HR 1265 IHCommentsClose CommentsPermalink

To restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes.CommentsClose CommentsPermalink

March 3, 2009CommentsClose CommentsPermalink

Mr. DOGGETT (for himself, Mr. LARSON of Connecticut, Mr. VAN HOLLEN, Ms. BERKLEY, Mr. BLUMENAUER, Mr. DAVIS of Illinois, Mr. HIGGINS, Mr. LEVIN, Mr. LEWIS of Georgia, Mr. MCDERMOTT, Mr. NEAL of Massachusetts, Mr. PASCRELL, Ms. LINDA T. SANCHEZ of California, Mr. STARK, Mr. YARMUTH, Ms. DELAURO, Mr. GEORGE MILLER of California, Mr. ABERCROMBIE, Mr. ANDREWS, Mr. BISHOP of New York, Mr. CLEAVER, Mr. CONYERS, Mr. COSTELLO, Mr. CUMMINGS, Mr. DEFAZIO, Mr. ELLISON, Mr. FARR, Mr. FATTAH, Mr. FILNER, Mr. GENE GREEN of Texas, Mr. GRIJALVA, Mr. HARE, Mr. HINCHEY, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. JOHNSON of Georgia, Ms. KAPTUR, Ms. LEE of California, Mr. LOEBSACK, Mr. LYNCH, Mr. MARKEY of Massachusetts, Mr. MCGOVERN, Ms. MOORE of Wisconsin, Mr. MORAN of Virginia, Mr. NADLER of New York, Mr. PAYNE, Mr. RUSH, Ms. SCHAKOWSKY, Mr. SESTAK, Mr. SHERMAN, Ms. SLAUGHTER, Mr. STUPAK, Ms. SUTTON, Mr. TIERNEY, Ms. WATSON, Mr. WELCH, Mr. HOLT, and Ms. JACKSON-LEE of Texas) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Financial Services and the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concernedCommentsClose CommentsPermalink

To restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes.CommentsClose CommentsPermalink

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

SECTION 1. SHORT TITLE; ETC.

(a) Short Title- This Act may be cited as the ‘Stop Tax Haven Abuse Act’.CommentsClose CommentsPermalink





(b) Amendment of 1986 Code- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.CommentsClose CommentsPermalink





(c) Table of Contents- The table of contents of this Act is as follows:CommentsClose CommentsPermalink





Sec. 1. Short title; etc.CommentsClose CommentsPermalink

TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

Sec. 101. Establishing presumptions for entities and transactions involving offshore secrecy jurisdictions.CommentsClose CommentsPermalink





Sec. 102. Authorizing special measures against foreign jurisdictions, financial institutions, and others that impede United States tax enforcement.CommentsClose CommentsPermalink





Sec. 103. Treatment of foreign corporations managed and controlled in the United States as domestic corporations.CommentsClose CommentsPermalink





Sec. 104. Allowing more time for investigations involving offshore secrecy jurisdictions.CommentsClose CommentsPermalink





Sec. 105. Reporting United States beneficial owners of foreign owned financial accounts.CommentsClose CommentsPermalink





Sec. 106. Preventing misuse of foreign trusts for tax evasion.CommentsClose CommentsPermalink





Sec. 107. Limitation on legal opinion protection from penalties with respect to transactions involving offshore secrecy jurisdictions.CommentsClose CommentsPermalink





Sec. 108. Closing the offshore dividend tax loophole.CommentsClose CommentsPermalink





Sec. 109. Reporting of activities with respect to passive foreign investment companies.CommentsClose CommentsPermalink

TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES

Sec. 201. Penalty for failing to disclose offshore holdings.CommentsClose CommentsPermalink





Sec. 202. Deadline for anti-money laundering rule for hedge funds and private equity funds.CommentsClose CommentsPermalink





Sec. 203. Anti-money laundering requirements for formation agents.CommentsClose CommentsPermalink





Sec. 204. Strengthening summons in cases involving offshore secrecy jurisdictions.CommentsClose CommentsPermalink





Sec. 205. Improving enforcement of foreign financial account reporting.CommentsClose CommentsPermalink

TITLE III--COMBATING TAX SHELTER PROMOTERS

Sec. 301. Penalty for promoting abusive tax shelters.CommentsClose CommentsPermalink





Sec. 302. Penalty for aiding and abetting the understatement of tax liability.CommentsClose CommentsPermalink





Sec. 303. Tax planning inventions not patentable.CommentsClose CommentsPermalink





Sec. 304. Prohibited fee arrangement.CommentsClose CommentsPermalink





Sec. 305. Preventing tax shelter activities by financial institutions.CommentsClose CommentsPermalink





Sec. 306. Information sharing for enforcement purposes.CommentsClose CommentsPermalink





Sec. 307. Disclosure of information to Congress.CommentsClose CommentsPermalink





Sec. 308. Tax opinion standards for tax practitioners.CommentsClose CommentsPermalink





Sec. 309. Denial of deduction for certain fines, penalties, and other amounts.CommentsClose CommentsPermalink

TITLE IV--REQUIRING ECONOMIC SUBSTANCE

Sec. 401. Clarification of economic substance doctrine.CommentsClose CommentsPermalink





Sec. 402. Penalty for understatements attributable to transactions lacking economic substance, etc.CommentsClose CommentsPermalink





Sec. 403. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.CommentsClose CommentsPermalink

TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASIONCommentsClose CommentsPermalink

SEC. 101. ESTABLISHING PRESUMPTIONS FOR ENTITIES AND TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) Presumptions for Internal Revenue Code of 1986-CommentsClose CommentsPermalink





(1) IN GENERAL- Chapter 76 is amended by inserting after section 7491 the following new subchapter:CommentsClose CommentsPermalink

‘Subchapter F--Presumptions for Certain Legal Proceedings

‘Sec. 7492. Presumptions pertaining to entities and transactions involving offshore secrecy jurisdictions.CommentsClose CommentsPermalink

‘SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

‘(a) Control- For purposes of any United States civil judicial or administrative proceeding to determine or collect tax, there shall be a rebuttable presumption that a United States person (other than an entity with shares regularly traded on an established securities market) who directly or indirectly formed, transferred assets to, was a beneficiary of, had a beneficial interest in, or received money or property or the use thereof from an entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), formed, domiciled, or operating in an offshore secrecy jurisdiction, exercised control over such entity. The presumption of control created by this subsection shall not be applied to prevent the Secretary from determining or arguing the absence of control.CommentsClose CommentsPermalink





‘(b) Transfers of Income- For purposes of any United States civil judicial or administrative proceeding to determine or collect tax, there shall be a rebuttable presumption that any amount or thing of value received by a United States person (other than an entity with shares regularly traded on an established securities market) directly or indirectly from an account or entity (other than an entity with shares regularly traded on an established securities market) in an offshore secrecy jurisdiction, constitutes income of such person taxable in the year of receipt, and any amount or thing of value paid or transferred by or on behalf of a United States person (other than an entity with shares regularly traded on an established securities market) directly or indirectly to an account or entity (other than an entity with shares regularly traded on an established securities market) in any such jurisdiction represents previously unreported income of such person taxable in the year of the transfer.CommentsClose CommentsPermalink





‘(c) Rebutting the Presumptions- The presumptions established in this section may be rebutted only by clear and convincing evidence, including detailed documentary, testimonial, and transactional evidence, establishing that--CommentsClose CommentsPermalink





‘(1) in subsection (a), such taxpayer exercised no control, directly or indirectly, over such entity at the time in question, andCommentsClose CommentsPermalink





‘(2) in subsection (b), such amounts or things of value did not represent income related to such United States person.CommentsClose CommentsPermalink





Any court having jurisdiction of a civil proceeding in which control of such an offshore entity or the income character of such receipts or amounts transferred is an issue shall prohibit the introduction by the taxpayer of any foreign based document that is not authenticated in open court by a person with knowledge of such document, or any other evidence supplied by a person outside the jurisdiction of a United States court, unless such person appears before the court.’.CommentsClose CommentsPermalink





(2) The table of subchapters for chapter 76 is amended by inserting after the item relating to subchapter E the following new item:CommentsClose CommentsPermalink

‘subchapter f--presumptions for certain legal proceedings’.

(b) Definition of Offshore Secrecy Jurisdiction- Section 7701(a) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(50) OFFSHORE SECRECY JURISDICTION-CommentsClose CommentsPermalink





‘(A) IN GENERAL- The term ‘offshore secrecy jurisdiction’ means any foreign jurisdiction which is listed by the Secretary as an offshore secrecy jurisdiction for purposes of this title.CommentsClose CommentsPermalink





‘(B) DETERMINATION OF JURISDICTIONS ON LIST- A jurisdiction shall be listed under paragraph (A) if the Secretary determines that such jurisdiction has corporate, business, bank, or tax secrecy rules and practices which, in the judgment of the Secretary, unreasonably restrict the ability of the United States to obtain information relevant to the enforcement of this title, unless the Secretary also determines that such country has effective information exchange practices.CommentsClose CommentsPermalink





‘(C) SECRECY OR CONFIDENTIALITY RULES AND PRACTICES- For purposes of subparagraph (B), corporate, business, bank, or tax secrecy or confidentiality rules and practices include both formal laws and regulations and informal government or business practices having the effect of inhibiting access of law enforcement and tax administration authorities to beneficial ownership and other financial information.CommentsClose CommentsPermalink





‘(D) INEFFECTIVE INFORMATION EXCHANGE PRACTICES- For purposes of subparagraph (B), a jurisdiction shall be deemed to have ineffective information exchange practices unless the Secretary determines, on an annual basis, that--CommentsClose CommentsPermalink





‘(i) such jurisdiction has in effect a treaty or other information exchange agreement with the United States that provides for the prompt, obligatory, and automatic exchange of such information as is forseeably relevant for carrying out the provisions of the treaty or agreement or the administration or enforcement of this title,CommentsClose CommentsPermalink





‘(ii) during the 12-month period preceding the annual determination, the exchange of information between the United States and such jurisdiction was in practice adequate to prevent evasion or avoidance of United States income tax by United States persons and to enable the United States effectively to enforce this title, andCommentsClose CommentsPermalink





‘(iii) during the 12-month period preceding the annual determination, such jurisdiction was not identified by an intergovernmental group or organization of which the United States is a member as uncooperative with international tax enforcement or information exchange and the United States concurs in such identification.CommentsClose CommentsPermalink





‘(E) INITIAL LIST OF OFFSHORE SECRECY JURISDICTIONS- For purposes of this paragraph, each of the following foreign jurisdictions, which have been previously and publicly identified by the Internal Revenue Service as secrecy jurisdictions in Federal court proceedings, shall be deemed listed by the Secretary as an offshore secrecy jurisdiction unless delisted by the Secretary under subparagraph (F)(ii):CommentsClose CommentsPermalink





‘(i) Anguilla.CommentsClose CommentsPermalink





‘(ii) Antigua and Barbuda.CommentsClose CommentsPermalink





‘(iii) Aruba.CommentsClose CommentsPermalink





‘(iv) Bahamas.CommentsClose CommentsPermalink





‘(v) Barbados.CommentsClose CommentsPermalink





‘(vi) Belize.CommentsClose CommentsPermalink





‘(vii) Bermuda.CommentsClose CommentsPermalink





‘(viii) British Virgin Islands.CommentsClose CommentsPermalink





‘(ix) Cayman Islands.CommentsClose CommentsPermalink





‘(x) Cook Islands.CommentsClose CommentsPermalink





‘(xi) Costa Rica.CommentsClose CommentsPermalink





‘(xii) Cyprus.CommentsClose CommentsPermalink





‘(xiii) Dominica.CommentsClose CommentsPermalink





‘(xiv) Gibraltar.CommentsClose CommentsPermalink





‘(xv) Grenada.CommentsClose CommentsPermalink





‘(xvi) Guernsey/Sark/Alderney.CommentsClose CommentsPermalink





‘(xvii) Hong Kong.CommentsClose CommentsPermalink





‘(xviii) Isle of Man.CommentsClose CommentsPermalink





‘(xix) Jersey.CommentsClose CommentsPermalink





‘(xx) Latvia.CommentsClose CommentsPermalink





‘(xxi) Liechtenstein.CommentsClose CommentsPermalink





‘(xxii) Luxembourg.CommentsClose CommentsPermalink





‘(xxiii) Malta.CommentsClose CommentsPermalink





‘(xxiv) Nauru.CommentsClose CommentsPermalink





‘(xxv) Netherlands Antilles.CommentsClose CommentsPermalink





‘(xxvi) Panama.CommentsClose CommentsPermalink





‘(xxvii) Samoa.CommentsClose CommentsPermalink





‘(xxviii) St. Kitts and Nevis.CommentsClose CommentsPermalink





‘(xxix) St. Lucia.CommentsClose CommentsPermalink





‘(xxx) St. Vincent and the Grenadines.CommentsClose CommentsPermalink





‘(xxxi) Singapore.CommentsClose CommentsPermalink





‘(xxxii) Switzerland.CommentsClose CommentsPermalink





‘(xxxiii) Turks and Caicos.CommentsClose CommentsPermalink





‘(xxxiv) Vanuatu.CommentsClose CommentsPermalink





‘(F) MODIFICATIONS TO LIST- The Secretary--CommentsClose CommentsPermalink





‘(i) shall add to the list under paragraph (A) jurisdictions which meet the requirements of paragraph (B), andCommentsClose CommentsPermalink





‘(ii) may remove from such list only those jurisdictions which do not meet the requirements of paragraph (B).’.CommentsClose CommentsPermalink





(c) Presumptions for Securities Law Purposes- Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end the following the following new subsection:CommentsClose CommentsPermalink





‘(j) Presumptions Pertaining to Control and Beneficial Ownership-CommentsClose CommentsPermalink





‘(1) CONTROL- For purposes of any civil judicial or administrative proceeding under this title, there shall be a rebuttable presumption that a United States person (other than an entity with shares regularly traded on an established securities market) who directly or indirectly formed, transferred assets to, was a beneficiary of, had a beneficial interest in, or received money or property or the use thereof from an entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), formed, domiciled, or operating in an offshore secrecy jurisdiction (as defined in section 7701(a)(50) of the Internal Revenue Code of 1986), exercised control over such entity. The presumption of control created by this paragraph shall not be applied to prevent the Commission from determining or arguing the absence of control.CommentsClose CommentsPermalink





‘(2) BENEFICIAL OWNERSHIP- For purposes of any civil judicial or administrative proceeding under this title, there shall be a rebuttable presumption that securities that are nominally owned by an entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), formed, domiciled, or operating in an offshore secrecy jurisdiction (as so defined), are beneficially owned by any United States person (other than an entity with shares regularly traded on an established securities market) who directly or indirectly exercised control over such entity. The presumption of beneficial ownership created by this paragraph shall not be applied to prevent the Commission from determining or arguing the absence of beneficial ownership.’.CommentsClose CommentsPermalink





(d) Presumption for Reporting Purposes Relating to Foreign Financial Accounts- Section 5314 of title 31, United States Code, is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(d) Rebuttable Presumption- For purposes of this section, there shall be a rebuttable presumption that any account with a financial institution formed, domiciled, or operating in an offshore secrecy jurisdiction (as defined in section 7701(a)(50) of the Internal Revenue Code of 1986) contains funds in an amount that is at least sufficient to require a report prescribed by regulations under this section.’.CommentsClose CommentsPermalink





(e) Regulatory Authority and Effective Date-CommentsClose CommentsPermalink





(1) REGULATORY AUTHORITY- Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury and the Chairman of the Securities and Exchange Commission shall each adopt regulations or other guidance necessary to implement the amendments made by this section. The Secretary and the Chairman may by regulation or guidance provide that the presumption of control shall not extend to particular classes of transactions, such as corporate reorganizations or transactions below a specified dollar threshold, if either determines that applying such amendments to such transactions is not necessary to carry out the purposes of such amendments.CommentsClose CommentsPermalink





(2) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 102. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS, FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED STATES TAX ENFORCEMENT.

Section 5318A of title 31, United States Code, is amended--CommentsClose CommentsPermalink





(1) by striking the section heading and inserting the following:CommentsClose CommentsPermalink

‘Sec. 5318A. Special measures for jurisdictions, financial institutions, or international transactions that are of primary money laundering concern or impede United States tax enforcement’;

(2) in subsection (a), by striking the subsection heading and inserting the following:CommentsClose CommentsPermalink





‘(a) Special Measures To Counter Money Laundering and Efforts To Impede United States Tax Enforcement- ’;CommentsClose CommentsPermalink





(3) in subsection (c), by striking the subsection heading and inserting the following:CommentsClose CommentsPermalink





‘(c) Consultations and Information To Be Considered in Finding Jurisdictions, Institutions, Types of Accounts, or Transactions To Be of Primary Money Laundering Concern or To Be Impeding United States Tax Enforcement- ’;CommentsClose CommentsPermalink





(4) in subsection (a)(1), by inserting ‘or is impeding United States tax enforcement’ after ‘primary money laundering concern’;CommentsClose CommentsPermalink





(5) in subsection (a)(4)--CommentsClose CommentsPermalink





(A) in subparagraph (A)--CommentsClose CommentsPermalink





(i) by inserting ‘in matters involving money laundering,’ before ‘shall consult’; andCommentsClose CommentsPermalink





(ii) by striking ‘and’ at the end;CommentsClose CommentsPermalink





(B) by redesignating subparagraph (B) as subparagraph (C); andCommentsClose CommentsPermalink





(C) by inserting after subparagraph (A) the following:CommentsClose CommentsPermalink





‘(B) in matters involving United States tax enforcement, shall consult with the Commissioner of the Internal Revenue Service, the Secretary of State, the Attorney General of the United States, and in the sole discretion of the Secretary, such other agencies and interested parties as the Secretary may find to be appropriate; and’;CommentsClose CommentsPermalink





(6) in each of paragraphs (1)(A), (2), (3), and (4) of subsection (b), by inserting ‘or to be impeding United States tax enforcement’ after ‘primary money laundering concern’ each place that term appears;CommentsClose CommentsPermalink





(7) in subsection (b), by striking paragraph (5) and inserting the following:CommentsClose CommentsPermalink





‘(5) PROHIBITIONS OR CONDITIONS ON OPENING OR MAINTAINING CERTAIN CORRESPONDENT OR PAYABLE-THROUGH ACCOUNTS OR AUTHORIZING CERTAIN PAYMENT CARDS- If the Secretary finds a jurisdiction outside of the United States, 1 or more financial institutions operating outside of the United States, or 1 or more classes of transactions within or involving a jurisdiction outside of the United States to be of primary money laundering concern or to be impeding United States tax enforcement, the Secretary, in consultation with the Secretary of State, the Attorney General of the United States, and the Chairman of the Board of Governors of the Federal Reserve System, may prohibit, or impose conditions upon--CommentsClose CommentsPermalink





‘(A) the opening or maintaining in the United States of a correspondent account or payable-through account; orCommentsClose CommentsPermalink





‘(B) the authorization, approval, or use in the United States of a credit card, charge card, debit card, or similar credit or debit financial instrument by any domestic financial institution, financial agency, or credit card company or association, for or on behalf of a foreign banking institution, if such correspondent account, payable-through account, credit card, charge card, debit card, or similar credit or debit financial instrument, involves any such jurisdiction or institution, or if any such transaction may be conducted through such correspondent account, payable-through account, credit card, charge card, debit card, or similar credit or debit financial instrument.’; andCommentsClose CommentsPermalink





(8) in subsection (c)(1), by inserting ‘or is impeding United States tax enforcement’ after ‘primary money laundering concern’;CommentsClose CommentsPermalink





(9) in subsection (c)(2)(A)--CommentsClose CommentsPermalink





(A) in clause (ii), by striking ‘bank secrecy or special regulatory advantages’ and inserting ‘bank, tax, corporate, trust, or financial secrecy or regulatory advantages’;CommentsClose CommentsPermalink





(B) in clause (iii), by striking ‘supervisory and counter-money’ and inserting ‘supervisory, international tax enforcement, and counter-money’;CommentsClose CommentsPermalink





(C) in clause (v), by striking ‘banking or secrecy’ and inserting ‘banking, tax, or secrecy’; andCommentsClose CommentsPermalink





(D) in clause (vi), by inserting ‘, tax treaty, or tax information exchange agreement’ after ‘treaty’;CommentsClose CommentsPermalink





(10) in subsection (c)(2)(B)--CommentsClose CommentsPermalink





(A) in clause (i), by inserting ‘or tax evasion’ after ‘money laundering’; andCommentsClose CommentsPermalink





(B) in clause (iii), by inserting ‘, tax evasion,’ after ‘money laundering’; andCommentsClose CommentsPermalink





(11) in subsection (d), by inserting ‘involving money laundering, and shall notify, in writing, the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives of any such action involving United States tax enforcement’ after ‘such action’.CommentsClose CommentsPermalink

SEC. 103. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN THE UNITED STATES AS DOMESTIC CORPORATIONS.

(a) In General- Section 7701 (relating to definitions) is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:CommentsClose CommentsPermalink





‘(o) Certain Corporations Managed and Controlled in the United States Treated as Domestic for Income Tax-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Notwithstanding subsection (a)(4), in the case of a corporation described in paragraph (2) if--CommentsClose CommentsPermalink





‘(A) the corporation would not otherwise be treated as a domestic corporation for purposes of this title, butCommentsClose CommentsPermalink





‘(B) the management and control of the corporation occurs, directly or indirectly, primarily within the United States,CommentsClose CommentsPermalink





then, solely for purposes of chapter 1 (and any other provision of this title relating to chapter 1), the corporation shall be treated as a domestic corporation.CommentsClose CommentsPermalink





‘(2) CORPORATION DESCRIBED-CommentsClose CommentsPermalink





‘(A) IN GENERAL- A corporation is described in this paragraph if--CommentsClose CommentsPermalink





‘(i) the stock of such corporation is regularly traded on an established securities market, orCommentsClose CommentsPermalink





‘(ii) the aggregate gross assets of such corporation (or any predecessor thereof), including assets under management for investors, whether held directly or indirectly, at any time during the taxable year or any preceding taxable year is $50,000,000 or more.CommentsClose CommentsPermalink





‘(B) GENERAL EXCEPTION- A corporation shall not be treated as described in this paragraph if--CommentsClose CommentsPermalink





‘(i) such corporation was treated as a corporation described in this paragraph in a preceding taxable year,CommentsClose CommentsPermalink





‘(ii) such corporation--CommentsClose CommentsPermalink





‘(I) is not regularly traded on an established securities market, andCommentsClose CommentsPermalink





‘(II) has, and is reasonably expected to continue to have, aggregate gross assets (including assets under management for investors, whether held directly or indirectly) of less than $50,000,000, andCommentsClose CommentsPermalink





‘(iii) the Secretary grants a waiver to such corporation under this subparagraph.CommentsClose CommentsPermalink





‘(C) EXCEPTION FROM GROSS ASSETS TEST- Subparagraph (A)(ii) shall not apply to a corporation which is a controlled foreign corporation (as defined in section 957) and which is a member of an affiliated group (as defined section 1504, but determined without regard to section 1504(b)(3)) the common parent of which--CommentsClose CommentsPermalink





‘(i) is a domestic corporation (determined without regard to this subsection), andCommentsClose CommentsPermalink





‘(ii) has substantial assets (other than cash and cash equivalents and other than stock of foreign subsidiaries) held for use in the active conduct of a trade or business in the United States.CommentsClose CommentsPermalink





‘(3) MANAGEMENT AND CONTROL-CommentsClose CommentsPermalink





‘(A) IN GENERAL- The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as occurring primarily within the United States.CommentsClose CommentsPermalink





‘(B) EXECUTIVE OFFICERS AND SENIOR MANAGEMENT- Such regulations shall provide that--CommentsClose CommentsPermalink





‘(i) the management and control of a corporation shall be treated as occurring primarily within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the United States, andCommentsClose CommentsPermalink





‘(ii) individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to day responsibilities of the corporation described in clause (i).CommentsClose CommentsPermalink





‘(C) CORPORATIONS PRIMARILY HOLDING INVESTMENT ASSETS- Such regulations shall also provide that the management and control of a corporation shall be treated as occurring primarily within the United States if--CommentsClose CommentsPermalink





‘(i) the assets of such corporation (directly or indirectly) consist primarily of assets being managed on behalf of investors, andCommentsClose CommentsPermalink





‘(ii) decisions about how to invest the assets are made in the United States.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 104. ALLOWING MORE TIME FOR INVESTIGATIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) In General- Section 6501(c) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(11) RETURNS INVOLVING OFFSHORE SECRECY JURISDICTIONS- In the case of a return for a year in which the taxpayer directly or indirectly formed, owned, transferred assets to, was a beneficiary of, had a beneficial interest in, or received money or property or the use thereof from a financial account or an entity (other than an entity with shares regularly traded on an established securities market), including a trust, corporation, limited liability company, partnership, or foundation formed, located, domiciled or operating in an offshore secrecy jurisdiction, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to--CommentsClose CommentsPermalink





(1) returns filed after the date of the enactment of this Act, andCommentsClose CommentsPermalink





(2) returns filed on or before such date if the period specified in section 6501 of the Internal Revenue Code of 1986 (determined without regard to the amendments made by subsection (a)) for assessment of such taxes has not expired as of such date.CommentsClose CommentsPermalink

SEC. 105. REPORTING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED FINANCIAL ACCOUNTS.

(a) In General- Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6045B the following new sections:CommentsClose CommentsPermalink

‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED FINANCIAL ACCOUNTS.

‘(a) Requirement of Return- If--CommentsClose CommentsPermalink





‘(1) any withholding agent under sections 1441 and 1442 has the control, receipt, custody, disposal, or payment of any amount constituting gross income from sources within the United States of any foreign entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), andCommentsClose CommentsPermalink





‘(2) such withholding agent determines for purposes of titles 14, 18, or 31 of the United States Code that a United States person has any beneficial interest in the foreign entity or in the account in such entity’s name (hereafter in this section referred to as ‘United States beneficial owner’),CommentsClose CommentsPermalink





then the withholding agent shall make a return according to the forms or regulations prescribed by the Secretary.CommentsClose CommentsPermalink





‘(b) Required Information- For purposes of subsection (a) the information required to be included on the return shall include--CommentsClose CommentsPermalink





‘(1) the name, address, and, if known, the taxpayer identification number of the United States beneficial owner,CommentsClose CommentsPermalink





‘(2) the known facts pertaining to the relationship of such United States beneficial owner to the foreign entity and the account,CommentsClose CommentsPermalink





‘(3) the gross amount of income from sources within the United States (including gross proceeds from brokerage transactions), andCommentsClose CommentsPermalink





‘(4) such other information as the Secretary may by forms or regulations provide.CommentsClose CommentsPermalink





‘(c) Statements To Be Furnished to Beneficial Owners With Respect to Whom Information Is Required To Be Reported- A withholding agent required to make a return under subsection (a) shall furnish to each United States beneficial owner whose name is required to be set forth in such return a statement showing--CommentsClose CommentsPermalink





‘(1) the name, address, and telephone number of the information contact of the person required to make such return, andCommentsClose CommentsPermalink





‘(2) the information required to be shown on such return with respect to such United States beneficial owner.CommentsClose CommentsPermalink





The written statement required under the preceding sentence shall be furnished to the United States beneficial owner on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. In the event the person filing such return does not have a current address for the United States beneficial owner, such written statement may be mailed to the address of the foreign entity.CommentsClose CommentsPermalink

‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS REGARDING ESTABLISHMENT OF ACCOUNTS AND CREATION OF ENTITIES IN OFFSHORE SECRECY JURISDICTIONS.

‘(a) Requirement of Return- Any financial institution directly or indirectly--CommentsClose CommentsPermalink





‘(1) opening a bank, brokerage, or other financial account, orCommentsClose CommentsPermalink





‘(2) forming or acquiring an entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market),CommentsClose CommentsPermalink





in an offshore secrecy jurisdiction at the direction of, on behalf of, or for the benefit of a United States person shall make a return according to the forms or regulations prescribed by the Secretary.CommentsClose CommentsPermalink





‘(b) Required Information- For purposes of subsection (a) the information required to be included on the return shall include--CommentsClose CommentsPermalink





‘(1) the name, address, and taxpayer identification number of such United States person,CommentsClose CommentsPermalink





‘(2) the name and address of the financial institution at which a financial account is opened, the type of account, the account number, the name under which the account was opened, and the amount of the initial deposit,CommentsClose CommentsPermalink





‘(3) the name and address of an entity formed or acquired, the type of entity, and the name and address of any company formation agent or other professional employed to form or acquire the entity, andCommentsClose CommentsPermalink





‘(4) such other information as the Secretary may by forms or regulations provide.CommentsClose CommentsPermalink





‘(c) Statements To Be Furnished to United States Persons With Respect to Whom Information Is Required To Be Reported- A financial institution required to make a return under subsection (a) shall furnish to each United States person whose name is required to be set forth in such return a statement showing--CommentsClose CommentsPermalink





‘(1) the name, address, and telephone number of the information contact of the person required to make such return, andCommentsClose CommentsPermalink





‘(2) the information required to be shown on such return with respect to such United States person.CommentsClose CommentsPermalink





The written statement required under the preceding sentence shall be furnished to such United States person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.CommentsClose CommentsPermalink





‘(d) Exemption- The Secretary may by regulations exempt any class of United States persons or any class of accounts or entities from the requirements of this section if the Secretary determines that applying this section to such persons, accounts, or entities is not necessary to carry out the purposes of this section.’.CommentsClose CommentsPermalink





(b) Penalties-CommentsClose CommentsPermalink





(1) RETURNS- Section 6724(d)(1)(B) is amended by redesignating clauses (v) through (xxiii) as clauses (vii) through (xxv), respectively, and by inserting after clause (iv) the following new clauses:CommentsClose CommentsPermalink





‘(v) section 6045C(a) (relating to returns regarding United States beneficial owners of foreign owned financial accounts),CommentsClose CommentsPermalink





‘(vi) section 6045D(a) (relating to returns by financial institutions regarding establishment of accounts and creation of entities in offshore secrecy jurisdictions),’.CommentsClose CommentsPermalink





(2) PAYEE STATEMENTS- Section 6724(d)(2) is amended by redesignating subparagraphs (K) through (FF) as subparagraphs (M) through (HH), respectively, and by inserting after subparagraph (J) the following new subparagraphs:CommentsClose CommentsPermalink





‘(K) section 6045C(c) (relating to returns regarding United States beneficial owners of foreign owned financial accounts),CommentsClose CommentsPermalink





‘(L) section 6045D(c) (relating to returns by financial institutions regarding establishment of accounts and creation of entities in offshore secrecy jurisdictions),’.CommentsClose CommentsPermalink





(c) Clerical Amendment- The table of sections for such subpart is amended by inserting after the item relating to section 6045B the following new items:CommentsClose CommentsPermalink





‘Sec. 6045C. Returns regarding United States beneficial owners of foreign owned financial accounts.CommentsClose CommentsPermalink





‘Sec. 6045D. Returns by financial institutions regarding establishment of accounts and creation of entities in offshore secrecy jurisdictions.’.CommentsClose CommentsPermalink





(d) Additional Penalties-CommentsClose CommentsPermalink





(1) ADDITIONAL PENALTIES ON BANKS- Section 5239(b)(1) of the Revised Statutes (12 U.S.C. 93(b)(1)) is amended by inserting ‘or any of the provisions of section 6045D of the Internal Revenue Code of 1986,’ after ‘any regulation issued pursuant to,’.CommentsClose CommentsPermalink





(2) ADDITIONAL PENALTIES ON SECURITIES FIRMS- Section 21(d)(3)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is amended by inserting ‘any of the provisions of section 6045D of the Internal Revenue Code of 1986,’ after ‘the rules or regulations thereunder,’.CommentsClose CommentsPermalink





(e) Regulatory Authority and Effective Date-CommentsClose CommentsPermalink





(1) REGULATORY AUTHORITY- Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury shall adopt regulations, forms, or other guidance necessary to implement this section.CommentsClose CommentsPermalink





(2) EFFECTIVE DATE- Section 6045C of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (d)(1) shall take effect with respect to amounts paid into foreign owned accounts after December 31 of the year of the date of the enactment of this Act. Section 6045D of such Code (as so added) and the amendment made by subsection (d)(2) shall take effect with respect to accounts opened or entities formed or acquired after December 31 of the year of the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 106. PREVENTING MISUSE OF FOREIGN TRUSTS FOR TAX EVASION.

(a) Attribution of Trust Protector Powers to Grantors- Section 672 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:CommentsClose CommentsPermalink





‘(f) Grantor Treated as Holding Any Power or Interest of Trust Protector or Enforcer- For purposes of this subpart, a grantor shall be treated as holding any power or interest held by any trust protector or trust enforcer or similar person appointed to advise, influence, oversee, or veto the actions of the trustee.’.CommentsClose CommentsPermalink





(b) Treatment of United States Recipients of Foreign Trust Assets as Trust Beneficiaries- Section 679 is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection:CommentsClose CommentsPermalink





‘(c) Certain United States Persons Treated as Beneficiaries- Any United States person receiving from a foreign trust cash or other property, or receiving the use thereof, shall be treated as a beneficiary of such trust regardless of whether such person is a named beneficiary, except to the extent that such person paid fair market value for the benefit received.’.CommentsClose CommentsPermalink





(c) Treatment of Foreign Trust Transfers of Real Estate, Artwork, or Jewelry Consistently With Transfers of Securities- Section 643(i)(1) is amended by striking ‘or marketable securities’ and inserting ‘or other property, including real estate, marketable securities, artwork, jewelry, and other personal property,’.CommentsClose CommentsPermalink





(d) Treatment of Trusts With Future or Contingent United States Beneficiaries- Section 679(a)(1) is amended--CommentsClose CommentsPermalink





(1) by inserting ‘or for any subsequent year’ after ‘such year’, andCommentsClose CommentsPermalink





(2) by inserting ‘(including a contingent beneficiary)’ after ‘beneficiary’.CommentsClose CommentsPermalink

SEC. 107. LIMITATION ON LEGAL OPINION PROTECTION FROM PENALTIES WITH RESPECT TO TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) In General- Section 6664 is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(e) Certain Opinions May Not Be Relied Upon- For purposes of this part, an opinion of a tax advisor may not be relied upon to establish that there was reasonable cause for any portion of an underpayment, or that the taxpayer acted in good faith with respect to such portion, if such portion is attributable to a transaction any part of which involves an entity or financial account in an offshore secrecy jurisdiction.’.CommentsClose CommentsPermalink





(b) Regulatory Authority- The Secretary of the Treasury may by regulation or guidance provide that subsection (e) of section 6664 of the Internal Revenue Code of 1986, as added by subsection (a), does not apply to legal opinions that express a confidence level that substantially exceeds the ‘more likely than not’ confidence level; or that such subsection does not apply to classes of transactions, such as corporate reorganizations, where the Secretary determines that applying such subsection to such transactions is not necessary to carry out the purposes of such subsection.CommentsClose CommentsPermalink

SEC. 108. CLOSING THE OFFSHORE DIVIDEND TAX LOOPHOLE.

(a) In General- Section 871 is amended by redesignating subsection (l) as subsection (m) and by inserting after subsection (k) the following new subsection:CommentsClose CommentsPermalink





‘(l) Treatment of Dividend Equivalents and Substitute Dividend Payments-CommentsClose CommentsPermalink





‘(1) IN GENERAL- For purposes of this section and section 881--CommentsClose CommentsPermalink





‘(A) the term ‘dividend’ shall include dividend equivalents and substitute dividends,CommentsClose CommentsPermalink





‘(B) a dividend equivalent with respect to the stock of one or more domestic corporations shall be treated as sourced within the United States, andCommentsClose CommentsPermalink





‘(C) a substitute dividend payment shall be sourced in the same manner as a dividend distribution with respect to the transferred security to which the substitute dividend relates.CommentsClose CommentsPermalink





‘(2) DIVIDEND EQUIVALENT- For purposes of this subsection--CommentsClose CommentsPermalink





‘(A) IN GENERAL- The term ‘dividend equivalent’ includes any payment that is made pursuant to a notional principal contract and is contingent upon, or is referenced to, the payment of a dividend on stock or the payment of a dividend on property that is substantially similar or related to stock (determined in a manner similar to the manner under section 246(c)(4)(C)).CommentsClose CommentsPermalink





‘(B) NOTIONAL PRINCIPAL CONTRACT- For purposes of subparagraph (A), the term ‘notional principal contract’ means a financial instrument that provides for the payment of amounts by 1 party to another at specified intervals calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts.CommentsClose CommentsPermalink





‘(3) SUBSTITUTE DIVIDEND- For purposes of this subsection--CommentsClose CommentsPermalink





‘(A) IN GENERAL- The term ‘substitute dividend’ means a payment, made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction, of an amount equivalent to a dividend distribution which the owner of the transferred security is entitled to receive during the term of the transaction.CommentsClose CommentsPermalink





‘(B) SECURITIES LENDING TRANSACTION- For purposes of subparagraph (A), the term ‘securities lending transaction’ means a transfer of 1 or more securities that is described in section 1058(a) or a substantially similar transaction.CommentsClose CommentsPermalink





‘(C) SALE-REPURCHASE TRANSACTION- For purposes of subparagraph (A), the term ‘sale-repurchase transaction’ means an agreement under which a person transfers a security in exchange for cash and simultaneously agrees to receive substantially identical securities from the transferee in the future in exchange for cash.CommentsClose CommentsPermalink





‘(4) COORDINATION WITH TAX TREATIES- The meaning of the term ‘dividend’ in any income tax convention shall be construed to include dividend equivalents and substitute dividends in accordance with this section.CommentsClose CommentsPermalink





‘(5) PREVENTION OF OVER-WITHHOLDING- In the case of any dividend equivalent or substitute dividend that is subject to withholding under this section or section 881, the Secretary may by regulation reduce such withholding, but only to the extent that the taxpayer can establish that the dividend for which the payment to be withheld upon is a dividend equivalent or a substitute dividend that was previously withheld upon under this section or under section 881.’.CommentsClose CommentsPermalink





(b) Regulations-CommentsClose CommentsPermalink





(1) PROPOSED RULE- Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s designee) shall issue proposed regulations relating to section 871(l) of the Internal Revenue Code of 1986 (as added by this section).CommentsClose CommentsPermalink





(2) FINAL RULE- Not later than 150 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s designee) shall issue final regulations relating to such section.CommentsClose CommentsPermalink





(3) MATTERS INCLUDED- The regulations issued pursuant to this subsection shall require the imposition of withholding--CommentsClose CommentsPermalink





(A) in cases where dividend equivalent payments under notional principal contracts are netted with other payments under the same instrument,CommentsClose CommentsPermalink





(B) in cases where fees and other payments are netted to disguise the characterization of a payment as a substitute dividend, andCommentsClose CommentsPermalink





(C) in cases where option or forward contracts (or similar arrangements) achieve the same or substantially similar economic results as the notional principal contracts covered under section 871(l) of such Code.CommentsClose CommentsPermalink





(c) Qualified Intermediaries- The Secretary of the Treasury (or the Secretary’s designee) shall ensure that any qualified intermediary withholding agreement that the United States enters into or renews after the date of the enactment of this Act with a foreign financial institution or foreign branch of a United States financial institution conforms with the amendments made by this section to ensure appropriate withholding related to dividend equivalents and substitute dividends.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to payments made on or after the date that is 90 days after the date of the enactment of this Act.CommentsClose CommentsPermalink





(e) Rule of Construction- Nothing in this section or the amendments made by this section shall be construed to limit the authority of the Commissioner of the Internal Revenue Service to collect taxes, interest, and penalties on dividend equivalent or substitute dividend payments (as defined in section 871(l) of the Internal Revenue Code of 1986) made prior to the date of the enactment of this Act in connection with swap agreements, stock loan transactions, or other financial transactions involving nonresident aliens or foreign corporations.CommentsClose CommentsPermalink

SEC. 109. REPORTING OF ACTIVITIES WITH RESPECT TO PASSIVE FOREIGN INVESTMENT COMPANIES.

(a) In General- Section 1298 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:CommentsClose CommentsPermalink





‘(f) Reporting Requirement- Each person who is a shareholder of, or who directly or indirectly forms, transfers assets to, is a beneficiary of, has a beneficial interest in, or receives money or property or the use thereof from, a passive foreign investment company shall file a report containing such information as the Secretary may require.’.CommentsClose CommentsPermalink





(b) Conforming Amendment- Subsection (e) of section 1291 is amended by striking ‘, (d), and (f)’ and inserting ‘and (d)’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section take effect on the date of the enactment of this Act.CommentsClose CommentsPermalink

TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSESCommentsClose CommentsPermalink

SEC. 201. PENALTY FOR FAILING TO DISCLOSE OFFSHORE HOLDINGS.

(a) Securities Exchange Act of 1934- Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(iv) FOURTH TIER- Notwithstanding clauses (i), (ii), and (iii), the amount of the penalty for each such violation shall not exceed $1,000,000 for any person if the violation described in subparagraph (A) involved a knowing failure to disclose any holding or transaction involving equity or debt instruments of an issuer and known by such person to involve a foreign entity, including any trust, corporation, limited liability company, partnership, or foundation that is directly or indirectly controlled by such person, and which would have been otherwise subject to disclosure by such person under this title.’.CommentsClose CommentsPermalink





(b) Securities Act of 1933- Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(D) FOURTH TIER- Notwithstanding subparagraphs (A), (B), and (C), the amount of penalty for each such violation shall not exceed $1,000,000 for any person, if the violation described in paragraph (1) involved a knowing failure to disclose any holding or transaction involving equity or debt instruments of an issuer and known by such person to involve a foreign entity, including any trust, corporation, limited liability company, partnership, or foundation, directly or indirectly controlled by such person, and which would have been otherwise subject to disclosure by such person under this title.’.CommentsClose CommentsPermalink





(c) Investment Company Act of 1940- Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(D) FOURTH TIER- Notwithstanding subparagraphs (A), (B), and (C), the amount of penalty for each such violation shall not exceed $1,000,000 for any person, if the violation described in paragraph (1) involved a knowing failure to disclose any holding or transaction involving equity or debt instruments of an issuer and known by such person to involve a foreign entity, including any trust, corporation, limited liability company, partnership, or foundation, directly or indirectly controlled by such person, and which would have been otherwise subject to disclosure by such person under this title.’.CommentsClose CommentsPermalink





(d) Investment Advisers Act of 1940- Section 203(i)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(D) FOURTH TIER- Notwithstanding subparagraphs (A), (B), and (C), the amount of penalty for each such violation shall not exceed $1,000,000 for any person, if the violation described in paragraph (1) involved a knowing failure to disclose any holding or transaction involving equity or debt instruments of an issuer and known by such person to involve a foreign entity, including any trust, corporation, limited liability company, partnership, or foundation, directly or indirectly controlled by such person, and which would have been otherwise subject to disclosure by such person under this title.’.CommentsClose CommentsPermalink

SEC. 202. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR HEDGE FUNDS AND PRIVATE EQUITY FUNDS.

(a) In General-CommentsClose CommentsPermalink





(1) PROPOSED RULE- Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury, in consultation with the Chairman of the Securities and Exchange Commission and the Chairman of the Commodity Futures Trading Commission, shall publish a proposed rule in the Federal Register requiring unregistered investment companies, including hedge funds or private equity funds, to establish anti-money laundering programs and submit suspicious activity reports under subsections (g) and (h) of section 5318 of title 31, United States Code.CommentsClose CommentsPermalink





(2) FINAL RULE- Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury shall publish a final rule in the Federal Register on the matter described in paragraph (1).CommentsClose CommentsPermalink





(b) Contents- The final rule published under this section--CommentsClose CommentsPermalink





(1) shall require, at a minimum, that to safeguard against terrorist financing and money laundering, all unregistered investment companies shall--CommentsClose CommentsPermalink





(A) use risk-based due diligence policies, procedures, and controls that are reasonably designed to ascertain the identity of any foreign person (including the nominal and beneficial owner or beneficiary of a foreign corporation, partnership, trust, or other foreign entity) planning to supply or supplying funds to be invested with the advice or assistance of that unregistered investment company; andCommentsClose CommentsPermalink





(B) be subject to section 5318(k)(2) of title 31, United States Code; andCommentsClose CommentsPermalink





(2) may incorporate aspects of the proposed rule for unregistered investment companies published in the Federal Register on September 26, 2002 (67 Fed. Reg. 60617) (relating to anti-money laundering programs).CommentsClose CommentsPermalink





(c) Definitions- In this section--CommentsClose CommentsPermalink





(1) the terms ‘investment company’ and ‘issuer’ have the same meanings as in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2); andCommentsClose CommentsPermalink





(2) the term ‘unregistered investment company’ means an issuer that would be an investment company, but for the exclusion under paragraph (1) or (7) of section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)).CommentsClose CommentsPermalink

SEC. 203. ANTI-MONEY LAUNDERING REQUIREMENTS FOR FORMATION AGENTS.

(a) Anti-Money Laundering Obligations for Formation Agents- Section 5312(a)(2) of title 31, United States Code, is amended, by--CommentsClose CommentsPermalink





(1) in subparagraph (Y), by striking ‘or’ at the end;CommentsClose CommentsPermalink





(2) by redesignating subparagraph (Z) as subparagraph (AA); andCommentsClose CommentsPermalink





(3) by inserting after subparagraph (Y) the following:CommentsClose CommentsPermalink





‘(Z) persons involved in forming new corporations, limited liability companies, partnerships, trusts, or other legal entities; or’.CommentsClose CommentsPermalink





(b) Deadline for Anti-Money Laundering Rule for Formation Agents- Not later than 90 days after the date of the enactment of this Act, after consulting with the Attorney General of the United States, the Commissioner of the Internal Revenue Service, and Chairman of the Securities and Exchange Commission, the Secretary of the Treasury shall publish a proposed rule in the Federal Register requiring persons described in section 5312(a)(2)(Z) of title 31, United States Code, as added by this section, to establish anti-money laundering programs under subsection (h) of section 5318 of that title. The Secretary shall publish such rule in final form in the Federal Register not later than 180 days after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 204. STRENGTHENING SUMMONS IN CASES INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) In General- Subsection (f) of section 7609 is amended to read as follows:CommentsClose CommentsPermalink





‘(f) Additional Requirement in the Case of a John Doe Summons-CommentsClose CommentsPermalink





‘(1) GENERAL RULE- Any summons described in subsection (c)(1) which does not identify the person with respect to whose liability the summons is issued may be served only after a court proceeding in which the Secretary establishes that--CommentsClose CommentsPermalink





‘(A) the summons relates to the investigation of a particular person or ascertainable group or class of persons,CommentsClose CommentsPermalink





‘(B) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, andCommentsClose CommentsPermalink





‘(C) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.CommentsClose CommentsPermalink





‘(2) EXCEPTION- Paragraph (1) shall not apply to any summons which specifies that it is limited to information regarding a United States correspondent account (as defined in section 5318A(e)(1)(B) of title 31, United States Code) or a United States payable-through account (as defined in section 5318A(e)(1)(C) of such title) of a financial institution in an offshore secrecy jurisdiction.CommentsClose CommentsPermalink





‘(3) PRESUMPTION IN CASES INVOLVING OFFSHORE SECRECY JURISDICTIONS- For purposes of this section, in any case in which the particular person or ascertainable group or class of persons have financial accounts in or transactions related to offshore secrecy jurisdictions, there shall be a presumption that there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with provisions of internal revenue law.CommentsClose CommentsPermalink





‘(4) PROJECT JOHN DOE SUMMONSES-CommentsClose CommentsPermalink





‘(A) IN GENERAL- Notwithstanding the requirements of paragraph (1), the Secretary may issue a summons described in paragraph (1) if the summons--CommentsClose CommentsPermalink





‘(i) relates to a project which is approved under subparagraph (B),CommentsClose CommentsPermalink





‘(ii) is issued to a person who is a member of the group or class established under subparagraph (B)(i), andCommentsClose CommentsPermalink





‘(iii) is issued within 3 years of the date on which such project was approved under subparagraph (B).CommentsClose CommentsPermalink





‘(B) APPROVAL OF PROJECTS- A project may only be approved under this subparagraph after a court proceeding in which the Secretary establishes that--CommentsClose CommentsPermalink





‘(i) any summons issues with respect to the project will be issued to a member of an ascertainable group or class of persons, andCommentsClose CommentsPermalink





‘(ii) any summons issued with respect to such project will meet the requirements of subparagraphs (A), (B), and (C) of paragraph (1).CommentsClose CommentsPermalink





‘(C) EXTENSION- Upon application of the Secretary, the court may extend the time for issuing such summonses under subparagraph (A)(i) for additional 3-year periods, but only if the court continues to exercise oversight of such project under subparagraph (D).CommentsClose CommentsPermalink





‘(D) ONGOING COURT OVERSIGHT- During any period in which the Secretary is authorized to issue summonses in relation to a project approved under subparagraph (B) (including during any extension under subparagraph (C)), the Secretary shall report annually to the court on the use of such authority, provide copies of all summonses with such report, and comply with the court’s direction with respect to the issuance of any John Doe summons under such project.’.CommentsClose CommentsPermalink





(b) Jurisdiction of Court-CommentsClose CommentsPermalink





(1) IN GENERAL- Paragraph (1) of section 7609(h) is amended by inserting after the first sentence the following new sentence: ‘Any United States district court in which a member of the group or class to which a summons may be issued resides or is found shall have jurisdiction to hear and determine the approval of a project under subsection (f)(4)(B).’.CommentsClose CommentsPermalink





(2) CONFORMING AMENDMENT- The first sentence of section 7609(h)(1) is amended by striking ‘(f)’ and inserting ‘(f)(1)’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to summonses issued after the date of the enactment of this Act.CommentsClose CommentsPermalink





(d) GAO Report- Not later than the date which is 5 years after the date of the enactment of this Act, the Comptroller General of the United States shall issue a report on the implementation of section 7609(f)(4) of the Internal Revenue Code of 1986, as added by this section.CommentsClose CommentsPermalink

SEC. 205. IMPROVING ENFORCEMENT OF FOREIGN FINANCIAL ACCOUNT REPORTING.

(a) Clarifying the Connection of Foreign Financial Account Reporting to Tax Administration- Paragraph (4) of section 6103(b) (relating to tax administration) is amended by adding at the end the following new sentence:CommentsClose CommentsPermalink





‘For purposes of clause (i), section 5314 of title 31, United States Code, and sections 5321 and 5322 of such title (as such sections pertain to such section 5314), shall be considered to be an internal revenue law.’.CommentsClose CommentsPermalink





(b) Simplifying the Calculation of Foreign Financial Account Reporting Penalties- Section 5321(a)(5)(D)(ii) of title 31, United States Code, is amended by striking ‘the balance in the account at the time of the violation’ and inserting ‘the highest balance in the account during the reporting period to which the violation relates’.CommentsClose CommentsPermalink





(c) Clarifying the Use of Suspicious Activity Reports Under the Bank Secrecy Act for Civil Tax Law Enforcement- Section 5319 of title 31, United States Code, is amended by inserting ‘the civil and criminal enforcement divisions of the Internal Revenue Service,’ after ‘including’.CommentsClose CommentsPermalink

TITLE III--COMBATING TAX SHELTER PROMOTERSCommentsClose CommentsPermalink

SEC. 301. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

(a) Penalty for Promoting Abusive Tax Shelters- Section 6700 (relating to promoting abusive tax shelters, etc.) is amended--CommentsClose CommentsPermalink





(1) by redesignating subsections (b) and (c) as subsections (d) and (e), respectively,CommentsClose CommentsPermalink





(2) by striking ‘a penalty’ and all that follows through the period in the first sentence of subsection (a) and inserting ‘a penalty determined under subsection (b)’, andCommentsClose CommentsPermalink





(3) by inserting after subsection (a) the following new subsections:CommentsClose CommentsPermalink





‘(b) Amount of Penalty; Calculation of Penalty; Liability for Penalty-CommentsClose CommentsPermalink





‘(1) AMOUNT OF PENALTY- The amount of the penalty imposed by subsection (a) shall not exceed 150 percent of the gross income derived (or to be derived) from such activity by the person or persons subject to such penalty.CommentsClose CommentsPermalink





‘(2) CALCULATION OF PENALTY- The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of an activity described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who participated in such an activity.CommentsClose CommentsPermalink





‘(3) LIABILITY FOR PENALTY- If more than 1 person is liable under subsection (a) with respect to such activity, all such persons shall be jointly and severally liable for the penalty under such subsection.CommentsClose CommentsPermalink





‘(c) Penalty Not Deductible- The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.’.CommentsClose CommentsPermalink





(b) Conforming Amendment- Section 6700(a) is amended by striking the last sentence.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to activities after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 302. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX LIABILITY.

(a) In General- Section 6701(a) (relating to imposition of penalty) is amended--CommentsClose CommentsPermalink





(1) by inserting ‘the tax liability or’ after ‘respect to,’ in paragraph (1),CommentsClose CommentsPermalink





(2) by inserting ‘aid, assistance, procurement, or advice with respect to such’ before ‘portion’ both places it appears in paragraphs (2) and (3), andCommentsClose CommentsPermalink





(3) by inserting ‘instance of aid, assistance, procurement, or advice or each such’ before ‘document’ in the matter following paragraph (3).CommentsClose CommentsPermalink





(b) Amount of Penalty- Subsection (b) of section 6701 (relating to penalties for aiding and abetting understatement of tax liability) is amended to read as follows:CommentsClose CommentsPermalink





‘(b) Amount of Penalty; Calculation of Penalty; Liability for Penalty-CommentsClose CommentsPermalink





‘(1) AMOUNT OF PENALTY- The amount of the penalty imposed by subsection (a) shall not exceed 150 percent of the gross income derived (or to be derived) from such aid, assistance, procurement, or advice provided by the person or persons subject to such penalty.CommentsClose CommentsPermalink





‘(2) CALCULATION OF PENALTY- The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.CommentsClose CommentsPermalink





‘(3) LIABILITY FOR PENALTY- If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.’.CommentsClose CommentsPermalink





(c) Penalty Not Deductible- Section 6701 is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(g) Penalty Not Deductible- The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.’.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to activities after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 303. TAX PLANNING INVENTIONS NOT PATENTABLE.

(a) In General- Section 101 of title 35, United States Code, is amended--CommentsClose CommentsPermalink





(1) by striking ‘Whoever’ and inserting ‘(a) Patentable Inventions- Whoever’, andCommentsClose CommentsPermalink





(2) by adding at the end the following:CommentsClose CommentsPermalink





‘(b) Tax Planning Inventions-CommentsClose CommentsPermalink





‘(1) UNPATENTABLE SUBJECT MATTER- A patent may not be obtained for a tax planning invention.CommentsClose CommentsPermalink





‘(2) DEFINITIONS- For purposes of paragraph (1)--CommentsClose CommentsPermalink





‘(A) the term ‘tax planning invention’ means a plan, strategy, technique, scheme, process, or system that is designed to reduce, minimize, determine, avoid, or defer, or has, when implemented, the effect of reducing, minimizing, determining, avoiding, or deferring, a taxpayer’s tax liability or is designed to facilitate compliance with tax laws, but does not include tax preparation software and other tools or systems used solely to prepare tax or information returns,CommentsClose CommentsPermalink





‘(B) the term ‘taxpayer’ means an individual, entity, or other person (as defined in section 7701 of the Internal Revenue Code of 1986),CommentsClose CommentsPermalink





‘(C) the terms ‘tax’, ‘tax laws’, ‘tax liability’, and ‘taxation’ refer to any Federal, State, county, city, municipality, foreign, or other governmental levy, assessment, or imposition, whether measured by income, value, or otherwise, andCommentsClose CommentsPermalink





‘(D) the term ‘State’ means each of the several States, the District of Columbia, and any commonwealth, territory, or possession of the United States.’.CommentsClose CommentsPermalink





(b) Applicability- The amendments made by this section--CommentsClose CommentsPermalink





(1) shall take effect on the date of the enactment of this Act,CommentsClose CommentsPermalink





(2) shall apply to any application for patent or application for a reissue patent that is--CommentsClose CommentsPermalink





(A) filed on or after the date of the enactment of this Act, orCommentsClose CommentsPermalink





(B) filed before that date if a patent or reissue patent has not been issued pursuant to the application as of that date, andCommentsClose CommentsPermalink





(3) shall not be construed as validating any patent issued before the date of the enactment of this Act for an invention described in section 101(b) of title 35, United States Code, as added by this section.CommentsClose CommentsPermalink

SEC. 304. PROHIBITED FEE ARRANGEMENT.

(a) In General- Section 6701, as amended by this Act, is amended--CommentsClose CommentsPermalink





(1) by redesignating subsections (f) and (g) as subsections (g) and (h), respectively,CommentsClose CommentsPermalink





(2) by striking ‘subsection (a).’ in paragraphs (2) and (3) of subsection (g) (as redesignated by paragraph (1)) and inserting ‘subsection (a) or (f).’, andCommentsClose CommentsPermalink





(3) by inserting after subsection (e) the following new subsection:CommentsClose CommentsPermalink





‘(f) Prohibited Fee Arrangement-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Any person who makes an agreement for, charges, or collects a fee which is for services provided in connection with the internal revenue laws, and the amount of which is calculated according to, or is dependent upon, a projected or actual amount of--CommentsClose CommentsPermalink





‘(A) tax savings or benefits, orCommentsClose CommentsPermalink





‘(B) losses which can be used to offset other taxable income,CommentsClose CommentsPermalink





shall pay a penalty with respect to each such fee activity in the amount determined under subsection (b).CommentsClose CommentsPermalink





‘(2) RULES- The Secretary may issue rules to carry out the purposes of this subsection and may provide exceptions for fee arrangements that are in the public interest.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendments made by this section shall apply to fee agreements, charges, and collections made after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 305. PREVENTING TAX SHELTER ACTIVITIES BY FINANCIAL INSTITUTIONS.

(a) Examinations-CommentsClose CommentsPermalink





(1) DEVELOPMENT OF EXAMINATION TECHNIQUES- Each of the Federal banking agencies and the Commission shall, in consultation with the Internal Revenue Service, develop examination techniques to detect potential violations of section 6700 or 6701 of the Internal Revenue Code of 1986, by depository institutions, brokers, dealers, and investment advisers, as appropriate.CommentsClose CommentsPermalink





(2) IMPLEMENTATION- Each of the Federal banking agencies and the Commission shall implement the examination techniques developed under paragraph (1) with respect to each of the depository institutions, brokers, dealers, or investment advisers subject to their enforcement authority. Such examination shall, to the extent possible, be combined with any examination by such agency otherwise required or authorized by Federal law.CommentsClose CommentsPermalink





(b) Report to Internal Revenue Service- In any case in which an examination conducted under this section with respect to a financial institution or other entity reveals a potential violation, such agency shall promptly notify the Internal Revenue Service of such potential violation for investigation and enforcement by the Internal Revenue Service, in accordance with applicable provisions of law.CommentsClose CommentsPermalink





(c) Report to Congress- The Federal banking agencies and the Commission shall submit a joint written report to Congress in 2010 and 2013 on their progress in preventing violations of sections 6700 and 6701 of the Internal Revenue Code of 1986, by depository institutions, brokers, dealers, and investment advisers, as appropriate.CommentsClose CommentsPermalink





(d) Definitions- For purposes of this section--CommentsClose CommentsPermalink





(1) the terms ‘broker’, ‘dealer’, and ‘investment adviser’ have the same meanings as in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c);CommentsClose CommentsPermalink





(2) the term ‘Commission’ means the Securities and Exchange Commission;CommentsClose CommentsPermalink





(3) the term ‘depository institution’ has the same meaning as in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c));CommentsClose CommentsPermalink





(4) the term ‘Federal banking agencies’ has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)); andCommentsClose CommentsPermalink





(5) the term ‘Secretary’ means the Secretary of the Treasury.CommentsClose CommentsPermalink

SEC. 306. INFORMATION SHARING FOR ENFORCEMENT PURPOSES.

(a) Promotion of Prohibited Tax Shelters or Tax Avoidance Schemes- Section 6103(h) (relating to disclosure to certain Federal officers and employees for purposes of tax administration, etc.) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(7) DISCLOSURE OF RETURNS AND RETURN INFORMATION RELATED TO PROMOTION OF PROHIBITED TAX SHELTERS OR TAX AVOIDANCE SCHEMES-CommentsClose CommentsPermalink





‘(A) WRITTEN REQUEST- Upon receipt by the Secretary of a written request which meets the requirements of subparagraph (B) from the head of the United States Securities and Exchange Commission, an appropriate Federal banking agency as defined under section 1813(q) of title 12, United States Code, or the Public Company Accounting Oversight Board, a return or return information shall be disclosed to such requestor’s officers and employees who are personally and directly engaged in an investigation, examination, or proceeding by such requestor to evaluate, determine, penalize, or deter conduct by a financial institution, issuer, or public accounting firm, or associated person, in connection with a potential or actual violation of section 6700 (promotion of abusive tax shelters), 6701 (aiding and abetting understatement of tax liability), or activities related to promoting or facilitating inappropriate tax avoidance or tax evasion. Such disclosure shall be solely for use by such officers and employees in such investigation, examination, or proceeding. In the discretion of the Secretary, such disclosure may take the form of the participation of Internal Revenue Service employees in a joint investigation, examination, or proceeding with the Securities Exchange Commission, Federal banking agency, or Public Company Accounting Oversight Board.CommentsClose CommentsPermalink





‘(B) REQUIREMENTS- A request meets the requirements of this subparagraph if it sets forth--CommentsClose CommentsPermalink





‘(i) the nature of the investigation, examination, or proceeding,CommentsClose CommentsPermalink





‘(ii) the statutory authority under which such investigation, examination, or proceeding is being conducted,CommentsClose CommentsPermalink





‘(iii) the name or names of the financial institution, issuer, or public accounting firm to which such return information relates,CommentsClose CommentsPermalink





‘(iv) the taxable period or periods to which such return information relates, andCommentsClose CommentsPermalink





‘(v) the specific reason or reasons why such disclosure is, or may be, relevant to such investigation, examination or proceeding.CommentsClose CommentsPermalink





‘(C) FINANCIAL INSTITUTION- For the purposes of this paragraph, the term ‘financial institution’ means a depository institution, foreign bank, insured institution, industrial loan company, broker, dealer, investment company, investment advisor, or other entity subject to regulation or oversight by the United States Securities and Exchange Commission or an appropriate Federal banking agency.’.CommentsClose CommentsPermalink





(b) Financial and Accounting Fraud Investigations- Section 6103(i) (relating to disclosure to Federal officers or employees for administration of Federal laws not relating to tax administration) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(9) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR USE IN FINANCIAL AND ACCOUNTING FRAUD INVESTIGATIONS-CommentsClose CommentsPermalink





‘(A) WRITTEN REQUEST- Upon receipt by the Secretary of a written request which meets the requirements of subparagraph (B) from the head of the United States Securities and Exchange Commission or the Public Company Accounting Oversight Board, a return or return information shall be disclosed to such requestor’s officers and employees who are personally and directly engaged in an investigation, examination, or proceeding by such requester to evaluate the accuracy of a financial statement or report, or to determine whether to require a restatement, penalize, or deter conduct by an issuer, investment company, or public accounting firm, or associated person, in connection with a potential or actual violation of auditing standards or prohibitions against false or misleading statements or omissions in financial statements or reports. Such disclosure shall be solely for use by such officers and employees in such investigation, examination, or proceeding.CommentsClose CommentsPermalink





‘(B) REQUIREMENTS- A request meets the requirements of this subparagraph if it sets forth--CommentsClose CommentsPermalink





‘(i) the nature of the investigation, examination, or proceeding,CommentsClose CommentsPermalink





‘(ii) the statutory authority under which such investigation, examination, or proceeding is being conducted,CommentsClose CommentsPermalink





‘(iii) the name or names of the issuer, investment company, or public accounting firm to which such return information relates,CommentsClose CommentsPermalink





‘(iv) the taxable period or periods to which such return information relates, andCommentsClose CommentsPermalink





‘(v) the specific reason or reasons why such disclosure is, or may be, relevant to such investigation, examination or proceeding.’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to disclosures and to information and document requests made after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 307. DISCLOSURE OF INFORMATION TO CONGRESS.

(a) Disclosure by Tax Return Preparer-CommentsClose CommentsPermalink





(1) IN GENERAL- Subparagraph (B) of section 7216(b)(1) (relating to disclosures) is amended to read as follows:CommentsClose CommentsPermalink





‘(B) pursuant to any 1 of the following documents, if clearly identified:CommentsClose CommentsPermalink





‘(i) The order of any Federal, State, or local court of record.CommentsClose CommentsPermalink





‘(ii) A subpoena issued by a Federal or State grand jury.CommentsClose CommentsPermalink





‘(iii) An administrative order, summons, or subpoena which is issued in the performance of its duties by--CommentsClose CommentsPermalink





‘(I) any Federal agency, including Congress or any committee or subcommittee thereof, orCommentsClose CommentsPermalink





‘(II) any State agency, body, or commission charged under the laws of the State or a political subdivision of the State with the licensing, registration, or regulation of tax return preparers.’.CommentsClose CommentsPermalink





(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to disclosures made after the date of the enactment of this Act pursuant to any document in effect on or after such date.CommentsClose CommentsPermalink





(b) Disclosure by Secretary- Paragraph (2) of section 6104(a) (relating to inspection of applications for tax exemption or notice of status) is amended to read as follows:CommentsClose CommentsPermalink





‘(2) INSPECTION BY CONGRESS-CommentsClose CommentsPermalink





‘(A) IN GENERAL- Upon receipt of a written request from a committee or subcommittee of Congress, copies of documents related to a determination by the Secretary to grant, deny, revoke, or restore an organization’s exemption from taxation under section 501 shall be provided to such committee or subcommittee, including any application, notice of status, or supporting information provided by such organization to the Internal Revenue Service; any letter, analysis, or other document produced by or for the Internal Revenue Service evaluating, determining, explaining, or relating to the tax exempt status of such organization (other than returns, unless such returns are available to the public under this section or section 6103 or 6110); and any communication between the Internal Revenue Service and any other party relating to the tax exempt status of such organization.CommentsClose CommentsPermalink





‘(B) ADDITIONAL INFORMATION- Section 6103(f) shall apply with respect to--CommentsClose CommentsPermalink





‘(i) the application for exemption of any organization described in subsection (c) or (d) of section 501 which is exempt from taxation under section 501(a) for any taxable year and any application referred to in subparagraph (B) of subsection (a)(1) of this section, andCommentsClose CommentsPermalink





‘(ii) any other papers which are in the possession of the Secretary and which relate to such application,CommentsClose CommentsPermalink





as if such papers constituted returns.’.CommentsClose CommentsPermalink





(c) Effective Date- The amendments made by this section shall apply to disclosures and to information and document requests made after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 308. TAX OPINION STANDARDS FOR TAX PRACTITIONERS.

Section 330(d) of title 31, United States Code, is amended to read as follows:CommentsClose CommentsPermalink





‘(d) The Secretary of the Treasury shall impose standards applicable to the rendering of written advice with respect to any listed transaction or any entity, plan, arrangement, or other transaction which has a potential for tax avoidance or evasion. Such standards shall address, but not be limited to, the following issues:CommentsClose CommentsPermalink





‘(1) Independence of the practitioner issuing such written advice from persons promoting, marketing, or recommending the subject of the advice.CommentsClose CommentsPermalink





‘(2) Collaboration among practitioners, or between a practitioner and other party, which could result in such collaborating parties having a joint financial interest in the subject of the advice.CommentsClose CommentsPermalink





‘(3) Avoidance of conflicts of interest which would impair auditor independence.CommentsClose CommentsPermalink





‘(4) For written advice issued by a firm, standards for reviewing the advice and ensuring the consensus support of the firm for positions taken.CommentsClose CommentsPermalink





‘(5) Reliance on reasonable factual representations by the taxpayer and other parties.CommentsClose CommentsPermalink





‘(6) Appropriateness of the fees charged by the practitioner for the written advice.CommentsClose CommentsPermalink





‘(7) Preventing practitioners and firms from aiding or abetting the understatement of tax liability by clients.CommentsClose CommentsPermalink





‘(8) Banning the promotion of potentially abusive or illegal tax shelters.’.CommentsClose CommentsPermalink

SEC. 309. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS.

(a) In General- Subsection (f) of section 162 (relating to trade or business expenses) is amended to read as follows:CommentsClose CommentsPermalink





‘(f) Fines, Penalties, and Other Amounts-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or entity described in paragraph (4) in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.CommentsClose CommentsPermalink





‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING RESTITUTION- Paragraph (1) shall not apply to any amount which--CommentsClose CommentsPermalink





‘(A) the taxpayer establishes constitutes restitution (including remediation of property) for damage or harm caused by or which may be caused by the violation of any law or the potential violation of any law, andCommentsClose CommentsPermalink





‘(B) is identified as restitution in the court order or settlement agreement.CommentsClose CommentsPermalink





Identification pursuant to subparagraph (B) alone shall not satisfy the requirement under subparagraph (A). This paragraph shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation.CommentsClose CommentsPermalink





‘(3) EXCEPTION FOR AMOUNTS PAID OR INCURRED AS THE RESULT OF CERTAIN COURT ORDERS- Paragraph (1) shall not apply to any amount paid or incurred by order of a court in a suit in which no government or entity described in paragraph (4) is a party.CommentsClose CommentsPermalink





‘(4) CERTAIN NONGOVERNMENTAL REGULATORY ENTITIES- An entity is described in this paragraph if it is--CommentsClose CommentsPermalink





‘(A) a nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)), orCommentsClose CommentsPermalink





‘(B) to the extent provided in regulations, a nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.CommentsClose CommentsPermalink





‘(5) EXCEPTION FOR TAXES DUE- Paragraph (1) shall not apply to any amount paid or incurred as taxes due.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendment shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date.CommentsClose CommentsPermalink

TITLE IV--REQUIRING ECONOMIC SUBSTANCECommentsClose CommentsPermalink

SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

(a) In General- Section 7701, as amended by section 103, is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:CommentsClose CommentsPermalink





‘(p) Clarification of Economic Substance Doctrine; Etc-CommentsClose CommentsPermalink





‘(1) GENERAL RULES-CommentsClose CommentsPermalink





‘(A) IN GENERAL- In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction (or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.CommentsClose CommentsPermalink





‘(B) DEFINITION OF ECONOMIC SUBSTANCE- For purposes of subparagraph (A)--CommentsClose CommentsPermalink





‘(i) IN GENERAL- A transaction has economic substance only if--CommentsClose CommentsPermalink





‘(I) the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer’s economic position, andCommentsClose CommentsPermalink





‘(II) subject to clause (iii), the taxpayer has a substantial purpose (other than a Federal tax purpose) for entering into such transaction.CommentsClose CommentsPermalink





‘(ii) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL- A transaction shall not be treated as having economic substance solely by reason of having a potential for profit unless the present value of the reasonably expected pre-Federal tax profit from the transaction is substantial in relation to the present value of the expected net Federal tax benefits that would be allowed if the transaction were respected. In determining pre-Federal tax profit, there shall be taken into account fees and other transaction expenses and to the extent provided by the Secretary, foreign taxes.CommentsClose CommentsPermalink





‘(iii) SPECIAL RULES FOR DETERMINING WHETHER NON-FEDERAL TAX PURPOSE- For purposes of clause (i)(II)--CommentsClose CommentsPermalink





‘(I) a purpose of achieving a financial accounting benefit shall not be taken into account in determining whether a transaction has a substantial purpose (other than a Federal tax purpose) if the origin of such financial accounting benefit is a reduction of Federal tax, andCommentsClose CommentsPermalink





‘(II) the taxpayer shall not be treated as having a substantial purpose (other than a Federal tax purpose) with respect to a transaction if the only such purpose is the reduction of non-Federal taxes and the transaction will result in a reduction of Federal taxes substantially equal to, or greater than, the reduction in non-Federal taxes because of similarities between the laws imposing the taxes.CommentsClose CommentsPermalink





‘(2) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection--CommentsClose CommentsPermalink





‘(A) ECONOMIC SUBSTANCE DOCTRINE- The term ‘economic substance doctrine’ means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.CommentsClose CommentsPermalink





‘(B) EXCEPTION FOR PERSONAL TRANSACTIONS OF INDIVIDUALS- In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.CommentsClose CommentsPermalink





‘(3) OTHER PROVISIONS NOT AFFECTED- Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law or provision of this title, and the requirements of this subsection shall be construed as being in addition to any such other rule of law or provision of this title.CommentsClose CommentsPermalink





‘(4) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 402. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

(a) In General- Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:CommentsClose CommentsPermalink

‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

‘(a) Imposition of Penalty- If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 30 percent of the amount of such understatement.CommentsClose CommentsPermalink





‘(b) Reduction of Penalty for Disclosed Transactions- Subsection (a) shall be applied by substituting ‘20 percent’ for ‘30 percent’ with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.CommentsClose CommentsPermalink





‘(c) Noneconomic Substance Transaction Understatement- For purposes of this section--CommentsClose CommentsPermalink





‘(1) IN GENERAL- The term ‘noneconomic substance transaction understatement’ means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.CommentsClose CommentsPermalink





‘(2) NONECONOMIC SUBSTANCE TRANSACTION- The term ‘noneconomic substance transaction’ means any transaction if there is a lack of economic substance (within the meaning of section 7701(p)(1)(B)) for the transaction giving rise to the claimed benefit.CommentsClose CommentsPermalink





‘(d) Rules Applicable To Assertion, Compromise, and Collection of Penalty-CommentsClose CommentsPermalink





‘(1) IN GENERAL- Only the Chief Counsel for the Internal Revenue Service may assert a penalty imposed under this section or may compromise all or any portion of such penalty. The Chief Counsel may delegate the authority under this paragraph only to an individual holding the position of chief of a branch within the Office of the Chief Counsel for the Internal Revenue Service.CommentsClose CommentsPermalink





‘(2) SPECIFIC REQUIREMENTS-CommentsClose CommentsPermalink





‘(A) ASSERTION OF PENALTY- The Chief Counsel for the Internal Revenue Service (or the Chief Counsel’s delegate under paragraph (1)) shall not assert a penalty imposed under this section unless, before the assertion of the penalty, the taxpayer is provided--CommentsClose CommentsPermalink





‘(i) a notice of intent to assert the penalty, andCommentsClose CommentsPermalink





‘(ii) an opportunity to provide to the Commissioner (or the Chief Counsel’s delegate under paragraph (1)) a written response to the proposed penalty within a reasonable period of time after such notice.CommentsClose CommentsPermalink





‘(B) COMPROMISE OF PENALTY- A compromise shall not result in a reduction in the penalty imposed by this section in an amount greater than the amount which bears the same ratio to the amount of the penalty determined without regard to the compromise as--CommentsClose CommentsPermalink





‘(i) the reduction under the compromise in the noneconomic substance transaction understatement to which the penalty relates, bears toCommentsClose CommentsPermalink





‘(ii) the amount of the noneconomic substance transaction understatement determined without regard to the compromise.CommentsClose CommentsPermalink





‘(3) RULES RELATING TO RELEVANCY REQUIREMENT-CommentsClose CommentsPermalink





‘(A) DETERMINATION OF RELEVANCE BY CHIEF COUNSEL- The Chief Counsel for the Internal Revenue Service (or the Chief Counsel’s delegate under paragraph (1)) may assert, compromise, or collect a penalty imposed by this section with respect to a noneconomic substance transaction even if there has not been a court determination that the economic substance doctrine was relevant for purposes of this title to the transaction if the Chief Counsel (or delegate) determines that either was so relevant.CommentsClose CommentsPermalink





‘(B) FINAL ORDER OF COURT- If there is a final order of a court that determines that the economic substance doctrine was not relevant for purposes of this title to a transaction (or series of transactions), any penalty imposed under this section with respect to the transaction (or series of transactions) shall be rescinded.CommentsClose CommentsPermalink





‘(4) APPLICABLE RULES- The rules of paragraphs (2) and (3) of section 6707A(d) shall apply to a compromise under paragraph (1).CommentsClose CommentsPermalink





‘(e) Coordination With Other Penalties- Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.CommentsClose CommentsPermalink





‘(f) Cross References-CommentsClose CommentsPermalink





‘(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).CommentsClose CommentsPermalink





‘(2) For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).’.CommentsClose CommentsPermalink





(b) Coordination With Other Understatements and Penalties-CommentsClose CommentsPermalink





(1) The second sentence of section 6662(d)(2)(A) is amended by inserting ‘and without regard to items with respect to which a penalty is imposed by section 6662B’ before the period at the end.CommentsClose CommentsPermalink





(2) Subsection (e) of section 6662A is amended--CommentsClose CommentsPermalink





(A) in paragraph (1), by inserting ‘and noneconomic substance transaction understatements’ after ‘reportable transaction understatements’ both places it appears,CommentsClose CommentsPermalink





(B) in paragraph (2)(A)--CommentsClose CommentsPermalink





(i) by inserting ‘6662B or’ before ‘6663’ in the text, andCommentsClose CommentsPermalink





(ii) by striking ‘penalty’ in the heading and inserting ‘and economic substance penalties’,CommentsClose CommentsPermalink





(C) in paragraph (2)(B)--CommentsClose CommentsPermalink





(i) by inserting ‘and section 6662B’ after ‘This section’, andCommentsClose CommentsPermalink





(ii) by striking ‘penalty’ in the heading and inserting ‘and economic substance penalties’,CommentsClose CommentsPermalink





(D) in paragraph (3), by inserting ‘or noneconomic substance transaction understatement’ after ‘reportable transaction understatement’, andCommentsClose CommentsPermalink





(E) by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(4) NONECONOMIC SUBSTANCE TRANSACTION UNDERSTATEMENT- For purposes of this subsection, the term ‘noneconomic substance transaction understatement’ has the meaning given such term by section 6662B(c).’.CommentsClose CommentsPermalink





(3) Subsection (e) of section 6707A is amended--CommentsClose CommentsPermalink





(A) by striking ‘or’ at the end of subparagraph (B), andCommentsClose CommentsPermalink





(B) by striking subparagraph (C) and inserting the following new subparagraphs:CommentsClose CommentsPermalink





‘(C) is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, orCommentsClose CommentsPermalink





‘(D) is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(B)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or to penalty under section 6662B,’.CommentsClose CommentsPermalink





(c) Clerical Amendment- The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item:CommentsClose CommentsPermalink





‘Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.’.CommentsClose CommentsPermalink





(d) Effective Date- The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.CommentsClose CommentsPermalink

SEC. 403. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

(a) In General- Section 163(m) (relating to interest on unpaid taxes attributable to nondisclosed reportable transactions) is amended--CommentsClose CommentsPermalink





(1) by striking ‘attributable’ and all that follows and inserting the following: ‘attributable to--CommentsClose CommentsPermalink





‘(1) the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, orCommentsClose CommentsPermalink





‘(2) any noneconomic substance transaction understatement (as defined in section 6662B(c)).’, andCommentsClose CommentsPermalink





(2) by inserting ‘and noneconomic substance transactions’ in the heading thereof after ‘transactions’.CommentsClose CommentsPermalink





(b) Effective Date- The amendments made by this section shall apply to transactions after the date of the enactment of this Act in taxable years ending after such date.CommentsClose CommentsPermalink