transactional holds" on suspicious withdrawals. The banking representative described a model under consideration in which a bank could place a hold on a specific transaction, not an entire account, for a period such as 15 days to permit further review and customer outreach. The committee discussed that such holds would seek to balance rapid response and customers’ right to access funds.

Although members agreed that the department currently has a discretionary extraordinary‑relief process that can address some fraud‑related tax liabilities, they also expressed that many affected taxpayers may not reach the taxpayer advocate’s office. The committee identified two immediate follow‑ups: expanded outreach about the taxpayer advocate’s role (including website updates and template language for legislators’ local communications) and summer work with the Department of Financial Regulation to study transactional‑hold language and stakeholder input.

No formal motion or vote on H.115 was recorded during the session. Committee members asked staff to circulate the IRS guidance and additional data on scam incidence and extraordinary‑relief referrals to inform further drafting or potential statutory options.