[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3166 Introduced in Senate (IS)]

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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Ponzi Scheme Victim's Bill of Rights 
Act of 2010''.

SEC. 2. TREATMENT OF QUALIFIED FRAUDULENT INVESTMENT LOSSES IN 
              INDIVIDUAL RETIREMENT ACCOUNTS.

    (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.--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) 50 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) $1,500,000.
            ``(2) 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.
            ``(3) 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) Deduction Allowed in Calculating Net Investment Loss.--Section 
172(d)(4)(C) of the Internal Revenue Code of 1986 is amended by 
inserting ``and any deduction allowed under section 165(m)'' after 
``section 165(c)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

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

    (a) Extension of Net Operating Loss Carryback Period.--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) Qualified fraudulent investment losses.--
                            ``(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 the lesser of--
                                    ``(I) 6 years (7 years in any case 
                                in which the taxpayer or, in the case 
                                of a joint return, the taxpayer's 
                                spouse has attained the age of 65 
                                before the close of the taxable year in 
                                which the qualified fraudulent 
                                investment loss was discovered), or
                                    ``(II) the period that the taxpayer 
                                had amounts invested in the scheme to 
                                which such election applies.
                            ``(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 
                        qualified fraudulent investment loss (as so 
                        defined) 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 otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        net operating losses arising in taxable years ending 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) notwithstanding section 172(b)(1)(H)(iii)(II), 
                any election made under subsection (b)(1)(H) or 
                172(b)(3) of section 172 of such Code with respect to 
                such loss may (notwithstanding such section) be revoked 
                before the applicable date,
                    (B) any election made under section 172(b)(1)(K) of 
                such Code with respect to such loss shall 
                (notwithstanding such section) be treated as timely 
                made if made before the applicable date, and
                    (C) any application under section 6411(a) of such 
                Code with respect to such loss shall be treated as 
                timely filed if filed before the applicable date.
        For purposes of this paragraph, the term ``applicable date'' 
        means the date which is 60 days after the date of the enactment 
        of this Act.

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 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.

SEC. 5. 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.

SEC. 6. 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.
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