Amends the Internal Revenue Code to: (1) allow an enhanced tax deduction for losses sustained from a fraudulent Ponzi-type scheme; (2) extend the carryback period for net operating losses attributable to such schemes; (3) waive certain limitations on the charitable tax deduction for contributions to charities with losses from fraudulent Ponzi-type schemes; and (4) restore the gift tax unified credit for gifts of an interest in a fraudulent Ponzi-type scheme. Defines "fraudulent Ponzi-type scheme" as any fraudulent investment operation that provides investors with returns that are derived substantially from investments made by other investors rather than from profits.
[Congressional Bills 111th Congress]
[From the U.S. Government Printing Office]
[H.R. 1159 Introduced in House (IH)]
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 Representatives 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 Revenue Code of 1986
(relating to losses) is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the following new
subsection:
``(m) Treatment of Investment Losses in Fraudulent Ponzi-Type
Scheme.--
``(1) In general.--If--
``(A) a taxpayer has a loss on an investment in a
fraudulent Ponzi-type scheme, 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) 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 provided investors with returns (or purported returns)
derived substantially from investments made by other investors
rather than from profits.
``(3) Treatment of subsequent recoveries.--If the aggregate
estimated losses to which an election under paragraph (1)
applies with respect to a fraudulent Ponzi-type scheme for all
prior taxable 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 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 covered.--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 investments 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 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) 10 years, or
``(II) the period that the taxpayer
had amounts invested in the scheme to
which such election applies.
``(iii) Ordering rule.--For purposes 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
deduction by reason of an election
under section 165(m).
``(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.''.
(c) Waiver of Contribution Base Limitation on Charitable
Contributions.--Subsection (b) of section 170 of such Code is amended
by adding at the end the following new paragraph:
``(4) Waiver of limitation on contributions to charities
with losses from fraudulent ponzi-type scheme.--
``(A) In general.--Paragraphs (1) and (2) shall not
apply to any charity restoration deduction.
``(B) Charity restoration deduction.--
``(i) In general.--For purposes of this
paragraph, the term `charity restoration
deduction' means the amount of charitable
contributions made by the taxpayer during the
taxable year to an organization described in
subsection (c) which are designated by such
organization for purposes of this paragraph.
``(ii) Limitation on amount designated.--
The aggregate amount which may be designated by
an organization for purposes of this paragraph
for all taxable years shall not exceed the
aggregate deduction which would be allowed to
such organization under section 165(m) were
such organization a taxpayer to which section
165(m) applies.
``(C) Overall limitation.--In no event shall the
amount allowed as a deduction under this section for
the taxable year by reason of this paragraph exceed the
excess of the taxpayer's taxable income (determined
without regard to this paragraph) for such year over
the deduction allowed under this section without regard
to this paragraph.''.
(d) Restoration of Unified Credit in Certain Cases.--Section 2505
of such Code (relating to unified credit) is amended by adding at the
end the following new subsection:
``(d) Restoration of Unified Credit in Certain Cases.--
``(1) In general.--If--
``(A) during any preceding calendar year, a
taxpayer made a gift of an interest in an investment
operation later determined to be a fraudulent Ponzi-
type scheme (as defined in section 165(m)(2)),
``(B) the taxpayer reported the amount of such gift
on a timely filed return under this chapter, and
``(C) the taxpayer subsequently makes a gift to the
donee which received the gift referred to in
subparagraph (A),
the amount under subsection (a)(2) for the calendar year in
which the gift referred to in subparagraph (C) is made and
subsequent calendar years (determined without regard to such
gift) shall be reduced by the gift restoration amount.
``(2) Gift restoration amount.--For purposes of paragraph
(1), the gift restoration amount is the lesser of--
``(A) the amount of credit allowable under this
section with respect to the gift described in paragraph
(1)(C) (or would be allowable without regard to the
limitation in subsection (a)(1)), or
``(B) the amount of credit which would be so
allowable with respect to a gift equal to the amount of
the donee's loss on such interest (without taking into
account any potential recoveries) which can reasonably
be estimated as of the close of the calendar year in
which the gift described in paragraph (1)(C) was made.
``(3) Adjustments.--Proper adjustments shall be made in the
application of paragraph (2) with respect to gifts and
recoveries in subsequent calendar years.''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending during 2008 or thereafter.
(2) Gift treatment.--The amendment made by subsection (d)
shall apply to gifts referred to in section 2505(d)(1)(C) of
the Internal Revenue Code of 1986 (as added by this section)
made after December 31, 2008.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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