I 
112TH CONGRESS 
1ST SESSION H. R. 1635 
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, 2011 
Mr. PASCRELL (for himself, Mr. BOUSTANY, Ms. BERKLEY, Mr. GARRETT, 
Mrs. MALONEY, Mr. KING of New York, Mr. ROTHMAN of New Jersey, 
Mr. ROONEY, Ms. SCHWARTZ, Ms. ROS-LEHTINEN, Mr. WEINER, and 
Mr. SESSIONS) 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 Ponzi- 
type scheme. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Ponzi Scheme Victims’ 
Tax Relief Act of 2011’’. 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
SEC. 2. LOSS TREATMENT OF INVESTMENT LOSSES IN 
FRAUDULENT PONZI-TYPE SCHEME. 
(a) IN GENERAL.—Section 165 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(m) as subsection (n) and by inserting after subsection 
(l) the following new subsection: 
‘‘(m) SPECIAL RULES FOR QUALIFIED FRAUDULENT 
INVESTMENT LOSSES IN INDIVIDUAL RETIREMENT AC-
COUNTS.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a taxpayer has qualified fraudulent 
investment loss, and 
‘‘(B) the amount of such loss (without tak-
ing into account any potential recoveries) can 
reasonably be estimated as of the close of the 
taxable year, 
then the taxpayer may elect to treat the amount so 
estimated as a theft loss described in subsection 
(c)(2) incurred during the taxable year. 
‘‘(2) SPECIAL RULE FOR INDIVIDUAL RETIRE-
MENT PLANS.—In the case of any qualified fraudu-
lent investment loss in connection with assets held in 
an individual retirement plan, the beneficiary of such 
plan shall be allowed a deduction with respect to 
such loss in an amount equal to the lesser of— 
‘‘(A) the greater of— 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
‘‘(i) the sum of the amount of con-
tributions to such individual retirement 
plan by such beneficiary plus the amount 
of contributions to such individual retire-
ment plan by such beneficiary’s employer 
on behalf of such beneficiary, or 
‘‘(ii) 60 percent of the excess of— 
‘‘(I) the value of the assets held 
by such beneficiary in such individual 
retirement plan, as reported imme-
diately before such loss was discov-
ered, over 
‘‘(II) the sum of value of the as-
sets held by such beneficiary in such 
individual 
retirement 
plan 
imme-
diately after such loss was discovered, 
or 
‘‘(B) $2,000,000. 
‘‘(3) QUALIFIED
FRAUDULENT
INVESTMENT 
LOSS.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
fraudulent investment loss’ means a loss discov-
ered in 2008 or 2009 resulting from a specified 
fraudulent arrangement in which, as a result of 
the conduct that caused the loss— 
VerDate Mar 15 2010 
01:54 Apr 22, 2011
Jkt 099200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
rangement’ means an arrangement in which a 
person— 
‘‘(i) receives cash or property from in-
vestors, 
‘‘(ii) purports to earn income for in-
vestors, 
‘‘(iii) reports income amounts to the 
investors that are partially or wholly ficti-
tious, 
‘‘(iv) makes payments, if any, of 
purposed income or principal to some in-
vestors from amounts that other investors 
invested in the fraudulent arrangement, 
and 
‘‘(v) appropriates some or all of the 
investors’ cash or property. 
‘‘(4) REGULATIONS.—The Secretary shall issue 
such regulations or other guidance as may be nec-
essary or appropriate to carry out this subsection, 
including to prevent fraud and abuse under this sub-
section.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
SEC. 3. EXTENSION OF NET OPERATING LOSS CARRYBACK 
PERIOD. 
(a) IN GENERAL.—Paragraph (1) of section 172(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph: 
‘‘(K) LOSSES ATTRIBUTABLE TO INVEST-
MENTS IN FRAUDULENT SCHEMES.— 
‘‘(i) IN GENERAL.—In the case of the 
portion of a net operating loss which is a 
qualified fraudulent investment loss (as de-
fined in section 165(m)(3)) with respect to 
which the taxpayer has elected the applica-
tion of this subparagraph— 
‘‘(I) subparagraph (A)(i) shall be 
applied by substituting ‘the applicable 
number of taxable years’ for ‘2 tax-
able years’ with respect to the portion 
of the net operating loss for the tax-
able year which is a qualified fraudu-
lent investment loss, and 
‘‘(II) subparagraphs (F) and (H) 
shall not apply with respect to any 
qualified fraudulent investment loss. 
‘‘(ii) APPLICABLE NUMBER OF TAX-
ABLE YEARS.—For purposes of clause (i), 
the applicable number of taxable years is 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
any whole number elected by the taxpayer 
which is more than 2 but not more than 
10 years. 
‘‘(iii) SPECIAL RULE FOR DECEASED 
SPOUSES.—If an individual was included 
on a joint return of a taxpayer for a tax-
able year to which a qualified fraudulent 
investment loss (as so defined) is carried 
back under this subparagraph and such in-
dividual has died before the beginning of 
the taxable year in which such qualified 
fraudulent investment loss arises, then 
such qualified fraudulent investment loss 
shall be treated as a loss with respect to 
both the taxpayer and such individual with 
respect to the taxable year to which such 
loss carried. 
‘‘(iv) COORDINATION
WITH
PARA-
GRAPH
(2).—For purposes of applying 
paragraph (2), a loss to which an election 
under section 165(m) applies for any tax-
able year shall be treated in a manner 
similar to the manner in which a specified 
liability loss is treated.’’. 
(b) EFFECTIVE DATE.— 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to net operating losses arising in taxable 
years beginning after December 31, 2007. 
(2) TRANSITION RULE.—In the case of a net 
operating loss for a taxable year ending before the 
date of the enactment of this Act— 
(A) any election made under subsection 
(b)(1)(H)(iii) or (b)(3) of section 172 of such 
Code with respect to such loss may (notwith-
standing such section) be revoked before the 
due date (including extension of time) for filing 
the return for the taxpayer’s last taxable year 
beginning during 2011, and 
(B) any application under section 6411(a) 
of such Code with respect to such loss shall be 
treated as timely filed if filed before such due 
date. 
SEC. 4. HARDSHIP WITHDRAWALS. 
(a) IN GENERAL.—Paragraph (2) of section 72(t) of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new subparagraph: 
‘‘(H) DISTRIBUTIONS TO REPLACE QUALI-
FIED FRAUDULENT INVESTMENT LOSSES.—Any 
distribution which was made during the 10-year 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00008
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
period beginning on the date on which a quali-
fied fraudulent investment loss (as defined in 
section 165(m)(3)) was discovered to the extent 
the aggregate of such distributions do not ex-
ceed such qualified fraudulent investment 
loss.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 5. CATCH-UP CONTRIBUTIONS. 
(a) IN GENERAL.—Section 219(b)(5) of the Internal 
Revenue Code of 1986 is amended by redesignating sub-
paragraphs (C) and (D) as subparagraphs (D) and (E), 
respectively, and by inserting after subparagraph (B) the 
following new subparagraph: 
‘‘(C) CATCHUP CONTRIBUTIONS RELATING 
TO
QUALIFIED
FRAUDULENT
INVESTMENT 
LOSSES.— 
‘‘(i) IN GENERAL.—In the case of any 
applicable individual who elects to make a 
qualified retirement contribution in addi-
tion to the amount determined under sub-
paragraph (A), the deductible amount for 
any taxable year shall be increased by an 
amount equal to the lesser of— 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00009
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
‘‘(I) 100 percent of the amount 
determined under subparagraph (A) 
for such taxable year, or 
‘‘(II) the excess of the qualified 
fraudulent investment loss described 
in clause (ii) over the amount of con-
tributions allowed as a deduction by 
reason of this subparagraph for all 
preceding taxable years. 
‘‘(ii) APPLICABLE
INDIVIDUAL.—For 
purposes of this subparagraph, the term 
‘applicable individual’ means, with respect 
to any taxable year, any individual with a 
qualified fraudulent investment loss (as de-
fined in section 165(m)(3)) in an indi-
vidual retirement plan in any of the 10 im-
mediately preceding taxable years if the 
amount of such loss exceeded 50 percent of 
the value of such individual retirement 
plan on the day immediately preceding the 
discovery of the qualified fraudulent invest-
ment loss.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00010
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
SEC. 6. EXTENSION OF LIMITATION FOR CREDITS AND RE-
FUNDS FOR GIFTS AND BEQUESTS OF ASSETS 
WITH QUALIFIED FRAUDULENT INVESTMENT 
LOSSES. 
(a) IN GENERAL.—Section 6511 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(i) as subsection (j) and by inserting after subsection (h) 
the following new subsection: 
‘‘(i) SPECIAL RULES APPLICABLE TO ESTATE AND 
GIFT TAXES WITH RESPECT TO ASSETS WITH QUALI-
FIED FRAUDULENT INVESTMENT LOSSES.— 
‘‘(1) IN GENERAL.—If a claim for a credit or 
refund relates to an overpayment of taxes imposed 
under subtitle B in connection with a gift or bequest 
of an interest in an investment with respect to which 
there is a qualified fraudulent investment loss (as 
defined in section 165(m)(3)) and the taxpayer did 
not know, and reasonably should not have known, 
about the criminal behavior in connection with such 
loss, such credit or refund may be allowed or made 
if claim therefor is filed on or before the date that 
is 6 years after the return to which the credit or 
overpayment relates was filed. 
‘‘(2) DETERMINATION OF VALUE.— 
‘‘(A) GIFT
TAXES.—In determining the 
amount of any credit or refund described in 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00011
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
paragraph (1) relating to a gift, the value of 
such gift shall be not more than the greater of 
the value of such gift on the last day of the tax-
able year in which the qualified fraudulent in-
vestment loss was discovered or the amount re-
alized from the disposition of such gift (if any) 
by the donee. 
‘‘(B) ESTATE TAXES.—In determining the 
amount of any credit or refund described in 
paragraph (1) relating to a bequest, the value 
of such bequest shall be not more than the 
greater of the value of such bequest on the last 
day of the calendar year in which the qualified 
fraudulent investment loss was discovered or 
the amount realized from the disposition of 
such bequest (if any) by the donee.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to gifts or bequests made after De-
cember 31, 2007. 
SEC. 7. WAIVER OF LIMITATION FOR CREDITS AND RE-
FUNDS ATTRIBUTABLE TO THIS ACT. 
If the credit or refund of any overpayment of tax re-
sulting from the application of the amendments made by 
sections 1 through 5 of this Act to a period before the 
date of enactment of this Act is prevented as of such date 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00012
Fmt 6652
Sfmt 6201
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS
by the operation of any law or rule of law (including res 
judicata), such credit or refund may nevertheless be al-
lowed or made if the claim therefor is filed before the close 
of the 1-year period beginning on the date of the enact-
ment of this Act. 
Æ 
VerDate Mar 15 2010 
22:27 Apr 21, 2011
Jkt 099200
PO 00000
Frm 00013
Fmt 6652
Sfmt 6301
E:\BILLS\H1635.IH
H1635
emcdonald on DSK2BSOYB1PROD with BILLS