I 

111TH CONGRESS 

2D SESSION H. R. 5058 

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 

APRIL 15, 2010 

Mr. PASCRELL (for himself, Mr. WEINER, and Ms. ROS-LEHTINEN) 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. SHORT TITLE. 

4 This Act may be cited as the ‘‘Ponzi Scheme Victims’ 

5 Tax Relief Act of 2010’’. 

6 SEC. 2. LOSS TREATMENT OF INVESTMENT LOSSES IN 

7 FRAUDULENT PONZI-TYPE SCHEME. 

8 (a) IN GENERAL.—Section 165 of the Internal Rev9 enue Code of 1986 is amended by redesignating subsection 


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1 (m) as subsection (n) and by inserting after subsection 

2 (l) the following new subsection: 

3 ‘‘(m) SPECIAL RULES FOR QUALIFIED FRAUDULENT

4 INVESTMENT LOSSES IN INDIVIDUAL RETIREMENT AC5 COUNTS.— 

6 ‘‘(1) IN GENERAL.—If— 

7 ‘‘(A) a taxpayer has qualified fraudulent 

8 investment loss, and 

9 ‘‘(B) the amount of such loss (without tak10 ing into account any potential recoveries) can 

11 reasonably be estimated as of the close of the 

12 taxable year, 

13 then the taxpayer may elect to treat the amount so 

14 estimated as a theft loss described in subsection 

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

16 ‘‘(2) SPECIAL RULE FOR INDIVIDUAL RETIRE17 MENT PLANS.—In the case of any qualified fraudu18 lent investment loss in connection with assets held in 

19 an individual retirement plan, the beneficiary of such 

20 plan shall be allowed a deduction with respect to 

21 such loss in an amount equal to the lesser of— 

22 ‘‘(A) the greater of— 

23 ‘‘(i) the sum of the amount of con24 tributions to such individual retirement 

25 plan by such beneficiary plus the amount 


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1 of contributions to such individual retire2 ment plan by such beneficiary’s employer 

3 on behalf of such beneficiary, or 

4 ‘‘(ii) 60 percent of the excess of— 

5 ‘‘(I) the value of the assets held 

6 by such beneficiary in such individual 

7 retirement plan, as reported imme8 diately before such loss was discov9 ered, over 

10 ‘‘(II) the sum of value of the as11 sets held by such beneficiary in such 

12 individual retirement plan imme13 diately after such loss was discovered, 

14 or 

15 ‘‘(B) $2,000,000. 

16 ‘‘(3) QUALIFIED FRAUDULENT INVESTMENT

17 LOSS.—For purposes of this subsection 

18 ‘‘(A) IN GENERAL.—The term ‘qualified 

19 fraudulent investment loss’ means a loss discov20 ered in 2008 or 2009 resulting from a specified 

21 fraudulent arrangement in which, as a result of 

22 the conduct that caused the loss— 

23 ‘‘(i) a person described in subpara24 graph (B) was charged under State or 

25 Federal law with the commission of fraud, 


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1 embezzlement, or similar crime which, if 

2 proven, would constitute a theft (within the 

3 meaning of subsection (c)(3)), or 

4 ‘‘(ii) a person described in subpara5 graph (B) was the subject of a State or 

6 Federal criminal complaint (not withdrawn 

7 or dismissed) alleging the commission of 

8 fraud, embezzlement, or similar crime 

9 which, if proven, would constitute a theft 

10 (within the meaning of subsection (c)(3)), 

11 and either— 

12 ‘‘(I) the complaint alleged an ad13 mission by such person or the execu14 tion of an affidavit by such person ad15 mitting the crime, or 

16 ‘‘(II) a receiver or trustee was 

17 appointed with respect to the arrange18 ment or assets of the arrangement 

19 were frozen. 

20 ‘‘(B) SPECIFIED FRAUDULENT ARRANGE21 MENT.—The term ‘specified fraudulent ar22 rangement’ means an arrangement in which a 

23 person— 

24 ‘‘(i) receives cash or property from in25 vestors, 


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1 ‘‘(ii) purports to earn income for in2 vestors, 

3 ‘‘(iii) reports income amounts to the 

4 investors that are partially or wholly ficti5 tious, 

6 ‘‘(iv) makes payments, if any, of 

7 purposed income or principal to some in8 vestors from amounts that other investors 

9 invested in the fraudulent arrangement, 

10 and 

11 ‘‘(v) appropriates some or all of the 

12 investors’ cash or property. 

13 ‘‘(4) REGULATIONS.—The Secretary shall issue 

14 such regulations or other guidance as may be nec15 essary or appropriate to carry out this subsection, 

16 including to prevent fraud and abuse under this sub17 section.’’. 

18 (b) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2007. 

21 SEC. 3. EXTENSION OF NET OPERATING LOSS CARRYBACK 

22 PERIOD. 

23 (a) IN GENERAL.—Paragraph (1) of section 172(b) 

24 of the Internal Revenue Code of 1986 is amended by add25 ing at the end the following new subparagraph: 


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1 ‘‘(K) LOSSES ATTRIBUTABLE TO INVEST2 MENTS IN FRAUDULENT SCHEMES.— 

3 ‘‘(i) IN GENERAL.—In the case of the 

4 portion of a net operating loss which is a 

5 qualified fraudulent investment loss (as de6 fined in section 165(m)(2)) with respect to 

7 which the taxpayer has elected the applica8 tion of this subparagraph— 

9 ‘‘(I) subparagraph (A)(i) shall be 

10 applied by substituting ‘the applicable 

11 number of taxable years’ for ‘2 tax12 able years’ with respect to the portion 

13 of the net operating loss for the tax14 able year which is a qualified fraudu15 lent investment loss, and 

16 ‘‘(II) subparagraphs (F) and (H) 

17 shall not apply with respect to any 

18 qualified fraudulent investment loss. 

19 ‘‘(ii) APPLICABLE NUMBER OF TAX20 ABLE YEARS.—For purposes of clause (i), 

21 the applicable number of taxable years is 

22 any whole number elected by the taxpayer 

23 which is more than 2 but not more than 

24 10 years. 


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1 ‘‘(iii) SPECIAL RULE FOR DECEASED

2 SPOUSES.—If an individual was included 

3 on a joint return of a taxpayer for a tax4 able year to which a qualified fraudulent 

5 investment loss (as so defined) is carried 

6 back under this subparagraph and such in7 dividual has died before the beginning of 

8 the taxable year in which such qualified 

9 fraudulent investment loss arises, then 

10 such qualified fraudulent investment loss 

11 shall be treated as a loss with respect to 

12 both the taxpayer and such individual with 

13 respect to the taxable year to which such 

14 loss carried. 

15 ‘‘(iv) COORDINATION WITH PARA16 GRAPH (2).—For purposes of applying 

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

18 under section 165(m) applies for any tax19 able year shall be treated in a manner 

20 similar to the manner in which a specified 

21 liability loss is treated.’’. 

22 (b) EFFECTIVE DATE.— 

23 (1) IN GENERAL.—Except as provided in para24 graph (2), the amendments made by this section 


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1 shall apply to net operating losses arising in taxable 

2 years beginning after December 31, 2007. 

3 (2) TRANSITION RULE.—In the case of a net 

4 operating loss for a taxable year ending before the 

5 date of the enactment of this Act— 

6 (A) any election made under subsection 

7 (b)(1)(H)(iii) or (b)(3) of section 172 of such 

8 Code with respect to such loss may (notwith9 standing such section) be revoked before the 

10 due date (including extension of time) for filing 

11 the return for the taxpayer’s last taxable year 

12 beginning during 2010, and 

13 (B) any application under section 6411(a) 

14 of such Code with respect to such loss shall be 

15 treated as timely filed if filed before such due 

16 date. 

17 SEC. 4. HARDSHIP WITHDRAWALS. 

18 (a) IN GENERAL.—Paragraph (2) of section 72(t) of 

19 the Internal Revenue Code of 1986 is amended by adding 

20 at the end the following new subparagraph: 

21 ‘‘(H) DISTRIBUTIONS TO REPLACE QUALI22 FIED FRAUDULENT INVESTMENT LOSSES.—Any 

23 distribution which was made during the 10-year 

24 period beginning on the date on which a quali25 fied fraudulent investment loss (as defined in 


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1 section 165(m)(2)) was discovered to the extent 

2 the aggregate of such distributions do not ex3 ceed such qualified fraudulent investment 

4 loss.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2007. 

8 SEC. 5. CATCH-UP CONTRIBUTIONS. 

9 (a) IN GENERAL.—Section 219(b)(5) of the Internal 

10 Revenue Code of 1986 is amended by redesignating sub11 paragraphs (C) and (D) as subparagraphs (D) and (E), 

12 respectively, and by inserting after subparagraph (B) the 

13 following new subparagraph: 

14 ‘‘(C) CATCHUP CONTRIBUTIONS RELATING

15 TO QUALIFIED FRAUDULENT INVESTMENT

16 LOSSES.— 

17 ‘‘(i) IN GENERAL.—In the case of any 

18 applicable individual who elects to make a 

19 qualified retirement contribution in addi20 tion to the amount determined under sub21 paragraph (A), the deductible amount for 

22 any taxable year shall be increased by an 

23 amount equal to the lesser of— 


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1 ‘‘(I) 100 percent of the amount 

2 determined under subparagraph (A) 

3 for such taxable year, or 

4 ‘‘(II) the excess of the qualified 

5 fraudulent investment loss described 

6 in clause (ii) over the amount of con7 tributions allowed as a deduction by 

8 reason of this subparagraph for all 

9 preceding taxable years. 

10 ‘‘(ii) APPLICABLE INDIVIDUAL.—For 

11 purposes of this subparagraph, the term 

12 ‘applicable individual’ means, with respect 

13 to any taxable year, any individual with a 

14 qualified fraudulent investment loss (as de15 fined in section 165(m)(2)) in an indi16 vidual retirement plan in any of the 10 im17 mediately preceding taxable years if the 

18 amount of such loss exceeded 50 percent of 

19 the value of such individual retirement 

20 plan on the day immediately preceding the 

21 discovery of the qualified fraudulent invest22 ment loss.’’. 

23 (b) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years beginning after 

25 December 31, 2007. 


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1 SEC. 6. EXTENSION OF LIMITATION FOR CREDITS AND RE2 FUNDS FOR GIFTS AND BEQUESTS OF ASSETS 

3 WITH QUALIFIED FRAUDULENT INVESTMENT 

4 LOSSES. 

5 (a) IN GENERAL.—Section 6511 of the Internal Rev6 enue Code of 1986 is amended by redesignating subsection 

7 (i) as subsection (j) and by inserting after subsection (h) 

8 the following new subsection: 

9 ‘‘(i) SPECIAL RULES APPLICABLE TO ESTATE AND

10 GIFT TAXES WITH RESPECT TO ASSETS WITH QUALI11 FIED FRAUDULENT INVESTMENT LOSSES.— 

12 ‘‘(1) IN GENERAL.—If a claim for a credit or 

13 refund relates to an overpayment of taxes imposed 

14 under subtitle B in connection with a gift or bequest 

15 of an interest in an investment with respect to which 

16 there is a qualified fraudulent investment loss (as 

17 defined in section 165(m)(2)) and the taxpayer did 

18 not know, and reasonably should not have known, 

19 about the criminal behavior in connection with such 

20 loss, such credit or refund may be allowed or made 

21 if claim therefor is filed on or before the date that 

22 is 6 years after the return to which the credit or 

23 overpayment relates was filed. 

24 ‘‘(2) DETERMINATION OF VALUE.— 

25 ‘‘(A) GIFT TAXES.—In determining the 

26 amount of any credit or refund described in 


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1 paragraph (1) relating to a gift, the value of 

2 such gift shall be not more than the greater of 

3 the value of such gift on the last day of the tax4 able year in which the qualified fraudulent in5 vestment loss was discovered or the amount re6 alized from the disposition of such gift (if any) 

7 by the donee. 

8 ‘‘(B) ESTATE TAXES.—In determining the 

9 amount of any credit or refund described in 

10 paragraph (1) relating to a bequest, the value 

11 of such bequest shall be not more than the 

12 greater of the value of such bequest on the last 

13 day of the calendar year in which the qualified 

14 fraudulent investment loss was discovered or 

15 the amount realized from the disposition of 

16 such bequest (if any) by the donee.’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to gifts or bequests made after De19 cember 31, 2007. 

Æ 


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