I 

111TH CONGRESS 

1ST SESSION H. R. 1159 

To amend the Internal Revenue Code of 1986 to provide special rules for 

investments lost in a fraudulent Ponzi-type scheme. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 24, 2009 

Mr. MEEK of Florida introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

special rules for investments lost in a fraudulent Ponzitype scheme. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. TREATMENT OF INVESTMENT LOSSES IN 

4 FRAUDULENT PONZI-TYPE SCHEME. 

5 (a) IN GENERAL.—Section 165 of the Internal Rev6 enue Code of 1986 (relating to losses) is amended by re7 designating subsection (m) as subsection (n) and by in8 serting after subsection (l) the following new subsection: 

9 ‘‘(m) TREATMENT OF INVESTMENT LOSSES IN

10 FRAUDULENT PONZI-TYPE SCHEME.— 


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1 ‘‘(1) IN GENERAL.—If— 

2 ‘‘(A) a taxpayer has a loss on an invest3 ment in a fraudulent Ponzi-type scheme, and 

4 ‘‘(B) the amount of such loss (without tak5 ing into account any potential recoveries) can 

6 reasonably be estimated as of the close of the 

7 taxable year, 

8 then the taxpayer may elect to treat the amount so 

9 estimated as a theft loss described in subsection 

10 (c)(2) incurred during the taxable year. 

11 ‘‘(2) FRAUDULENT PONZI-TYPE SCHEME.—For 

12 purposes of this subsection, the term ‘fraudulent 

13 Ponzi-type scheme’ means any fraudulent investment 

14 operation which was managed in a manner that pro15 vided investors with returns (or purported returns) 

16 derived substantially from investments made by 

17 other investors rather than from profits. 

18 ‘‘(3) TREATMENT OF SUBSEQUENT RECOV19 ERIES.—If the aggregate estimated losses to which 

20 an election under paragraph (1) applies with respect 

21 to a fraudulent Ponzi-type scheme for all prior tax22 able years exceeds the aggregate actual losses by 

23 reason of a recovery received or accrued during any 

24 taxable year, the amount of such recovery shall be 

25 included in gross income for such taxable year to the 


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1 extent of such excess. Proper adjustments shall be 

2 made in the application of the preceding sentence for 

3 additional recoveries in subsequent taxable years. 

4 ‘‘(4) PERPETRATORS OF FRAUD NOT COV5 ERED.—Paragraph (1) shall not apply to any person 

6 who perpetrated the fraud.’’. 

7 (b) EXTENSION OF NET OPERATING LOSS

8 CARRYBACK PERIOD.—Paragraph (1) of section 172(b) of 

9 such Code is amended by adding at the end the following 

10 new subparagraph: 

11 ‘‘(K) LOSSES ATTRIBUTABLE TO INVEST12 MENTS IN FRAUDULENT SCHEMES.— 

13 ‘‘(i) IN GENERAL.—Subparagraph 

14 (A)(i) shall be applied by substituting ‘the 

15 applicable number of taxable years’ for ‘2 

16 taxable years’ with respect to the portion 

17 of the net operating loss for the taxable 

18 year to which an election under section 

19 165(m) applies. 

20 ‘‘(ii) APPLICABLE NUMBER OF TAX21 ABLE YEARS.—For purposes of clause (i), 

22 the applicable number of taxable years is 

23 any whole number elected by the taxpayer 

24 which is more than 2 but not more than 

25 the lesser of— 


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1 ‘‘(I) 10 years, or 

2 ‘‘(II) the period that the taxpayer 

3 had amounts invested in the scheme 

4 to which such election applies. 

5 ‘‘(iii) ORDERING RULE.—For pur6 poses of this subparagraph, the portion of 

7 the net operating loss for any taxable year 

8 which is attributable to a loss to which an 

9 election under section 165(m) applies shall 

10 be the excess of— 

11 ‘‘(I) the net operating loss for 

12 such taxable year, over 

13 ‘‘(II) the net operating loss for 

14 such taxable year determined without 

15 regard to the amount allowed as a de16 duction by reason of an election under 

17 section 165(m). 

18 ‘‘(iv) COORDINATION WITH PARA19 GRAPH (2).—For purposes of applying 

20 paragraph (2), a loss to which an election 

21 under section 165(m) applies for any tax22 able year shall be treated in a manner 

23 similar to the manner in which a specified 

24 liability loss is treated.’’. 


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1 (c) WAIVER OF CONTRIBUTION BASE LIMITATION ON

2 CHARITABLE CONTRIBUTIONS.—Subsection (b) of section 

3 170 of such Code is amended by adding at the end the 

4 following new paragraph: 

5 ‘‘(4) WAIVER OF LIMITATION ON CONTRIBU6 TIONS TO CHARITIES WITH LOSSES FROM FRAUDU7 LENT PONZI-TYPE SCHEME.— 

8 ‘‘(A) IN GENERAL.—Paragraphs (1) and 

9 (2) shall not apply to any charity restoration 

10 deduction. 

11 ‘‘(B) CHARITY RESTORATION DEDUC12 TION.— 

13 ‘‘(i) IN GENERAL.—For purposes of 

14 this paragraph, the term ‘charity restora15 tion deduction’ means the amount of chari16 table contributions made by the taxpayer 

17 during the taxable year to an organization 

18 described in subsection (c) which are des19 ignated by such organization for purposes 

20 of this paragraph. 

21 ‘‘(ii) LIMITATION ON AMOUNT DES22 IGNATED.—The aggregate amount which 

23 may be designated by an organization for 

24 purposes of this paragraph for all taxable 

25 years shall not exceed the aggregate deducVerDate Nov 24 2008 06:51 Feb 25, 2009 Jkt 079200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1159.IH H1159

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1 tion which would be allowed to such orga2 nization under section 165(m) were such 

3 organization a taxpayer to which section 

4 165(m) applies. 

5 ‘‘(C) OVERALL LIMITATION.—In no event 

6 shall the amount allowed as a deduction under 

7 this section for the taxable year by reason of 

8 this paragraph exceed the excess of the tax9 payer’s taxable income (determined without re10 gard to this paragraph) for such year over the 

11 deduction allowed under this section without re12 gard to this paragraph.’’. 

13 (d) RESTORATION OF UNIFIED CREDIT IN CERTAIN

14 CASES.—Section 2505 of such Code (relating to unified 

15 credit) is amended by adding at the end the following new 

16 subsection: 

17 ‘‘(d) RESTORATION OF UNIFIED CREDIT IN CERTAIN

18 CASES.— 

19 ‘‘(1) IN GENERAL.—If— 

20 ‘‘(A) during any preceding calendar year, a 

21 taxpayer made a gift of an interest in an invest22 ment operation later determined to be a fraudu23 lent Ponzi-type scheme (as defined in section 

24 165(m)(2)), 


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1 ‘‘(B) the taxpayer reported the amount of 

2 such gift on a timely filed return under this 

3 chapter, and 

4 ‘‘(C) the taxpayer subsequently makes a 

5 gift to the donee which received the gift re6 ferred to in subparagraph (A), 

7 the amount under subsection (a)(2) for the calendar 

8 year in which the gift referred to in subparagraph 

9 (C) is made and subsequent calendar years (deter10 mined without regard to such gift) shall be reduced 

11 by the gift restoration amount. 

12 ‘‘(2) GIFT RESTORATION AMOUNT.—For pur13 poses of paragraph (1), the gift restoration amount 

14 is the lesser of— 

15 ‘‘(A) the amount of credit allowable under 

16 this section with respect to the gift described in 

17 paragraph (1)(C) (or would be allowable with18 out regard to the limitation in subsection 

19 (a)(1)), or 

20 ‘‘(B) the amount of credit which would be 

21 so allowable with respect to a gift equal to the 

22 amount of the donee’s loss on such interest 

23 (without taking into account any potential re24 coveries) which can reasonably be estimated as 


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1 of the close of the calendar year in which the 

2 gift described in paragraph (1)(C) was made. 

3 ‘‘(3) ADJUSTMENTS.—Proper adjustments shall 

4 be made in the application of paragraph (2) with re5 spect to gifts and recoveries in subsequent calendar 

6 years.’’. 

7 (e) EFFECTIVE DATES.— 

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section 

10 shall apply to taxable years ending during 2008 or 

11 thereafter. 

12 (2) GIFT TREATMENT.—The amendment made 

13 by subsection (d) shall apply to gifts referred to in 

14 section 2505(d)(1)(C) of the Internal Revenue Code 

15 of 1986 (as added by this section) made after De16 cember 31, 2008. 

Æ 


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