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 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. TREATMENT OF INVESTMENT LOSSES IN 
FRAUDULENT PONZI-TYPE SCHEME. 
(a) IN GENERAL.—Section 165 of the Internal Rev-
enue Code of 1986 (relating to losses) is amended by re-
designating subsection (m) as subsection (n) and by in-
serting after subsection (l) the following new subsection: 
‘‘(m) TREATMENT
OF
INVESTMENT
LOSSES
IN 
FRAUDULENT PONZI-TYPE SCHEME.— 
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‘‘(1) IN GENERAL.—If— 
‘‘(A) a taxpayer has a loss on an invest-
ment in a fraudulent Ponzi-type scheme, 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) FRAUDULENT PONZI-TYPE SCHEME.—For 
purposes of this subsection, the term ‘fraudulent 
Ponzi-type scheme’ means any fraudulent investment 
operation which was managed in a manner that pro-
vided investors with returns (or purported returns) 
derived substantially from investments made by 
other investors rather than from profits. 
‘‘(3) TREATMENT
OF
SUBSEQUENT
RECOV-
ERIES.—If the aggregate estimated losses to which 
an election under paragraph (1) applies with respect 
to a fraudulent Ponzi-type scheme for all prior tax-
able years exceeds the aggregate actual losses by 
reason of a recovery received or accrued during any 
taxable year, the amount of such recovery shall be 
included in gross income for such taxable year to the 
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extent of such excess. Proper adjustments shall be 
made in the application of the preceding sentence for 
additional recoveries in subsequent taxable years. 
‘‘(4) PERPETRATORS
OF
FRAUD
NOT
COV-
ERED.—Paragraph (1) shall not apply to any person 
who perpetrated the fraud.’’. 
(b) 
EXTENSION
OF
NET
OPERATING
LOSS 
CARRYBACK PERIOD.—Paragraph (1) of section 172(b) of 
such Code is amended by adding at the end the following 
new subparagraph: 
‘‘(K) LOSSES ATTRIBUTABLE TO INVEST-
MENTS IN FRAUDULENT SCHEMES.— 
‘‘(i) 
IN
GENERAL.—Subparagraph 
(A)(i) shall be applied by substituting ‘the 
applicable number of taxable years’ for ‘2 
taxable years’ with respect to the portion 
of the net operating loss for the taxable 
year to which an election under section 
165(m) applies. 
‘‘(ii) APPLICABLE NUMBER OF TAX-
ABLE YEARS.—For purposes of clause (i), 
the applicable number of taxable years is 
any whole number elected by the taxpayer 
which is more than 2 but not more than 
the lesser of— 
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‘‘(I) 10 years, or 
‘‘(II) the period that the taxpayer 
had amounts invested in the scheme 
to which such election applies. 
‘‘(iii) ORDERING
RULE.—For pur-
poses of this subparagraph, the portion of 
the net operating loss for any taxable year 
which is attributable to a loss to which an 
election under section 165(m) applies shall 
be the excess of— 
‘‘(I) the net operating loss for 
such taxable year, over 
‘‘(II) the net operating loss for 
such taxable year determined without 
regard to the amount allowed as a de-
duction by reason of an election under 
section 165(m). 
‘‘(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.’’. 
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