Hostage Private Debt Tax Freedom Act

Section 108(a)(1) of the Internal Revenue Code of 1986 is amended by striking or at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting, or, and by adding at the end the following new subparagraph:

(F) in the case of a wrongfully detained abroad individual or such individual’s spouse, the indebtedness discharged is specified wrongfully detained indebtedness.

Section 108 of such Code is amended by adding at the end the following new subsection:

For purposes of this section—

The term wrongfully detained abroad individual means any United States national (as defined in section 307 of the Robert Levinson Hostage Recovery and Hostage-Taking Accountability Act) if the Secretary of State has determined for purposes of section 302(b) of such Act that there is credible information that such United States national is wrongfully or unlawfully detained abroad.

The term specified wrongfully detained indebtedness means, with respect to any wrongfully detained abroad individual, any indebtedness—

(i) which is discharged during the period beginning on the date on which such individual is first wrongfully or unlawfully detained and ending on the date that is 2 years after the conclusion of such detention, and

(ii) with respect to which the taxpayer elects (at such time and in such manner as the Secretary may provide) the application of this subparagraph.

The aggregate amount of indebtedness which may be treated as specified wrongfully detained indebtedness with respect to any wrongfully detained abroad individual (including any amount treated as such indebtedness with respect to such individual’s spouse) for any taxable year shall not exceed the excess (if any) of $5,000 over the aggregate amount so treated for all prior taxable years.

Section 108(a)(2)(A) of such Code is amended by striking and (E) and inserting (E), and (F).

Section 108(a)(2) of such Code is amended by adding at the end the following new subparagraph:

Subparagraphs (B) and (C) of paragraph (1) shall not apply to a discharge to which paragraph (1)(F) applies unless the taxpayer elects to apply subparagraph (B) or (C) of paragraph (1) in lieu of paragraph (1)(F).

The amendments made by this section shall apply to discharges of indebtedness after December 31, 2023.