II 

111TH CONGRESS 

2D SESSION S. 3166 

To amend the Internal Revenue Code of 1986 to provide tax relief for 

persons with investment losses due to fraud or embezzlement. 

IN THE SENATE OF THE UNITED STATES 

MARCH 25, 2010 

Mr. SCHUMER (for himself, Mr. KYL, Mr. MENENDEZ, Mr. WICKER, Mr. 

KERRY, Mr. COCHRAN, Ms. LANDRIEU, Mr. BURR, Mrs. GILLIBRAND, 

Mr. BOND, Mr. NELSON of Florida, Mr. LEMIEUX, Mrs. LINCOLN, Mr. 

SPECTER, Mr. LIEBERMAN, Mr. DODD, Ms. CANTWELL, and Mr. 

VITTER) introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax relief for persons with investment losses due to fraud 

or embezzlement. 

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 Victim’s 

5 Bill of Rights Act of 2010’’. 


jbell on DSKDVH8Z91PROD with BILLS
2 

•S 3166 IS

1 SEC. 2. TREATMENT OF QUALIFIED FRAUDULENT INVEST2 MENT LOSSES IN INDIVIDUAL RETIREMENT 

3 ACCOUNTS. 

4 (a) IN GENERAL.—Section 165 of the Internal Rev5 enue Code of 1986 is amended by redesignating subsection 

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

7 (l) the following new subsection: 

8 ‘‘(m) SPECIAL RULES FOR QUALIFIED FRAUDULENT

9 INVESTMENT LOSSES IN INDIVIDUAL RETIREMENT AC10 COUNTS.— 

11 ‘‘(1) IN GENERAL.—In the case of any qualified 

12 fraudulent investment loss in connection with assets 

13 held in an individual retirement plan, the beneficiary 

14 of such plan shall be allowed a deduction with re15 spect to such loss in an amount equal to the lesser 

16 of— 

17 ‘‘(A) the greater of— 

18 ‘‘(i) the sum of the amount of con19 tributions to such individual retirement 

20 plan by such beneficiary plus the amount 

21 of contributions to such individual retire22 ment plan by such beneficiary’s employer 

23 on behalf of such beneficiary, or 

24 ‘‘(ii) 50 percent of the excess of— 

25 ‘‘(I) the value of the assets held 

26 by such beneficiary in such individual 


jbell on DSKDVH8Z91PROD with BILLS
3 

•S 3166 IS

1 retirement plan, as reported imme2 diately before such loss was discov3 ered, over 

4 ‘‘(II) the sum of value of the as5 sets held by such beneficiary in such 

6 individual retirement plan imme7 diately after such loss was discovered, 

8 or 

9 ‘‘(B) $1,500,000. 

10 ‘‘(2) QUALIFIED FRAUDULENT INVESTMENT

11 LOSS.—For purposes of this subsection— 

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

13 fraudulent investment loss’ means a loss discov14 ered in 2008 or 2009 resulting from a specified 

15 fraudulent arrangement in which, as a result of 

16 the conduct that caused the loss— 

17 ‘‘(i) a person described in subpara18 graph (B) was charged under State or 

19 Federal law with the commission of fraud, 

20 embezzlement, or similar crime which, if 

21 proven, would constitute a theft (within the 

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

23 ‘‘(ii) a person described in subpara24 graph (B) was the subject of a State or 

25 Federal criminal complaint (not withdrawn 


jbell on DSKDVH8Z91PROD with BILLS
4 

•S 3166 IS

1 or dismissed) alleging the commission of 

2 fraud, embezzlement, or similar crime 

3 which, if proven, would constitute a theft 

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

5 and either— 

6 ‘‘(I) the complaint alleged an ad7 mission by such person or the execu8 tion of an affidavit by such person ad9 mitting the crime, or 

10 ‘‘(II) a receiver or trustee was 

11 appointed with respect to the arrange12 ment or assets of the arrangement 

13 were frozen. 

14 ‘‘(B) SPECIFIED FRAUDULENT ARRANGE15 MENT.—The term ‘specified fraudulent ar16 rangement’ means an arrangement in which a 

17 person— 

18 ‘‘(i) receives cash or property from in19 vestors, 

20 ‘‘(ii) purports to earn income for in21 vestors, 

22 ‘‘(iii) reports income amounts to the 

23 investors that are partially or wholly ficti24 tious, 


jbell on DSKDVH8Z91PROD with BILLS
5 

•S 3166 IS

1 ‘‘(iv) makes payments, if any, of 

2 purposed income or principal to some in3 vestors from amounts that other investors 

4 invested in the fraudulent arrangement, 

5 and 

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

7 investors’ cash or property. 

8 ‘‘(3) REGULATIONS.—The Secretary shall issue 

9 such regulations or other guidance as may be nec10 essary or appropriate to carry out this subsection, 

11 including to prevent fraud and abuse under this sub12 section.’’. 

13 (b) DEDUCTION ALLOWED IN CALCULATING NET IN14 VESTMENT LOSS.—Section 172(d)(4)(C) of the Internal 

15 Revenue Code of 1986 is amended by inserting ‘‘and any 

16 deduction allowed under section 165(m)’’ after ‘‘section 

17 165(c)’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2007. 

21 SEC. 3. 6-YEAR NET OPERATING LOSS CARRYBACK. 

22 (a) EXTENSION OF NET OPERATING LOSS

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

24 the Internal Revenue Code of 1986 is amended by adding 

25 at the end the following new subparagraph: 


jbell on DSKDVH8Z91PROD with BILLS
6 

•S 3166 IS

1 ‘‘(K) QUALIFIED FRAUDULENT INVEST2 MENT LOSSES.— 

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 the lesser of— 


jbell on DSKDVH8Z91PROD with BILLS
7 

•S 3166 IS

1 ‘‘(I) 6 years (7 years in any case 

2 in which the taxpayer or, in the case 

3 of a joint return, the taxpayer’s 

4 spouse has attained the age of 65 be5 fore the close of the taxable year in 

6 which the qualified fraudulent invest7 ment loss was discovered), or 

8 ‘‘(II) the period that the taxpayer 

9 had amounts invested in the scheme 

10 to which such election applies. 

11 ‘‘(iii) SPECIAL RULE FOR DECEASED

12 SPOUSES.—If an individual was included 

13 on a joint return of a taxpayer for a tax14 able year to which a qualified fraudulent 

15 investment loss (as so defined) is carried 

16 back under this subparagraph and such in17 dividual has died before the beginning of 

18 the taxable year in which such qualified 

19 fraudulent investment loss arises, then 

20 such qualified fraudulent investment loss 

21 shall be treated as a loss with respect to 

22 both the taxpayer and such individual with 

23 respect to the taxable year to which such 

24 loss carried. 


jbell on DSKDVH8Z91PROD with BILLS
8 

•S 3166 IS

1 ‘‘(iv) COORDINATION WITH PARA2 GRAPH (2).—For purposes of applying 

3 paragraph (2), a qualified fraudulent in4 vestment loss (as so defined) for any tax5 able year shall be treated in a manner 

6 similar to the manner in which a specified 

7 liability loss is treated.’’. 

8 (b) EFFECTIVE DATE.— 

9 (1) IN GENERAL.—Except as otherwise pro10 vided in this subsection, the amendments made by 

11 this section shall apply to net operating losses aris12 ing in taxable years ending after December 31, 

13 2007. 

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

15 operating loss for a taxable year ending before the 

16 date of the enactment of this Act— 

17 (A) notwithstanding section 

18 172(b)(1)(H)(iii)(II), any election made under 

19 subsection (b)(1)(H) or 172(b)(3) of section 

20 172 of such Code with respect to such loss may 

21 (notwithstanding such section) be revoked be22 fore the applicable date, 

23 (B) any election made under section 

24 172(b)(1)(K) of such Code with respect to such 

25 loss shall (notwithstanding such section) be 


jbell on DSKDVH8Z91PROD with BILLS
9 

•S 3166 IS

1 treated as timely made if made before the appli2 cable date, and 

3 (C) any application under section 6411(a) 

4 of such Code with respect to such loss shall be 

5 treated as timely filed if filed before the appli6 cable date. 

7 For purposes of this paragraph, the term ‘‘applica8 ble date’’ means the date which is 60 days after the 

9 date of the enactment of this Act. 

10 SEC. 4. HARDSHIP WITHDRAWALS. 

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

12 the Internal Revenue Code of 1986 is amended by adding 

13 at the end the following new subparagraph: 

14 ‘‘(H) DISTRIBUTIONS TO REPLACE QUALI15 FIED FRAUDULENT INVESTMENT LOSSES.—Any 

16 distribution which was made during the 10-year 

17 period beginning on the date on which a quali18 fied fraudulent investment loss (as defined in 

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

20 the aggregate of such distributions do not ex21 ceed such qualified fraudulent investment 

22 loss.’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2007. 


jbell on DSKDVH8Z91PROD with BILLS
10 

•S 3166 IS

1 SEC. 5. CATCH-UP CONTRIBUTIONS. 

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

3 Revenue Code of 1986 is amended by redesignating sub4 paragraphs (C) and (D) as subparagraphs (D) and (E), 

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

6 following new subparagraph: 

7 ‘‘(C) CATCHUP CONTRIBUTIONS RELATING

8 TO QUALIFIED FRAUDULENT INVESTMENT

9 LOSSES.— 

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

11 applicable individual who elects to make a 

12 qualified retirement contribution in addi13 tion to the amount determined under sub14 paragraph (A), the deductible amount for 

15 any taxable year shall be increased by an 

16 amount equal to the lesser of— 

17 ‘‘(I) 100 percent of the amount 

18 determined under subparagraph (A) 

19 for such taxable year, or 

20 ‘‘(II) the excess of the qualified 

21 fraudulent investment loss described 

22 in clause (ii) over the amount of con23 tributions allowed as a deduction by 

24 reason of this subparagraph for all 

25 preceding taxable years. 


jbell on DSKDVH8Z91PROD with BILLS
11 

•S 3166 IS

1 ‘‘(ii) APPLICABLE INDIVIDUAL.—For 

2 purposes of this subparagraph, the term 

3 ‘applicable individual’ means, with respect 

4 to any taxable year, any individual with a 

5 qualified fraudulent investment loss (as de6 fined in section 165(m)(2)) in an indi7 vidual retirement plan in any of the 10 im8 mediately preceding taxable years if the 

9 amount of such loss exceeded 50 percent of 

10 the value of such individual retirement 

11 plan on the day immediately preceding the 

12 discovery of the qualified fraudulent invest13 ment loss.’’. 

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

15 this section shall apply to taxable years beginning after 

16 December 31, 2007. 

17 SEC. 6. EXTENSION OF LIMITATION FOR CREDITS AND RE18 FUNDS FOR GIFTS AND BEQUESTS OF ASSETS 

19 WITH QUALIFIED FRAUDULENT INVESTMENT 

20 LOSSES. 

21 (a) IN GENERAL.—Section 6511 of the Internal Rev22 enue Code of 1986 is amended by redesignating subsection 

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

24 the following new subsection: 


jbell on DSKDVH8Z91PROD with BILLS
12 

•S 3166 IS

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

2 GIFT TAXES WITH RESPECT TO ASSETS WITH QUALI3 FIED FRAUDULENT INVESTMENT LOSSES.— 

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

5 refund relates to an overpayment of taxes imposed 

6 under subtitle B in connection with a gift or bequest 

7 of an interest in an investment with respect to which 

8 there is a qualified fraudulent investment loss (as 

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

10 not know, and reasonably should not have known, 

11 about the criminal behavior in connection with such 

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

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

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

15 overpayment relates was filed. 

16 ‘‘(2) DETERMINATION OF VALUE.— 

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

18 amount of any credit or refund described in 

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

20 such gift shall be not more than the greater of 

21 the value of such gift on the last day of the tax22 able year in which the qualified fraudulent in23 vestment loss was discovered or the amount re24 alized from the disposition of such gift (if any) 

25 by the donee. 


jbell on DSKDVH8Z91PROD with BILLS
13 

•S 3166 IS

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

2 amount of any credit or refund described in 

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

4 of such bequest shall be not more than the 

5 greater of the value of such bequest on the last 

6 day of the calendar year in which the qualified 

7 fraudulent investment loss was discovered or 

8 the amount realized from the disposition of 

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

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

11 this section shall apply to gifts or bequests made after De12 cember 31, 2007. 

Æ 


jbell on DSKDVH8Z91PROD with BILLS