Bill Text: PA HB2153 | 2009-2010 | Regular Session | Introduced

---

Bill Title: In personal income tax, further providing for classes of income.

Spectrum: Slight Partisan Bill (Republican 30-18)

Status: (Introduced - Dead) 2010-05-24 - Re-committed to APPROPRIATIONS [HB2153 Detail]

Download: Pennsylvania-2009-HB2153-Introduced.html

---

PRINTER'S NO. 2981
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 2153 Session of2009
INTRODUCED BY ADOLPH, DENLINGER, McGEEHAN, DALLY, GILLESPIE, BAKER, BELFANTI, CARROLL, CASORIO, J. EVANS, FAIRCHILD, GABLER, GEIST, HALUSKA, HENNESSEY, HORNAMAN, KILLION, KORTZ, KOTIK, LONGIETTI, MANN, MILLER, O'NEILL, PICKETT, PRESTON, READSHAW, REICHLEY, ROSS, SANTONI, SCAVELLO, SIPTROTH, SOLOBAY, STEVENSON, SWANGER, TALLMAN, VULAKOVICH, WATSON, YOUNGBLOOD AND MARSICO, DECEMBER 8, 2009
REFERRED TO COMMITTEE ON FINANCE, DECEMBER 8, 2009
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in personal income tax, further providing for
classes of income.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 303 of the act of March 4, 1971 (P.L.6,
No.2), known as the Tax Reform Code of 1971, is amended by
adding a subsection to read:
Section 303. Classes of Income.--* * *
(a.8) (1) A taxpayer is entitled to claim a loss from a
fraudulent investment arrangement for which the taxpayer is
permitted a deduction under section 165 of the Internal Revenue
Code of 1986, as amended.
(2) (i) A "fraudulent investment arrangement" shall include
an arrangement in which a party:
(A) receives cash or property from investors;
(B) purports to earn income for the investors;
(C) reports income amounts to the investors that are
partially or wholly fictitious;
(D) makes payments, if any, of purported income or principal
to some investors from amounts that other investors invested in
the fraudulent arrangement; and
(E) appropriates some or all of the cash or property of
investors.
(ii) A fraudulent investment arrangement shall not include a
tax shelter as defined in section 6662(d)(2)(C) of the Internal
Revenue Code of 1986, as amended, or any other investment
arrangement, if a significant purpose of that investment
arrangement is the avoidance or evasion of the tax imposed under
this article.
(3) (i) Except as provided in subparagraph (iii), a loss
from a fraudulent investment arrangement shall be recognized in
the taxable year in which the taxpayer discovers the loss. The
year in which the taxpayer discovers the loss shall be
determined in accordance with section 165(e) of the Internal
Revenue Code of 1986, as amended.
(ii) If during the year of discovery there exists a claim
for reimbursement with respect to which there is a reasonable
prospect of recovery, a taxpayer shall not recognize any portion
of the loss for which reimbursement may be received until the
taxable year in which it can be ascertained with reasonable
certainty whether reimbursement will be received. Whether a
20090HB2153PN2981 - 2 -
reasonable prospect of recovery exists is a question of fact to
be determined upon examination of all facts and circumstances.
(iii) Subject to subparagraph (ii), a taxpayer may make an
irrevocable election to recognize a loss or portion of a loss,
whichever is applicable, in the taxable year in which the
taxpayer included the amount claimed as a loss or portion of a
loss in income if:
(A) the taxpayer actually paid tax under this article on
that income; and
(B) the taxpayer files either an amended return within three
years from the due date, including any extension, of the
original return in which the income giving rise to the loss was
included, or a petition for refund with the department within
the applicable statute of limitations provided in section
3003.1.
(iv) A taxpayer shall make the irrevocable election with the
timely filing of either the amended return or the petition for
refund.
(v) A taxpayer is only permitted to claim a loss or portion
of a loss, whichever is applicable, in a prior taxable year
through the filing of a petition for refund in circumstances
where the amount or class of income to which the loss relates is
the subject of an administrative or judicial appeal.
(4) (i) The amount of a loss that a taxpayer is entitled to
recognize from a fraudulent investment arrangement shall equal
the amount of the taxpayer's investment in the arrangement,
including any additional investments, less all withdrawals,
distributions, reimbursements or other recoveries and the amount
of all claims to which there is a reasonable prospect of
recovery. Additional investments shall include an amount
20090HB2153PN2981 - 3 -
reported to a taxpayer as income in years prior to the year of
discovery of the loss if the taxpayer:
(A) included the amount in income;
(B) paid tax under this article on that income; and
(C) reinvested the amount in the fraudulent investment
arrangement.
(ii) A taxpayer may not claim a loss for amounts invested in
a fraudulent investment arrangement that were borrowed from any
individual or entity that was involved in the conduct of the
fraudulent investment arrangement to the extent that the
borrowed funds were not repaid at the time the loss was
discovered.
(5) (i) A loss attributable to income upon which a taxpayer
previously paid tax under this article shall be included in the
same class or classes of income as the income to which the loss
relates.
(ii) A loss not attributable to income upon which a taxpayer
previously paid tax under this article shall be included in the
appropriate class or classes of income.
(iii) To the extent that a taxpayer is unable to trace a
loss to a specific class of income, the loss must be allocated
to the applicable classes of income in a reasonable manner.
(iv) A taxpayer may not source the same loss or the same
portion of a loss, whichever is applicable, to more than one
class of income.
(6) (i) (A) If a taxpayer recovers an amount in a later
taxable year for which the taxpayer recognized a loss in an
earlier taxable year, the taxpayer shall recognize the amount
recovered in the later taxable year to the extent that the
recognized loss to which the recovery relates reduced the
20090HB2153PN2981 - 4 -
taxable income of the taxpayer in the earlier taxable year.
(B) The amount recovered must be included in the same class
or classes of income that the related loss reduced taxable
income in the earlier taxable year. In the event that the amount
recovered relates to more than one class of income, the amount
recovered must be allocated between or among the applicable
classes of income in a reasonable manner to the extent that the
taxpayer is unable to trace the amount recovered to a specific
class of income.
(C) The taxpayer shall not report the recovery on an amended
return for the earlier taxable year whether or not the statute
of limitations has expired.
(ii) (A) If a taxpayer recovers less than an amount covered
by a claim for reimbursement with respect to which there is a
reasonable prospect of recovery that reduced a deduction in an
earlier taxable year, the taxpayer shall recognize the
difference as a loss in the tax year in which the amount of
recovery is ascertained with reasonable certainty.
(B) In the event that the additional loss relates to more
than one class of income, the taxpayer must allocate the amount
of the recovery between or among the applicable classes of
income in a reasonable manner to the extent that the additional
loss is unable to be traced to a specific class of income.
(7) A taxpayer may not carry back or carry over any unused
losses to another taxable year.
(8) The taxpayer has the burden of proving the entitlement
and amount of any loss recognized from a fraudulent investment
arrangement. The department shall not deny a loss from a
fraudulent investment arrangement claimed on an original return,
amended return or petition for refund merely because the
20090HB2153PN2981 - 5 -
transaction is not reported on an original or corrected Federal
Form 1099, Federal Schedule K-1, PA-20S/PA-65 RK-1, PA-20S/PA-65
NRK-1 or similar document.
Section 2. The addition of section 303(a.8) of the act shall
apply to losses from fraudulent investment arrangements
discovered on or after January 1, 2007.
Section 3. This act shall take effect in 60 days.
20090HB2153PN2981 - 6 -