Short title

This Act may be cited as the

Ponzi Scheme Victims’ Tax Relief Act of 2010

Loss treatment of investment losses in fraudulent ponzi-type scheme

(a)

In general

Section 165 of the Internal Revenue 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 accounts

(1)

In general

If— (A)a taxpayer has qualified fraudulent investment loss, and (B)the amount of such loss (without taking 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 retirement plans

In the case of any qualified fraudulent 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— (i)the sum of the amount of contributions to such individual retirement plan by such beneficiary plus the amount of contributions to such individual retirement 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 immediately before such loss was discovered, over (II)the sum of value of the assets held by such beneficiary in such individual retirement plan immediately 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 discovered in 2008 or 2009 resulting from a specified fraudulent arrangement in which, as a result of the conduct that caused the loss— (i)a person described in subparagraph (B) was charged under State or Federal law with the commission of fraud, embezzlement, or similar crime which, if proven, would constitute a theft (within the meaning of subsection (c)(3)), or (ii)a person described in subparagraph (B) was the subject of a State or Federal criminal complaint (not withdrawn or dismissed) alleging the commission of fraud, embezzlement, or similar crime which, if proven, would constitute a theft (within the meaning of subsection (c)(3)), and either— (I)the complaint alleged an admission by such person or the execution of an affidavit by such person admitting the crime, or (II)a receiver or trustee was appointed with respect to the arrangement or assets of the arrangement were frozen. (B)

Specified fraudulent arrangement

The term specified fraudulent arrangement means an arrangement in which a person— (i)receives cash or property from investors, (ii)purports to earn income for investors, (iii)reports income amounts to the investors that are partially or wholly fictitious, (iv)makes payments, if any, of purposed income or principal to some investors 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 necessary or appropriate to carry out this subsection, including to prevent fraud and abuse under this subsection.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2007.

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 adding at the end the following new subparagraph:

(K)

Losses attributable to investments 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 defined in section 165(m)(2)) with respect to which the taxpayer has elected the application of this subparagraph— (I)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 which is a qualified fraudulent investment loss, and (II)subparagraphs (F) and (H) shall not apply with respect to any qualified fraudulent investment loss. (ii)

Applicable number of taxable 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 10 years. (iii)

Special rule for deceased spouses

If an individual was included on a joint return of a taxpayer for a taxable year to which a qualified fraudulent investment loss (as so defined) is carried back under this subparagraph and such individual 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 paragraph (2)

For purposes of applying paragraph (2), a loss to which an election under section 165(m) applies for any taxable year shall be treated in a manner similar to the manner in which a specified liability loss is treated.

(b)

Effective date

(1)

In general

Except as provided in paragraph (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 (notwithstanding 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 2010, 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.

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 qualified fraudulent investment losses

Any distribution which was made during the 10-year period beginning on the date on which a qualified fraudulent investment loss (as defined in section 165(m)(2)) was discovered to the extent the aggregate of such distributions do not exceed such qualified fraudulent investment loss.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2007.

Catch-up contributions

(a)

In general

Section 219(b)(5) of the Internal Revenue Code of 1986 is amended by redesignating subparagraphs (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 addition to the amount determined under subparagraph (A), the deductible amount for any taxable year shall be increased by an amount equal to the lesser of— (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 contributions 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 defined in section 165(m)(2)) in an individual retirement plan in any of the 10 immediately 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 investment loss.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2007.

Extension of limitation for credits and refunds for gifts and bequests of assets with qualified fraudulent investment losses

(a)

In general

Section 6511 of the Internal Revenue 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 qualified 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)(2)) 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 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 taxable year in which the qualified fraudulent investment loss was discovered or the amount realized 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 December 31, 2007.