S. 655 — Stop Tax Penalties on American Hostages Act of 2025

This section establishes new IRC §7511 to disregard, for tax purposes, the period during which an applicable individual—a U.S. national unlawfully or wrongfully detained abroad (as determined under criteria in 22 U.S.C. 1741(a), i.e., the Robert Levinson Hostage Recovery and Hostage-Taking Accountability Act) or taken hostage abroad (as determined by the Hostage Recovery Fusion Cell under 22 U.S.C. 1741b)—was detained or held hostage when determining (1) deadlines for acts such as filing returns or paying tax under §7508(a)(1), (2) post-detention interest, penalties, or additions to tax, and (3) credits or refunds (with spousal application and overpayment rules from §7508(b)). It further requires the Secretary of State and Attorney General (via the Fusion Cell) to provide Treasury with lists of such individuals, plus identifying information, by January 1, 2026, and annually thereafter; directs Treasury to update databases for implementation; and mandates abatement of prior assessments and refunds (as under §6402) for applicable individuals identified after penalties were imposed. A clerical amendment adds the new section to the table for IRC Chapter 77. The amendments apply to taxable years ending after enactment.

This section establishes an IRS program, not later than January 1, 2026, to refund or abate penalties, interest, additional amounts, or additions to tax (including interest) paid by eligible individuals—or their spouses or dependents—for taxable years ending during the applicable period (January 1, 2021, through date of enactment) due to failure to perform required acts by deadlines under IRC §7508(a)(1). It further (1) directs the Secretaries of State and Attorney General, acting through the Hostage Recovery Fusion Cell (which coordinates U.S. government efforts to recover U.S. nationals held hostage abroad or unlawfully or wrongfully detained abroad), to compile and provide to the IRS Secretary a list of applicable individuals during that period; (2) requires the IRS to notify identified individuals of potential eligibility within 90 days of enactment (for those released by then) or release; and (3) authorizes refunds as overpayment refunds with an extended three-year limitations period under IRC §6511(a) to one year after notice and waiver of the IRC §6511(b)(2) limitation. The amendment applies to taxable years ending on or before the date of enactment.