II 

112TH CONGRESS 

2D SESSION S. 2075 

To close unjustified corporate tax loopholes, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 7, 2012 

Mr. LEVIN (for himself and Mr. CONRAD) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To close unjustified corporate tax loopholes, and for other 

purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Cut Unjustified Tax Loopholes Act’’ or ‘‘CUT Loopholes 

6 Act’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment 

10 to, or repeal of, a section or other provision, the reference 


jbell on DSK7SPTVN1PROD with BILLS
2 

•S 2075 IS

1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 (c) TABLE OF CONTENTS.—The table of contents of 

4 this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—ENDING OFFSHORE TAX ABUSES 

Subtitle A—Deterring the Use of Tax Havens for Tax Evasion 

Sec. 101. Authorizing special measures against foreign jurisdictions, financial 

institutions, and others that impede United States tax enforcement. 

Sec. 102. Strengthening the Foreign Account Tax Compliance Act (FATCA). 

Sec. 103. Treatment of foreign corporations managed and controlled in the 

United States as domestic corporations. 

Sec. 104. Reporting United States beneficial owners of foreign owned financial 

accounts. 

Sec. 105. Swap payments made from the United States to persons offshore. 

Sec. 106. Tax on income of controlled foreign corporation deposited in financial 

account located in the United States. 

Subtitle B—Other Measures to Combat Tax Haven and Tax Shelter Abuses 

Sec. 111. Country-by-country reporting. 

Sec. 112. Penalty for failing to disclose offshore holdings. 

Sec. 113. Deadline for anti-money laundering rule for private funds and venture capital funds. 

Sec. 114. Anti-money laundering requirements for formation agents. 

Sec. 115. Strengthening John Doe summons proceedings. 

Sec. 116. Improving enforcement of foreign financial account reporting. 

Subtitle C—Combating Tax Shelter Promoters 

Sec. 121. Penalty for promoting abusive tax shelters. 

Sec. 122. Penalty for aiding and abetting the understatement of tax liability. 

Sec. 123. Prohibited fee arrangement. 

Sec. 124. Preventing tax shelter activities by financial institutions. 

Sec. 125. Information sharing for enforcement purposes. 

Sec. 126. Disclosure of information to Congress. 

Sec. 127. Tax opinion standards for tax practitioners. 

Subtitle D—Reformation of U.S. International Tax System 

Sec. 131. Allocation of expenses and taxes on basis of repatriation of foreign 

income. 

Sec. 132. Excess income from transfers of intangibles to low-taxed affiliates 

treated as subpart F income. 

Sec. 133. Limitations on income shifting through intangible property transfers. 

Sec. 134. Limitation on earnings stripping by expatriated entities. 

TITLE II—ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS 

FOR STOCK OPTIONS 


jbell on DSK7SPTVN1PROD with BILLS
3 

•S 2075 IS

Sec. 201. Consistent treatment of stock options by corporations. 

Sec. 202. Application of executive pay deduction limit. 

1 TITLE I—ENDING OFFSHORE 

2 TAX ABUSES 

3 Subtitle A—Deterring the Use of 

4 Tax Havens for Tax Evasion 

5 SEC. 101. AUTHORIZING SPECIAL MEASURES AGAINST FOR6 EIGN JURISDICTIONS, FINANCIAL INSTITU7 TIONS, AND OTHERS THAT IMPEDE UNITED 

8 STATES TAX ENFORCEMENT. 

9 (a) IN GENERAL.—Section 5318A of title 31, United 

10 States Code, is amended— 

11 (1) by striking the section heading and insert12 ing the following new heading: 

13 ‘‘§ 5318A. Special measures for jurisdictions, financial 

14 institutions, or international transactions 

15 that are of primary money laundering 

16 concern or impede United States tax en17 forcement’’; 

18 (2) in subsection (a), by striking all before 

19 paragraph (1) and inserting the following: 

20 ‘‘(a) SPECIAL MEASURES TO COUNTER MONEY

21 LAUNDERING AND EFFORTS TO IMPEDE UNITED STATES

22 TAX ENFORCEMENT.—’’; 

23 (3) in subsection (c), by striking all before 

24 paragraph (1) and inserting the following: 


jbell on DSK7SPTVN1PROD with BILLS
4 

•S 2075 IS

1 ‘‘(c) CONSULTATIONS AND INFORMATION TO BE

2 CONSIDERED IN FINDING JURISDICTIONS, INSTITUTIONS, 

3 TYPES OF ACCOUNTS, OR TRANSACTIONS TO BE OF PRI4 MARY MONEY LAUNDERING CONCERN OR TO BE IMPED5 ING UNITED STATES TAX ENFORCEMENT.—’’; 

6 (4) in subsection (a)(1), by inserting ‘‘or is im7 peding United States tax enforcement’’ after ‘‘pri8 mary money laundering concern’’; 

9 (5) in subsection (a)(4)— 

10 (A) in subparagraph (A)— 

11 (i) by inserting ‘‘in matters involving 

12 money laundering,’’ before ‘‘shall consult’’; 

13 and 

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

15 (B) by redesignating subparagraph (B) as 

16 subparagraph (C); and 

17 (C) by inserting after subparagraph (A) 

18 the following new subparagraph: 

19 ‘‘(B) in matters involving United States 

20 tax enforcement, shall consult with the Commis21 sioner of the Internal Revenue Service, the Sec22 retary of State, the Attorney General of the 

23 United States, and in the sole discretion of the 

24 Secretary, such other agencies and interested 


jbell on DSK7SPTVN1PROD with BILLS
5 

•S 2075 IS

1 parties as the Secretary may find to be appro2 priate; and’’; 

3 (6) in each of paragraphs (1)(A), (2), (3), and 

4 (4) of subsection (b), by inserting ‘‘or to be imped5 ing United States tax enforcement’’ after ‘‘primary 

6 money laundering concern’’ each place that term ap7 pears; 

8 (7) in subsection (b), by striking paragraph (5) 

9 and inserting the following new paragraph: 

10 ‘‘(5) PROHIBITIONS OR CONDITIONS ON OPEN11 ING OR MAINTAINING CERTAIN CORRESPONDENT OR

12 PAYABLE-THROUGH ACCOUNTS OR AUTHORIZING

13 CERTAIN PAYMENT CARDS.—If the Secretary finds a 

14 jurisdiction outside of the United States, 1 or more 

15 financial institutions operating outside of the United 

16 States, or 1 or more classes of transactions within 

17 or involving a jurisdiction outside of the United 

18 States to be of primary money laundering concern or 

19 to be impeding United States tax enforcement, the 

20 Secretary, in consultation with the Secretary of 

21 State, the Attorney General of the United States, 

22 and the Chairman of the Board of Governors of the 

23 Federal Reserve System, may prohibit, or impose 

24 conditions upon— 


jbell on DSK7SPTVN1PROD with BILLS
6 

•S 2075 IS

1 ‘‘(A) the opening or maintaining in the 

2 United States of a correspondent account or 

3 payable-through account; or 

4 ‘‘(B) the authorization, approval, or use in 

5 the United States of a credit card, charge card, 

6 debit card, or similar credit or debit financial 

7 instrument by any domestic financial institu8 tion, financial agency, or credit card company 

9 or association, for or on behalf of a foreign 

10 banking institution, if such correspondent ac11 count, payable-through account, credit card, 

12 charge card, debit card, or similar credit or 

13 debit financial instrument, involves any such ju14 risdiction or institution, or if any such trans15 action may be conducted through such cor16 respondent account, payable-through account, 

17 credit card, charge card, debit card, or similar 

18 credit or debit financial instrument.’’; 

19 (8) in subsection (c)(1), by inserting ‘‘or is im20 peding United States tax enforcement’’ after ‘‘pri21 mary money laundering concern’’; 

22 (9) in subsection (c)(2)(A)— 

23 (A) in clause (ii), by striking ‘‘bank secrecy 

24 or special regulatory advantages’’ and inserting 


jbell on DSK7SPTVN1PROD with BILLS
7 

•S 2075 IS

1 ‘‘bank, tax, corporate, trust, or financial secrecy 

2 or regulatory advantages’’; 

3 (B) in clause (iii), by striking ‘‘supervisory 

4 and counter-money’’ and inserting ‘‘supervisory, 

5 international tax enforcement, and counter6 money’’; 

7 (C) in clause (v), by striking ‘‘banking or 

8 secrecy’’ and inserting ‘‘banking, tax, or se9 crecy’’; and 

10 (D) in clause (vi), by inserting ‘‘, tax trea11 ty, or tax information exchange agreement’’ 

12 after ‘‘treaty’’; 

13 (10) in subsection (c)(2)(B)— 

14 (A) in clause (i), by inserting ‘‘or tax eva15 sion’’ after ‘‘money laundering’’; and 

16 (B) in clause (iii), by inserting ‘‘, tax eva17 sion,’’ after ‘‘money laundering’’; and 

18 (11) in subsection (d), by inserting ‘‘involving 

19 money laundering, and shall notify, in writing, the 

20 Committee on Finance of the Senate and the Com21 mittee on Ways and Means of the House of Rep22 resentatives of any such action involving United 

23 States tax enforcement’’ after ‘‘such action’’. 


jbell on DSK7SPTVN1PROD with BILLS
8 

•S 2075 IS

1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall take effect on the date of the enactment 

3 of this Act. 

4 SEC. 102. STRENGTHENING THE FOREIGN ACCOUNT TAX 

5 COMPLIANCE ACT (FATCA). 

6 (a) REPORTING ACTIVITIES WITH RESPECT TO PAS7 SIVE FOREIGN INVESTMENT COMPANIES.—Section 

8 1298(f) is amended by inserting ‘‘, or who directly or indi9 rectly forms, transfers assets to, is a beneficiary of, has 

10 a beneficial interest in, or receives money or property or 

11 the use thereof from,’’ after ‘‘shareholder of’’. 

12 (b) WITHHOLDABLE PAYMENTS TO FOREIGN FINAN13 CIAL INSTITUTIONS.—Section 1471(d) is amended— 

14 (1) by inserting ‘‘or transaction’’ after ‘‘any de15 pository’’ in paragraph (2)(A), and 

16 (2) by striking ‘‘or any interest’’ and all that 

17 follows in paragraph (5)(C) and inserting ‘‘deriva18 tives, or any interest (including a futures or forward 

19 contract, swap, or option) in such securities, part20 nership interests, commodities, or derivatives.’’. 

21 (c) WITHHOLDABLE PAYMENTS TO OTHER FOREIGN

22 FINANCIAL INSTITUTIONS.—Section 1472 is amended— 

23 (1) by inserting ‘‘as a result of any customer 

24 identification, anti-money laundering, anti-corrup25 tion, or similar obligation to identify account holdVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
9 

•S 2075 IS

1 ers,’’ after ‘‘reason to know,’’ in subsection (b)(2), 

2 and 

3 (2) by inserting ‘‘as posing a low risk of tax 

4 evasion’’ after ‘‘this subsection’’ in subsection 

5 (c)(1)(G). 

6 (d) DEFINITIONS.—Clauses (i) and (ii) of section 

7 1473(2)(A) are each amended by inserting ‘‘or as a bene8 ficial owner’’ after ‘‘indirectly’’. 

9 (e) SPECIAL RULES.—Section 1474(c) is amended— 

10 (1) by inserting ‘‘, except that information pro11 vided under sections 1471(c) or 1472(b) may be dis12 closed to any Federal law enforcement agency, upon 

13 request or upon the initiation of the Secretary, to in14 vestigate or address a possible violation of United 

15 States law’’ after ‘‘shall apply’’ in paragraph (1), 

16 and 

17 (2) by inserting ‘‘, or has had an agreement 

18 terminated under such section,’’ after ‘‘section 

19 1471(b)’’ in paragraph (2). 

20 (f) INFORMATION WITH RESPECT TO FOREIGN FI21 NANCIAL ASSETS.—Section 6038D(a) is amended by in22 serting ‘‘ownership or beneficial ownership’’ after ‘‘holds 

23 any’’. 


jbell on DSK7SPTVN1PROD with BILLS
10 

•S 2075 IS

1 (g) ESTABLISHING PRESUMPTIONS FOR ENTITIES

2 AND TRANSACTIONS INVOLVING NON-FATCA INSTITU3 TIONS.— 

4 (1) PRESUMPTIONS FOR TAX PURPOSES.— 

5 (A) IN GENERAL.—Chapter 76 is amended 

6 by inserting after section 7491 the following 

7 new subchapter: 

8 ‘‘Subchapter F—Presumptions for Certain 

9 Legal Proceedings 

‘‘Sec. 7492. Presumptions pertaining to entities and transactions involving nonFATCA institutions. 

10 ‘‘SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND 

11 TRANSACTIONS INVOLVING NON-FATCA IN12 STITUTIONS. 

13 ‘‘(a) CONTROL.—For purposes of any United States 

14 civil judicial or administrative proceeding to determine or 

15 collect tax, there shall be a rebuttable presumption that 

16 a United States person (other than an entity with shares 

17 regularly traded on an established securities market) who, 

18 directly or indirectly, formed, transferred assets to, was 

19 a beneficiary of, had a beneficial interest in, or received 

20 money or property or the use thereof from an entity, in21 cluding a trust, corporation, limited liability company, 

22 partnership, or foundation (other than an entity with 

23 shares regularly traded on an established securities mar24 ket), that holds an account, or in any other manner has 


jbell on DSK7SPTVN1PROD with BILLS
11 

•S 2075 IS

1 assets, in a non-FATCA institution, exercised control over 

2 such entity. The presumption of control created by this 

3 subsection shall not be applied to prevent the Secretary 

4 from determining or arguing the absence of control. 

5 ‘‘(b) TRANSFERS OF INCOME.—For purposes of any 

6 United States civil judicial or administrative proceeding 

7 to determine or collect tax, there shall be a rebuttable pre8 sumption that any amount or thing of value received by 

9 a United States person (other than an entity with shares 

10 regularly traded on an established securities market) di11 rectly or indirectly from an account or from an entity 

12 (other than an entity with shares regularly traded on an 

13 established securities market) that holds an account, or 

14 in any other manner has assets, in a non-FATCA institu15 tion, constitutes income of such person taxable in the year 

16 of receipt; and any amount or thing of value paid or trans17 ferred by or on behalf of a United States person (other 

18 than an entity with shares regularly traded on an estab19 lished securities market) directly or indirectly to an ac20 count, or entity (other than an entity with shares regularly 

21 traded on an established securities market) that holds an 

22 account, or in any other manner has assets, in a non23 FATCA institution, represents previously unreported in24 come of such person taxable in the year of the transfer. 


jbell on DSK7SPTVN1PROD with BILLS
12 

•S 2075 IS

1 ‘‘(c) REBUTTING THE PRESUMPTIONS.—The pre2 sumptions established in this section may be rebutted only 

3 by clear and convincing evidence, including detailed docu4 mentary, testimonial, and transactional evidence, estab5 lishing that— 

6 ‘‘(1) in subsection (a), such taxpayer exercised 

7 no control, directly or indirectly, over account or en8 tity at the time in question, and 

9 ‘‘(2) in subsection (b), such amounts or things 

10 of value did not represent income related to such 

11 United States person. 

12 Any court having jurisdiction of a civil proceeding in which 

13 control of such an offshore account or offshore entity or 

14 the income character of such receipts or amounts trans15 ferred is an issue shall prohibit the introduction by the 

16 taxpayer of any foreign based document that is not au17 thenticated in open court by a person with knowledge of 

18 such document, or any other evidence supplied by a person 

19 outside the jurisdiction of a United States court, unless 

20 such person appears before the court.’’. 

21 (B) The table of subchapters for chapter 

22 76 is amended by inserting after the item relat23 ing to subchapter E the following new item: 

‘‘SUBCHAPTER F—PRESUMPTIONS FOR CERTAIN LEGAL PROCEEDINGS’’. 


jbell on DSK7SPTVN1PROD with BILLS
13 

•S 2075 IS

1 (2) DEFINITION OF NON-FATCA INSTITUTION.— 

2 Section 7701(a) is amended by adding at the end 

3 the following new paragraph: 

4 ‘‘(51) NON-FATCA INSTITUTION.—The term 

5 ‘non-FATCA institution’ means any financial insti6 tution that does not meet the reporting requirements 

7 of section 1471(b).’’. 

8 (3) PRESUMPTIONS FOR SECURITIES LAW PUR9 POSES.—Section 21 of the Securities Exchange Act 

10 of 1934 (15 U.S.C. 78u) is amended by adding at 

11 the end the following new subsection: 

12 ‘‘(j) PRESUMPTIONS PERTAINING TO CONTROL AND

13 BENEFICIAL OWNERSHIP.— 

14 ‘‘(1) CONTROL.—For purposes of any civil judi15 cial or administrative proceeding under this title, 

16 there shall be a rebuttable presumption that a 

17 United States person (other than an entity with 

18 shares regularly traded on an established securities 

19 market) who, directly or indirectly, formed, trans20 ferred assets to, was a beneficiary of, had a bene21 ficial interest in, or received money or property or 

22 the use thereof from an entity, including a trust, 

23 corporation, limited liability company, partnership, 

24 or foundation (other than an entity with shares reg25 ularly traded on an established securities market), 


jbell on DSK7SPTVN1PROD with BILLS
14 

•S 2075 IS

1 that holds an account, or in any other manner has 

2 assets, in a non-FATCA institution (as defined in 

3 section 7701(a)(51) of the Internal Revenue Code of 

4 1986), exercised control over such entity. The pre5 sumption of control created by this paragraph shall 

6 not be applied to prevent the Commission from de7 termining or arguing the absence of control. 

8 ‘‘(2) BENEFICIAL OWNERSHIP.—For purposes 

9 of any civil judicial or administrative proceeding 

10 under this title, there shall be a rebuttable presump11 tion that securities that are nominally owned by an 

12 entity, including a trust, corporation, limited liability 

13 company, partnership, or foundation (other than an 

14 entity with shares regularly traded on an established 

15 securities market), and that are held in a non16 FATCA institution (as so defined), are beneficially 

17 owned by any United States person (other than an 

18 entity with shares regularly traded on an established 

19 securities market) who directly or indirectly exer20 cised control over such entity. The presumption of 

21 beneficial ownership created by this paragraph shall 

22 not be applied to prevent the Commission from de23 termining or arguing the absence of beneficial own24 ership.’’. 


jbell on DSK7SPTVN1PROD with BILLS
15 

•S 2075 IS

1 (4) PRESUMPTION FOR REPORTING PURPOSES

2 RELATING TO FOREIGN FINANCIAL ACCOUNTS.—Sec3 tion 5314 of title 31, United States Code, is amend4 ed by adding at the end the following new sub5 section: 

6 ‘‘(d) REBUTTABLE PRESUMPTION.—For purposes of 

7 this section, there shall be a rebuttable presumption that 

8 any account with a non-FATCA institution (as defined in 

9 section 7701(a)(51) of the Internal Revenue Code of 

10 1986) contains funds in an amount that is at least suffi11 cient to require a report prescribed by regulations under 

12 this section.’’. 

13 (5) REGULATORY AUTHORITY.—Not later than 

14 180 days after the date of the enactment of this Act, 

15 the Secretary of the Treasury and the Chairman of 

16 the Securities and Exchange Commission shall each 

17 adopt regulations or other guidance necessary to im18 plement the amendments made by this subsection. 

19 The Secretary and the Chairman may by regulation 

20 or guidance provide that the presumption of control 

21 shall not extend to particular classes of transactions, 

22 such as corporate reorganizations or transactions 

23 below a specified dollar threshold, if either deter24 mines that applying such amendments to such transVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
16 

•S 2075 IS

1 actions is not necessary to carry out the purposes of 

2 such amendments. 

3 (h) EFFECTIVE DATE.—The amendments made by 

4 this section shall take effect on the date which is 180 days 

5 after the date of the enactment of this Act, whether or 

6 not regulations are issued under subsection (g)(5). 

7 SEC. 103. TREATMENT OF FOREIGN CORPORATIONS MAN8 AGED AND CONTROLLED IN THE UNITED 

9 STATES AS DOMESTIC CORPORATIONS. 

10 (a) IN GENERAL.—Section 7701 is amended by re11 designating subsection (p) as subsection (q) and by insert12 ing after subsection (o) the following new subsection: 

13 ‘‘(p) CERTAIN CORPORATIONS MANAGED AND CON14 TROLLED IN THE UNITED STATES TREATED AS DOMES15 TIC FOR INCOME TAX.— 

16 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

17 (a)(4), in the case of a corporation described in 

18 paragraph (2) if— 

19 ‘‘(A) the corporation would not otherwise 

20 be treated as a domestic corporation for pur21 poses of this title, but 

22 ‘‘(B) the management and control of the 

23 corporation occurs, directly or indirectly, pri24 marily within the United States, 


jbell on DSK7SPTVN1PROD with BILLS
17 

•S 2075 IS

1 then, solely for purposes of chapter 1 (and any other 

2 provision of this title relating to chapter 1), the cor3 poration shall be treated as a domestic corporation. 

4 ‘‘(2) CORPORATION DESCRIBED.— 

5 ‘‘(A) IN GENERAL.—A corporation is de6 scribed in this paragraph if— 

7 ‘‘(i) the stock of such corporation is 

8 regularly traded on an established securi9 ties market, or 

10 ‘‘(ii) the aggregate gross assets of 

11 such corporation (or any predecessor there12 of), including assets under management 

13 for investors, whether held directly or indi14 rectly, at any time during the taxable year 

15 or any preceding taxable year is 

16 $50,000,000 or more. 

17 ‘‘(B) GENERAL EXCEPTION.—A corpora18 tion shall not be treated as described in this 

19 paragraph if— 

20 ‘‘(i) such corporation was treated as a 

21 corporation described in this paragraph in 

22 a preceding taxable year, 

23 ‘‘(ii) such corporation— 

24 ‘‘(I) is not regularly traded on an 

25 established securities market, and 


jbell on DSK7SPTVN1PROD with BILLS
18 

•S 2075 IS

1 ‘‘(II) has, and is reasonably ex2 pected to continue to have, aggregate 

3 gross assets (including assets under 

4 management for investors, whether 

5 held directly or indirectly) of less than 

6 $50,000,000, and 

7 ‘‘(iii) the Secretary grants a waiver to 

8 such corporation under this subparagraph. 

9 ‘‘(C) EXCEPTION FROM GROSS ASSETS

10 TEST.—Subparagraph (A)(ii) shall not apply to 

11 a corporation which is a controlled foreign cor12 poration (as defined in section 957) and which 

13 is a member of an affiliated group (as defined 

14 section 1504, but determined without regard to 

15 section 1504(b)(3)) the common parent of 

16 which— 

17 ‘‘(i) is a domestic corporation (deter18 mined without regard to this subsection), 

19 and 

20 ‘‘(ii) has substantial assets (other 

21 than cash and cash equivalents and other 

22 than stock of foreign subsidiaries) held for 

23 use in the active conduct of a trade or 

24 business in the United States. 

25 ‘‘(3) MANAGEMENT AND CONTROL.— 


jbell on DSK7SPTVN1PROD with BILLS
19 

•S 2075 IS

1 ‘‘(A) IN GENERAL.—The Secretary shall 

2 prescribe regulations for purposes of deter3 mining cases in which the management and 

4 control of a corporation is to be treated as oc5 curring primarily within the United States. 

6 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

7 MANAGEMENT.—Such regulations shall provide 

8 that— 

9 ‘‘(i) the management and control of a 

10 corporation shall be treated as occurring 

11 primarily within the United States if sub12 stantially all of the executive officers and 

13 senior management of the corporation who 

14 exercise day-to-day responsibility for mak15 ing decisions involving strategic, financial, 

16 and operational policies of the corporation 

17 are located primarily within the United 

18 States, and 

19 ‘‘(ii) individuals who are not executive 

20 officers and senior management of the cor21 poration (including individuals who are of22 ficers or employees of other corporations in 

23 the same chain of corporations as the cor24 poration) shall be treated as executive offi25 cers and senior management if such indiVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
20 

•S 2075 IS

1 viduals exercise the day-to-day responsibil2 ities of the corporation described in clause 

3 (i). 

4 ‘‘(C) CORPORATIONS PRIMARILY HOLDING

5 INVESTMENT ASSETS.—Such regulations shall 

6 also provide that the management and control 

7 of a corporation shall be treated as occurring 

8 primarily within the United States if— 

9 ‘‘(i) the assets of such corporation (di10 rectly or indirectly) consist primarily of as11 sets being managed on behalf of investors, 

12 and 

13 ‘‘(ii) decisions about how to invest the 

14 assets are made in the United States.’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning on or 

17 after the date which is 2 years after the date of the enact18 ment of this Act, whether or not regulations are issued 

19 under section 7701(p)(3) of the Internal Revenue Code 

20 of 1986, as added by this section. 


jbell on DSK7SPTVN1PROD with BILLS
21 

•S 2075 IS

1 SEC. 104. REPORTING UNITED STATES BENEFICIAL OWN2 ERS OF FOREIGN OWNED FINANCIAL AC3 COUNTS. 

4 (a) IN GENERAL.—Subpart B of part III of sub5 chapter A of chapter 61 is amended by inserting after sec6 tion 6045B the following new sections: 

7 ‘‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENE8 FICIAL OWNERS OF FINANCIAL ACCOUNTS 

9 LOCATED IN THE UNITED STATES AND HELD 

10 IN THE NAME OF A FOREIGN ENTITY. 

11 ‘‘(a) REQUIREMENT OF RETURN.—If— 

12 ‘‘(1) any withholding agent under sections 1441 

13 and 1442 has the control, receipt, custody, disposal, 

14 or payment of any amount constituting gross income 

15 from sources within the United States of any foreign 

16 entity, including a trust, corporation, limited liability 

17 company, partnership, or foundation (other than an 

18 entity with shares regularly traded on an established 

19 securities market), and 

20 ‘‘(2) such withholding agent determines for pur21 poses of titles 14, 18, or 31 of the United States 

22 Code that a United States person has any beneficial 

23 interest in the foreign entity or in the account in 

24 such entity’s name (hereafter in this section referred 

25 to as ‘United States beneficial owner’), 


jbell on DSK7SPTVN1PROD with BILLS
22 

•S 2075 IS

1 then the withholding agent shall make a return according 

2 to the forms or regulations prescribed by the Secretary. 

3 ‘‘(b) REQUIRED INFORMATION.—For purposes of 

4 subsection (a) the information required to be included on 

5 the return shall include— 

6 ‘‘(1) the name, address, and, if known, the tax7 payer identification number of the United States 

8 beneficial owner, 

9 ‘‘(2) the known facts pertaining to the relation10 ship of such United States beneficial owner to the 

11 foreign entity and the account, 

12 ‘‘(3) the gross amount of income from sources 

13 within the United States (including gross proceeds 

14 from brokerage transactions), and 

15 ‘‘(4) such other information as the Secretary 

16 may by forms or regulations provide. 

17 ‘‘(c) STATEMENTS TO BE FURNISHED TO BENE18 FICIAL OWNERS WITH RESPECT TO WHOM INFORMATION

19 IS REQUIRED TO BE REPORTED.—A withholding agent 

20 required to make a return under subsection (a) shall fur21 nish to each United States beneficial owner whose name 

22 is required to be set forth in such return a statement 

23 showing— 


jbell on DSK7SPTVN1PROD with BILLS
23 

•S 2075 IS

1 ‘‘(1) the name, address, and telephone number 

2 of the information contact of the person required to 

3 make such return, and 

4 ‘‘(2) the information required to be shown on 

5 such return with respect to such United States bene6 ficial owner. 

7 The written statement required under the preceding sen8 tence shall be furnished to the United States beneficial 

9 owner on or before January 31 of the year following the 

10 calendar year for which the return under subsection (a) 

11 was required to be made. In the event the person filing 

12 such return does not have a current address for the United 

13 States beneficial owner, such written statement may be 

14 mailed to the address of the foreign entity. 

15 ‘‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS RE16 GARDING ESTABLISHMENT OF ACCOUNTS IN 

17 NON-FATCA INSTITUTIONS. 

18 ‘‘(a) REQUIREMENT OF RETURN.—Any financial in19 stitution directly or indirectly opening a bank, brokerage, 

20 or other financial account for or on behalf of an offshore 

21 entity, including a trust, corporation, limited liability com22 pany, partnership, or foundation (other than an entity 

23 with shares regularly traded on an established securities 

24 market), in a non-FATCA institution (as defined in sec25 tion 7701(a)(51)) at the direction of, on behalf of, or for 


jbell on DSK7SPTVN1PROD with BILLS
24 

•S 2075 IS

1 the benefit of a United States person shall make a return 

2 according to the forms or regulations prescribed by the 

3 Secretary. 

4 ‘‘(b) REQUIRED INFORMATION.—For purposes of 

5 subsection (a) the information required to be included on 

6 the return shall include— 

7 ‘‘(1) the name, address, and taxpayer identifica8 tion number of such United States person, 

9 ‘‘(2) the name and address of the financial in10 stitution at which a financial account is opened, the 

11 type of account, the account number, the name 

12 under which the account was opened, and the 

13 amount of the initial deposit, 

14 ‘‘(3) if the account is held in the name of an 

15 entity, the name and address of such entity, the type 

16 of entity, and the name and address of any company 

17 formation agent or other professional employed to 

18 form or acquire the entity, and 

19 ‘‘(4) such other information as the Secretary 

20 may by forms or regulations provide. 

21 ‘‘(c) STATEMENTS TO BE FURNISHED TO UNITED

22 STATES PERSONS WITH RESPECT TO WHOM INFORMA23 TION IS REQUIRED TO BE REPORTED.—A financial insti24 tution required to make a return under subsection (a) 

25 shall furnish to each United States person whose name 


jbell on DSK7SPTVN1PROD with BILLS
25 

•S 2075 IS

1 is required to be set forth in such return a statement 

2 showing— 

3 ‘‘(1) the name, address, and telephone number 

4 of the information contact of the person required to 

5 make such return, and 

6 ‘‘(2) the information required to be shown on 

7 such return with respect to such United States per8 son. 

9 The written statement required under the preceding sen10 tence shall be furnished to such United States person on 

11 or before January 31 of the year following the calendar 

12 year for which the return under subsection (a) was re13 quired to be made. 

14 ‘‘(d) EXEMPTION.—The Secretary may by regula15 tions exempt any class of United States persons or any 

16 class of accounts or entities from the requirements of this 

17 section if the Secretary determines that applying this sec18 tion to such persons, accounts, or entities is not necessary 

19 to carry out the purposes of this section.’’. 

20 (b) PENALTIES.— 

21 (1) RETURNS.—Section 6724(d)(1)(B) is 

22 amended by striking ‘‘or’’ at the end of clause 

23 (xxiv), by striking ‘‘and’’ at the end of clause (xxv), 

24 and by adding after clause (xxv) the following new 

25 clauses: 


jbell on DSK7SPTVN1PROD with BILLS
26 

•S 2075 IS

1 ‘‘(xxvi) section 6045C(a) (relating to 

2 returns regarding United States beneficial 

3 owners of financial accounts located in the 

4 United States and held in the name of a 

5 foreign entity), or 

6 ‘‘(xxvii) section 6045D(a) (relating to 

7 returns by financial institutions regarding 

8 establishment of accounts at non-FATCA 

9 institutions), and’’. 

10 (2) PAYEE STATEMENTS.—Section 6724(d)(2) 

11 is amended by striking ‘‘or’’ at the end of subpara12 graph (GG), by striking the period at the end of 

13 subparagraph (HH), and by inserting after subpara14 graph (HH) the following new subparagraphs: 

15 ‘‘(II) section 6045C(c) (relating to returns 

16 regarding United States beneficial owners of fi17 nancial accounts located in the United States 

18 and held in the name of a foreign entity), 

19 ‘‘(JJ) section 6045D(c) (relating to re20 turns by financial institutions regarding estab21 lishment of accounts at non-FATCA institu22 tions).’’. 

23 (c) CLERICAL AMENDMENT.—The table of sections 

24 for subpart B of part III of subchapter A of chapter 61 


jbell on DSK7SPTVN1PROD with BILLS
27 

•S 2075 IS

1 is amended by inserting after the item relating to section 

2 6045B the following new items: 

‘‘Sec. 6045C. Returns regarding United States beneficial owners of financial 

accounts located in the United States and held in the name of 

a foreign entity. 

‘‘Sec. 6045D. Returns by financial institutions regarding establishment of accounts at non-FATCA institutions.’’. 

3 (d) ADDITIONAL PENALTIES.— 

4 (1) ADDITIONAL PENALTIES ON BANKS.—Sec5 tion 5239(b)(1) of the Revised Statutes (12 U.S.C. 

6 93(b)(1)) is amended by inserting ‘‘or any of the 

7 provisions of section 6045D of the Internal Revenue 

8 Code of 1986,’’ after ‘‘any regulation issued pursu9 ant to,’’. 

10 (2) ADDITIONAL PENALTIES ON SECURITIES

11 FIRMS.—Section 21(d)(3)(A) of the Securities Ex12 change Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is 

13 amended by inserting ‘‘any of the provisions of sec14 tion 6045D of the Internal Revenue Code of 1986,’’ 

15 after ‘‘the rules or regulations thereunder,’’. 

16 (e) REGULATORY AUTHORITY AND EFFECTIVE

17 DATE.— 

18 (1) REGULATORY AUTHORITY.—Not later than 

19 180 days after the date of the enactment of this Act, 

20 the Secretary of the Treasury shall adopt regula21 tions, forms, or other guidance necessary to imple22 ment this section. 


jbell on DSK7SPTVN1PROD with BILLS
28 

•S 2075 IS

1 (2) EFFECTIVE DATE.—Section 6045C of the 

2 Internal Revenue Code of 1986 (as added by this 

3 section) and the amendment made by subsection 

4 (d)(1) shall take effect with respect to amounts paid 

5 into foreign owned accounts located in the United 

6 States after December 31 of the year of the date of 

7 the enactment of this Act. Section 6045D of such 

8 Code (as so added) and the amendment made by 

9 subsection (d)(2) shall take effect with respect to ac10 counts opened after December 31 of the year of the 

11 date of the enactment of this Act. 

12 SEC. 105. SWAP PAYMENTS MADE FROM THE UNITED 

13 STATES TO PERSONS OFFSHORE. 

14 (a) TAX ON SWAP PAYMENTS RECEIVED BY FOR15 EIGN PERSONS.—Section 871(a)(1) is amended— 

16 (1) by inserting ‘‘swap payments (as identified 

17 in section 1256(b)(2)(B)),’’ after ‘‘annuities,’’ in 

18 subparagraph (A), and 

19 (2) by adding at the end the following new sen20 tence: ‘‘In the case of swap payments, the source of 

21 a swap payment is determined by reference to the lo22 cation of the payor.’’. 

23 (b) TAX ON SWAP PAYMENTS RECEIVED BY FOR24 EIGN CORPORATIONS.—Section 881(a) is amended— 


jbell on DSK7SPTVN1PROD with BILLS
29 

•S 2075 IS

1 (1) by inserting ‘‘swap payments (as identified 

2 in section 1256(b)(2)(B)),’’ after ‘‘annuities,’’ in 

3 paragraph (1), and 

4 (2) by adding at the end the following new sen5 tence: ‘‘In the case of swap payments, the source of 

6 a swap payment is determined by reference to the lo7 cation of the payor.’’. 

8 SEC. 106. TAX ON INCOME OF CONTROLLED FOREIGN COR9 PORATION DEPOSITED IN FINANCIAL AC10 COUNT LOCATED IN THE UNITED STATES. 

11 Section 952(a) is amended by adding at the end the 

12 following new sentence: ‘‘Notwithstanding section 

13 956(c)(2)(A), any property (as defined in section 317(a)) 

14 of such controlled foreign corporation that is deposited 

15 and maintained, directly or indirectly, for or on behalf of 

16 such corporation in a financial account located in the 

17 United States, including in a correspondent account of a 

18 financial institution, is a constructive distribution with re19 spect to the stock which such United States shareholder 

20 owns.’’. 


jbell on DSK7SPTVN1PROD with BILLS
30 

•S 2075 IS

1 Subtitle B—Other Measures to 

2 Combat Tax Haven and Tax 

3 Shelter Abuses 

4 SEC. 111. COUNTRY-BY-COUNTRY REPORTING. 

5 (a) IN GENERAL.—Section 13 of the Securities Ex6 change Act of 1934 (15 U.S.C. 78m) is amended by add7 ing at the end the following new subsection: 

8 ‘‘(r) DISCLOSURE OF FINANCIAL PERFORMANCE ON

9 A COUNTRY-BY-COUNTRY BASIS.— 

10 ‘‘(1) DEFINITIONS.—In this subsection— 

11 ‘‘(A) the term ‘issuer group’ shall mean 

12 the issuer, each subsidiary of the issuer, and 

13 each entity under the control of the issuer; 

14 ‘‘(B) the term ‘country of operation’ shall 

15 mean each country in which a member of the 

16 issuer group is incorporated or organized, or 

17 maintains employees or conducts business ac18 tivities; and 

19 ‘‘(C) the term ‘world-wide allocation of 

20 group members’ shall mean each member of the 

21 issuer group listed according to their country of 

22 operation. 

23 ‘‘(2) COUNTRY-BY-COUNTRY REPORTING.—The 

24 Commission shall issue rules that require each issuer 

25 to include in an annual report filed by the issuer 


jbell on DSK7SPTVN1PROD with BILLS
31 

•S 2075 IS

1 with the Commission information indicative of finan2 cial performance on a country-by-country basis dur3 ing the covered period, including— 

4 ‘‘(A) a list of each country of operation; 

5 ‘‘(B) the world-wide allocation of group 

6 members; 

7 ‘‘(C) the financial performance of each 

8 member of the issuer group in each country of 

9 operation, without exception, including, and set 

10 forth according to— 

11 ‘‘(i) total number of employees phys12 ically working in the country of operation; 

13 ‘‘(ii) total sales by the member of the 

14 issuer group to third parties; 

15 ‘‘(iii) total sales by the member of the 

16 issuer group to other members of the 

17 issuer group and total sales to each such 

18 member; 

19 ‘‘(iv) total purchases by the member 

20 of the issuer group from third parties; 

21 ‘‘(v) total purchases by the member of 

22 the issuer group from other members of 

23 the issuer group and total purchases from 

24 each such member; 


jbell on DSK7SPTVN1PROD with BILLS
32 

•S 2075 IS

1 ‘‘(vi) total financing payments made 

2 by the member of the issuer group to third 

3 parties; 

4 ‘‘(vii) total financing payments made 

5 by the member of the issuer group to other 

6 members of the issuer group and total fi7 nancing payments made to each such 

8 member; 

9 ‘‘(viii) pre-tax gross revenues of the 

10 member of the issuer group; 

11 ‘‘(ix) pre-tax net revenues of the 

12 member of the issuer group; and 

13 ‘‘(x) such other financial information 

14 as the Commission may determine is indic15 ative of the financial performance of the 

16 issuer; 

17 ‘‘(D) the tax paid by each member of the 

18 issuer group in each country of operation, with19 out exception, including, and set forth accord20 ing to— 

21 ‘‘(i) total Federal, regional, local, and 

22 other tax assessed against each member of 

23 the issuer group with respect to each coun24 try of operation during the covered period; 


jbell on DSK7SPTVN1PROD with BILLS
33 

•S 2075 IS

1 ‘‘(ii) after taking into account any tax 

2 deductions, tax credits, tax forgiveness, or 

3 other tax benefits or waivers, total amount 

4 of tax paid from the treasury of the mem5 ber of the issuer group to the government 

6 of each country of operation during the 

7 covered period; and 

8 ‘‘(iii) such other financial information 

9 as the Commission may determine is nec10 essary or appropriate to inform the public 

11 of the tax obligations of and payments by 

12 each member of the issuer group; and 

13 ‘‘(E) such other financial information as 

14 the Commission may determine is necessary or 

15 appropriate in the public interest or for the pro16 tection of investors.’’. 

17 (b) RULEMAKING.— 

18 (1) DEADLINES.—Not later than 180 days 

19 after the date of the enactment of this Act, the 

20 Commission shall issue a proposed rule to carry out 

21 this section and, not later than 270 days after the 

22 date of the enactment of this Act, shall issue a final 

23 rule to carry out this section. 

24 (2) CONSULTATION.—In issuing the rules under 

25 this section, the Commission shall consult with the 


jbell on DSK7SPTVN1PROD with BILLS
34 

•S 2075 IS

1 Secretary of the Treasury and the Commissioner of 

2 Internal Revenue and, to the extent practicable and 

3 in furtherance of its obligation to protect investors, 

4 shall issue rules that support Federal efforts to re5 duce offshore tax evasion and abuses. 

6 (3) INTERACTIVE DATA FORMAT.—The rules 

7 issued under this section shall require that the infor8 mation provided by issuers in their annual reports 

9 be submitted in an interactive data format as pro10 vided in section 13(q)(2)(D) of the Securities Ex11 change Act of 1934 (15 U.S.C. 78m(q)(2)(D)), and 

12 to the extent practicable, the Commission shall make 

13 available online, to the public, a compilation of such 

14 information. 

15 (4) AGGREGATE DATA.—The rules may allow 

16 issuers to provide the financial information required 

17 under section 13(r) of the Securities Exchange Act 

18 of 1934 (15 U.S.C. 78m(r)), as added by this sec19 tion, aggregated at the level of each country of oper20 ation instead of with respect to each member of the 

21 issuer group individually, provided that the Commis22 sion retains the authority, at its discretion, to re23 quire further disaggregation. 

24 (5) EFFECTIVE DATE.—Each issuer shall be re25 quired to comply with the requirements of section 


jbell on DSK7SPTVN1PROD with BILLS
35 

•S 2075 IS

1 13(r) of the Securities Exchange Act of 1934 (15 

2 U.S.C. 78m(r)), as added by this section, not later 

3 than the date on which the issuer must file with the 

4 Commission its first annual report that is due not 

5 later than 1 year after the date on which the Com6 mission issues a final rule under this section. 

7 SEC. 112. PENALTY FOR FAILING TO DISCLOSE OFFSHORE 

8 HOLDINGS. 

9 (a) SECURITIES EXCHANGE ACT OF 1934.—Section 

10 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 

11 U.S.C. 78u(d)(3)(B)) is amended by adding at the end 

12 the following: 

13 ‘‘(iv) FOURTH TIER.—Notwithstanding 

14 clauses (i), (ii), and (iii), the amount of the 

15 penalty for each such violation shall not exceed 

16 $1,000,000 for any person if the violation de17 scribed in subparagraph (A) involved a knowing 

18 failure to disclose any holding or transaction in19 volving equity or debt instruments of an issuer 

20 and known by such person to involve a foreign 

21 entity, including any trust, corporation, limited 

22 liability company, partnership, or foundation 

23 that is directly or indirectly controlled by such 

24 person, and which would have been otherwise 


jbell on DSK7SPTVN1PROD with BILLS
36 

•S 2075 IS

1 subject to disclosure by such person under this 

2 title.’’. 

3 (b) SECURITIES ACT OF 1933.—Section 20(d)(2) of 

4 the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is 

5 amended by adding at the end the following: 

6 ‘‘(D) FOURTH TIER.—Notwithstanding 

7 subparagraphs (A), (B), and (C), the amount of 

8 penalty for each such violation shall not exceed 

9 $1,000,000 for any person, if the violation de10 scribed in paragraph (1) involved a knowing 

11 failure to disclose any holding or transaction in12 volving equity or debt instruments of an issuer 

13 and known by such person to involve a foreign 

14 entity, including any trust, corporation, limited 

15 liability company, partnership, or foundation, 

16 directly or indirectly controlled by such person, 

17 and which would have been otherwise subject to 

18 disclosure by such person under this title.’’. 

19 (c) INVESTMENT COMPANY ACT OF 1940.—Section 

20 9(d)(2) of the Investment Company Act of 1940 (15 

21 U.S.C. 80a–9(d)(2)) is amended by adding at the end the 

22 following: 

23 ‘‘(D) FOURTH TIER.—Notwithstanding 

24 subparagraphs (A), (B), and (C), the amount of 

25 penalty for each such violation shall not exceed 


jbell on DSK7SPTVN1PROD with BILLS
37 

•S 2075 IS

1 $1,000,000 for any person, if the violation de2 scribed in paragraph (1) involved a knowing 

3 failure to disclose any holding or transaction in4 volving equity or debt instruments of an issuer 

5 and known by such person to involve a foreign 

6 entity, including any trust, corporation, limited 

7 liability company, partnership, or foundation, 

8 directly or indirectly controlled by such person, 

9 and which would have been otherwise subject to 

10 disclosure by such person under this title.’’. 

11 (d) INVESTMENT ADVISERS ACT OF 1940.—Section 

12 203(i)(2) of the Investment Advisers Act of 1940 (15 

13 U.S.C. 80b–3(i)(2)) is amended by adding at the end the 

14 following: 

15 ‘‘(D) FOURTH TIER.—Notwithstanding 

16 subparagraphs (A), (B), and (C), the amount of 

17 penalty for each such violation shall not exceed 

18 $1,000,000 for any person, if the violation de19 scribed in paragraph (1) involved a knowing 

20 failure to disclose any holding or transaction in21 volving equity or debt instruments of an issuer 

22 and known by such person to involve a foreign 

23 entity, including any trust, corporation, limited 

24 liability company, partnership, or foundation, 

25 directly or indirectly controlled by such person, 


jbell on DSK7SPTVN1PROD with BILLS
38 

•S 2075 IS

1 and which would have been otherwise subject to 

2 disclosure by such person under this title.’’. 

3 SEC. 113. DEADLINE FOR ANTI-MONEY LAUNDERING RULE 

4 FOR PRIVATE FUNDS AND VENTURE CAPITAL 

5 FUNDS. 

6 (a) IN GENERAL.— 

7 (1) PROPOSED RULE.—Not later than 90 days 

8 after the date of the enactment of this Act, the Sec9 retary of the Treasury, in consultation with the 

10 Chairman of the Securities and Exchange Commis11 sion and the Chairman of the Commodity Futures 

12 Trading Commission, shall publish a proposed rule 

13 in the Federal Register requiring any private fund 

14 (as defined in paragraph (29) of section 202(a) of 

15 the Investment Advisors Act of 1940 (15 U.S.C. 

16 80b–2(a)) or venture capital fund (within the mean17 ing of subsection (l) of section 203 of such Act (15 

18 U.S.C. 80b–3) to establish anti-money laundering 

19 programs and submit suspicious activity reports 

20 under subsections (g) and (h) of section 5318 of title 

21 31, United States Code. 

22 (2) FINAL RULE.—Not later than 180 days 

23 after the date of the enactment of this Act, the Sec24 retary of the Treasury shall publish a final rule in 


jbell on DSK7SPTVN1PROD with BILLS
39 

•S 2075 IS

1 the Federal Register on the matter described in 

2 paragraph (1). 

3 (b) CONTENTS.—The final rule published under this 

4 section shall require, at a minimum, that to safeguard 

5 against terrorist financing and money laundering, any 

6 such private fund or venture capital fund shall— 

7 (1) use risk-based due diligence policies, proce8 dures, and controls that are reasonably designed to 

9 ascertain the identity of any foreign person (includ10 ing the nominal and beneficial owner or beneficiary 

11 of a foreign corporation, partnership, trust, or other 

12 foreign entity) planning to supply or supplying funds 

13 to be invested with the advice or assistance of such 

14 private fund or venture capital fund; and 

15 (2) be subject to section 5318(k)(2) of title 31, 

16 United States Code. 

17 SEC. 114. ANTI-MONEY LAUNDERING REQUIREMENTS FOR 

18 FORMATION AGENTS. 

19 (a) ANTI-MONEY LAUNDERING OBLIGATIONS FOR

20 FORMATION AGENTS.—Section 5312(a)(2) of title 31, 

21 United States Code, is amended, by— 

22 (1) in subparagraph (Y), by striking ‘‘or’’ at 

23 the end; 

24 (2) by redesignating subparagraph (Z) as sub25 paragraph (AA); and 


jbell on DSK7SPTVN1PROD with BILLS
40 

•S 2075 IS

1 (3) by inserting after subparagraph (Y) the fol2 lowing: 

3 ‘‘(Z) persons engaged in the business of 

4 forming new corporations, limited liability com5 panies, partnerships, trusts, or other legal enti6 ties; or’’. 

7 (b) DEADLINE FOR ANTI-MONEY LAUNDERING

8 RULE FOR FORMATION AGENTS.— 

9 (1) PROPOSED RULE.—Not later than 120 days 

10 after the date of the enactment of this Act, the Sec11 retary of the Treasury, in consultation with the At12 torney General of the United States, the Secretary 

13 of Homeland Security, and the Commissioner of In14 ternal Revenue, shall publish a proposed rule in the 

15 Federal Register requiring persons described in sec16 tion 5312(a)(2)(Z) of title 31, United States Code, 

17 as added by this section, to establish anti-money 

18 laundering programs under subsections (g) and (h) 

19 of section 5318 of that title. 

20 (2) FINAL RULE.—Not later than 270 days 

21 after such date of enactment, the Secretary of the 

22 Treasury shall publish a final rule in the Federal 

23 Register on the matter described in paragraph (1). 

24 (3) EXCLUSIONS.—Any rule promulgated under 

25 this subsection shall exclude from the category of 


jbell on DSK7SPTVN1PROD with BILLS
41 

•S 2075 IS

1 persons engaged in the business of forming new cor2 porations or other entities— 

3 (A) any government agency; and 

4 (B) any attorney or law firm that uses a 

5 paid formation agent operating within the 

6 United States to form such corporations or 

7 other entities. 

8 SEC. 115. STRENGTHENING JOHN DOE SUMMONS PRO9 CEEDINGS. 

10 (a) IN GENERAL.—Subsection (f) of section 7609 is 

11 amended to read as follows: 

12 ‘‘(f) ADDITIONAL REQUIREMENT IN THE CASE OF A

13 JOHN DOE SUMMONS.— 

14 ‘‘(1) GENERAL RULE.—Any summons described 

15 in subsection (c)(1) which does not identify the per16 son with respect to whose liability the summons is 

17 issued may be served only after a court proceeding 

18 in which the Secretary establishes that— 

19 ‘‘(A) the summons relates to the investiga20 tion of a particular person or ascertainable 

21 group or class of persons, 

22 ‘‘(B) there is a reasonable basis for believ23 ing that such person or group or class of per24 sons may fail or may have failed to comply with 

25 any provision of any internal revenue law, and 


jbell on DSK7SPTVN1PROD with BILLS
42 

•S 2075 IS

1 ‘‘(C) the information sought to be obtained 

2 from the examination of the records or testi3 mony (and the identity of the person or persons 

4 with respect to whose liability the summons is 

5 issued) is not readily available from other 

6 sources. 

7 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

8 apply to any summons which specifies that it is lim9 ited to information regarding a United States cor10 respondent account (as defined in section 

11 5318A(e)(1)(B) of title 31, United States Code) or 

12 a United States payable-through account (as defined 

13 in section 5318A(e)(1)(C) of such title) of a finan14 cial institution that is held at a non-FATCA institu15 tion (as defined in section 7701(a)(51)). 

16 ‘‘(3) PRESUMPTION IN CASES INVOLVING NON17 FATCA INSTITUTIONS.—For purposes of this section, 

18 in any case in which the particular person or ascer19 tainable group or class of persons have financial ac20 counts in or transactions related to a non-FATCA 

21 institution (as defined in section 7701(a)(51)), there 

22 shall be a presumption that there is a reasonable 

23 basis for believing that such person or group or class 

24 of persons may fail or may have failed to comply 

25 with provisions of internal revenue law. 


jbell on DSK7SPTVN1PROD with BILLS
43 

•S 2075 IS

1 ‘‘(4) PROJECT JOHN DOE SUMMONSES.— 

2 ‘‘(A) IN GENERAL.—Notwithstanding the 

3 requirements of paragraph (1), the Secretary 

4 may issue a summons described in paragraph 

5 (1) if the summons— 

6 ‘‘(i) relates to a project which is ap7 proved under subparagraph (B), 

8 ‘‘(ii) is issued to a person who is a 

9 member of the group or class established 

10 under subparagraph (B)(i), and 

11 ‘‘(iii) is issued within 3 years of the 

12 date on which such project was approved 

13 under subparagraph (B). 

14 ‘‘(B) APPROVAL OF PROJECTS.—A project 

15 may only be approved under this subparagraph 

16 after a court proceeding in which the Secretary 

17 establishes that— 

18 ‘‘(i) any summons issues with respect 

19 to the project will be issued to a member 

20 of an ascertainable group or class of per21 sons, and 

22 ‘‘(ii) any summons issued with respect 

23 to such project will meet the requirements 

24 of paragraph (1). 


jbell on DSK7SPTVN1PROD with BILLS
44 

•S 2075 IS

1 ‘‘(C) EXTENSION.—Upon application of 

2 the Secretary, the court may extend the time 

3 for issuing such summonses under subpara4 graph (A)(i) for additional 3-year periods, but 

5 only if the court continues to exercise oversight 

6 of such project under subparagraph (D). 

7 ‘‘(D) ONGOING COURT OVERSIGHT.—Dur8 ing any period in which the Secretary is author9 ized to issue summonses in relation to a project 

10 approved under subparagraph (B) (including 

11 during any extension under subparagraph (C)), 

12 the Secretary shall report annually to the court 

13 on the use of such authority, provide copies of 

14 all summonses with such report, and comply 

15 with the court’s direction with respect to the 

16 issuance of any John Doe summons under such 

17 project.’’. 

18 (b) JURISDICTION OF COURT.— 

19 (1) IN GENERAL.—Paragraph (1) of section 

20 7609(h) is amended by inserting after the first sen21 tence the following new sentence: ‘‘Any United 

22 States district court in which a member of the group 

23 or class to which a summons may be issued resides 

24 or is found shall have jurisdiction to hear and deterVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00044 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
45 

•S 2075 IS

1 mine the approval of a project under subsection 

2 (f)(2)(B).’’. 

3 (2) CONFORMING AMENDMENT.—The first sen4 tence of section 7609(h)(1) is amended by striking 

5 ‘‘(f)’’ and inserting ‘‘(f)(1)’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to summonses issued after the date 

8 of the enactment of this Act. 

9 SEC. 116. IMPROVING ENFORCEMENT OF FOREIGN FINAN10 CIAL ACCOUNT REPORTING. 

11 (a) CLARIFYING THE CONNECTION OF FOREIGN FI12 NANCIAL ACCOUNT REPORTING TO TAX ADMINISTRA13 TION.—Paragraph (4) of section 6103(b) is amended by 

14 adding at the end the following new sentence: 

15 ‘‘For purposes of subparagraph (A)(i), section 5314 

16 of title 31, United States Code, and sections 5321 

17 and 5322 of such title (as such sections pertain to 

18 such section 5314), shall be considered related stat19 utes.’’. 

20 (b) SIMPLIFYING THE CALCULATION OF FOREIGN

21 FINANCIAL ACCOUNT REPORTING PENALTIES.—Section 

22 5321(a)(5)(D)(ii) of title 31, United States Code, is 

23 amended by striking ‘‘the balance in the account at the 

24 time of the violation’’ and inserting ‘‘the highest balance 


jbell on DSK7SPTVN1PROD with BILLS
46 

•S 2075 IS

1 in the account during the reporting period to which the 

2 violation relates’’. 

3 (c) CLARIFYING THE USE OF SUSPICIOUS ACTIVITY

4 REPORTS UNDER THE BANK SECRECY ACT FOR CIVIL

5 TAX LAW ENFORCEMENT.—Section 5319 of title 31, 

6 United States Code, is amended by inserting ‘‘the civil and 

7 criminal enforcement divisions of the Internal Revenue 

8 Service,’’ after ‘‘including’’. 

9 Subtitle C—Combating Tax Shelter 

10 Promoters 

11 SEC. 121. PENALTY FOR PROMOTING ABUSIVE TAX SHEL12 TERS. 

13 (a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL14 TERS.—Section 6700 is amended— 

15 (1) by redesignating subsections (b) and (c) as 

16 subsections (d) and (e), respectively, 

17 (2) by striking ‘‘a penalty’’ and all that follows 

18 through the period in the first sentence of subsection 

19 (a) and inserting ‘‘a penalty determined under sub20 section (b)’’, and 

21 (3) by inserting after subsection (a) the fol22 lowing new subsections: 

23 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN24 ALTY; LIABILITY FOR PENALTY.— 


jbell on DSK7SPTVN1PROD with BILLS
47 

•S 2075 IS

1 ‘‘(1) AMOUNT OF PENALTY.—The amount of 

2 the penalty imposed by subsection (a) shall not ex3 ceed 150 percent of the gross income derived (or to 

4 be derived) from such activity by the person or per5 sons subject to such penalty. 

6 ‘‘(2) CALCULATION OF PENALTY.—The penalty 

7 amount determined under paragraph (1) shall be 

8 calculated with respect to each instance of an activ9 ity described in subsection (a), each instance in 

10 which income was derived by the person or persons 

11 subject to such penalty, and each person who par12 ticipated in such an activity. 

13 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1 

14 person is liable under subsection (a) with respect to 

15 such activity, all such persons shall be jointly and 

16 severally liable for the penalty under such sub17 section. 

18 ‘‘(c) PENALTY NOT DEDUCTIBLE.—The payment of 

19 any penalty imposed under this section or the payment 

20 of any amount to settle or avoid the imposition of such 

21 penalty shall not be considered an ordinary and necessary 

22 expense in carrying on a trade or business for purposes 

23 of this title and shall not be deductible by the person who 

24 is subject to such penalty or who makes such payment.’’. 


jbell on DSK7SPTVN1PROD with BILLS
48 

•S 2075 IS

1 (b) CONFORMING AMENDMENT.—Section 6700(a) is 

2 amended by striking the last sentence. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to activities after the date of the 

5 enactment of this Act. 

6 SEC. 122. PENALTY FOR AIDING AND ABETTING THE UN7 DERSTATEMENT OF TAX LIABILITY. 

8 (a) IN GENERAL.—Section 6701(a) is amended— 

9 (1) by inserting ‘‘the tax liability or’’ after ‘‘re10 spect to,’’ in paragraph (1), 

11 (2) by inserting ‘‘aid, assistance, procurement, 

12 or advice with respect to such’’ before ‘‘portion’’ 

13 both places it appears in paragraphs (2) and (3), 

14 and 

15 (3) by inserting ‘‘instance of aid, assistance, 

16 procurement, or advice or each such’’ before ‘‘docu17 ment’’ in the matter following paragraph (3). 

18 (b) AMOUNT OF PENALTY.—Subsection (b) of section 

19 6701 is amended to read as follows: 

20 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN21 ALTY; LIABILITY FOR PENALTY.— 

22 ‘‘(1) AMOUNT OF PENALTY.—The amount of 

23 the penalty imposed by subsection (a) shall not ex24 ceed 150 percent of the gross income derived (or to 

25 be derived) from such aid, assistance, procurement, 


jbell on DSK7SPTVN1PROD with BILLS
49 

•S 2075 IS

1 or advice provided by the person or persons subject 

2 to such penalty. 

3 ‘‘(2) CALCULATION OF PENALTY.—The penalty 

4 amount determined under paragraph (1) shall be 

5 calculated with respect to each instance of aid, as6 sistance, procurement, or advice described in sub7 section (a), each instance in which income was de8 rived by the person or persons subject to such pen9 alty, and each person who made such an understate10 ment of the liability for tax. 

11 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1 

12 person is liable under subsection (a) with respect to 

13 providing such aid, assistance, procurement, or ad14 vice, all such persons shall be jointly and severally 

15 liable for the penalty under such subsection.’’. 

16 (c) PENALTY NOT DEDUCTIBLE.—Section 6701 is 

17 amended by adding at the end the following new sub18 section: 

19 ‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of 

20 any penalty imposed under this section or the payment 

21 of any amount to settle or avoid the imposition of such 

22 penalty shall not be considered an ordinary and necessary 

23 expense in carrying on a trade or business for purposes 

24 of this title and shall not be deductible by the person who 

25 is subject to such penalty or who makes such payment.’’. 


jbell on DSK7SPTVN1PROD with BILLS
50 

•S 2075 IS

1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to activities after the date of the 

3 enactment of this Act. 

4 SEC. 123. PROHIBITED FEE ARRANGEMENT. 

5 (a) IN GENERAL.—Section 6701, as amended by this 

6 Act, is amended— 

7 (1) by redesignating subsections (f) and (g) as 

8 subsections (g) and (h), respectively, 

9 (2) by striking ‘‘subsection (a).’’ in paragraphs 

10 (2) and (3) of subsection (g) (as redesignated by 

11 paragraph (1)) and inserting ‘‘subsection (a) or 

12 (f).’’, and 

13 (3) by inserting after subsection (e) the fol14 lowing new subsection: 

15 ‘‘(f) PROHIBITED FEE ARRANGEMENT.— 

16 ‘‘(1) IN GENERAL.—Any person who makes an 

17 agreement for, charges, or collects a fee which is for 

18 services provided in connection with the internal rev19 enue laws, and the amount of which is calculated ac20 cording to, or is dependent upon, a projected or ac21 tual amount of— 

22 ‘‘(A) tax savings or benefits, or 

23 ‘‘(B) losses which can be used to offset 

24 other taxable income, 


jbell on DSK7SPTVN1PROD with BILLS
51 

•S 2075 IS

1 shall pay a penalty with respect to each such fee ac2 tivity in the amount determined under subsection 

3 (b). 

4 ‘‘(2) RULES.—The Secretary may issue rules to 

5 carry out the purposes of this subsection and may 

6 provide exceptions for fee arrangements that are in 

7 the public interest.’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to fee agreements, charges, and 

10 collections made after the date of the enactment of this 

11 Act. 

12 SEC. 124. PREVENTING TAX SHELTER ACTIVITIES BY FI13 NANCIAL INSTITUTIONS. 

14 (a) EXAMINATIONS.— 

15 (1) DEVELOPMENT OF EXAMINATION TECH16 NIQUES.—Each of the Federal banking agencies and 

17 the Commission shall, in consultation with the Inter18 nal Revenue Service, develop examination techniques 

19 to detect potential violations of section 6700 or 6701 

20 of the Internal Revenue Code of 1986, by depository 

21 institutions, brokers, dealers, and investment advis22 ers, as appropriate. 

23 (2) IMPLEMENTATION.—Each of the Federal 

24 banking agencies and the Commission shall imple25 ment the examination techniques developed under 


jbell on DSK7SPTVN1PROD with BILLS
52 

•S 2075 IS

1 paragraph (1) with respect to each of the depository 

2 institutions, brokers, dealers, or investment advisers 

3 subject to their enforcement authority. Such exam4 ination shall, to the extent possible, be combined 

5 with any examination by such agency otherwise re6 quired or authorized by Federal law. 

7 (b) REPORT TO INTERNAL REVENUE SERVICE.—In 

8 any case in which an examination conducted under this 

9 section with respect to a financial institution or other enti10 ty reveals a potential violation, such agency shall promptly 

11 notify the Internal Revenue Service of such potential viola12 tion for investigation and enforcement by the Internal 

13 Revenue Service, in accordance with applicable provisions 

14 of law. 

15 (c) REPORT TO CONGRESS.—The Federal banking 

16 agencies and the Commission shall submit a joint written 

17 report to Congress in 2013 on their progress in preventing 

18 violations of sections 6700 and 6701 of the Internal Rev19 enue Code of 1986, by depository institutions, brokers, 

20 dealers, and investment advisers, as appropriate. 

21 (d) DEFINITIONS.—For purposes of this section— 

22 (1) the terms ‘‘broker’’, ‘‘dealer’’, and ‘‘invest23 ment adviser’’ have the same meanings as in section 

24 3 of the Securities Exchange Act of 1934 (15 U.S.C. 

25 78c); 


jbell on DSK7SPTVN1PROD with BILLS
53 

•S 2075 IS

1 (2) the term ‘‘Commission’’ means the Securi2 ties and Exchange Commission; 

3 (3) the term ‘‘depository institution’’ has the 

4 same meaning as in section 3(c) of the Federal De5 posit Insurance Act (12 U.S.C. 1813(c)); 

6 (4) the term ‘‘Federal banking agencies’’ has 

7 the same meaning as in section 3(q) of the Federal 

8 Deposit Insurance Act (12 U.S.C. 1813(q)); and 

9 (5) the term ‘‘Secretary’’ means the Secretary 

10 of the Treasury. 

11 SEC. 125. INFORMATION SHARING FOR ENFORCEMENT 

12 PURPOSES. 

13 (a) PROMOTION OF PROHIBITED TAX SHELTERS OR

14 TAX AVOIDANCE SCHEMES.—Section 6103(h) is amended 

15 by adding at the end the following new paragraph: 

16 ‘‘(7) DISCLOSURE OF RETURNS AND RETURN

17 INFORMATION RELATED TO PROMOTION OF PROHIB18 ITED TAX SHELTERS OR TAX AVOIDANCE

19 SCHEMES.— 

20 ‘‘(A) WRITTEN REQUEST.—Upon receipt 

21 by the Secretary of a written request which 

22 meets the requirements of subparagraph (B) 

23 from the head of the United States Securities 

24 and Exchange Commission, an appropriate 

25 Federal banking agency as defined under secVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00053 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
54 

•S 2075 IS

1 tion 1813(q) of title 12, United States Code, or 

2 the Public Company Accounting Oversight 

3 Board, a return or return information shall be 

4 disclosed to such requestor’s officers and em5 ployees who are personally and directly engaged 

6 in an investigation, examination, or proceeding 

7 by such requestor to evaluate, determine, penal8 ize, or deter conduct by a financial institution, 

9 issuer, or public accounting firm, or associated 

10 person, in connection with a potential or actual 

11 violation of section 6700 (promotion of abusive 

12 tax shelters), 6701 (aiding and abetting under13 statement of tax liability), or activities related 

14 to promoting or facilitating inappropriate tax 

15 avoidance or tax evasion. Such disclosure shall 

16 be solely for use by such officers and employees 

17 in such investigation, examination, or pro18 ceeding. In the discretion of the Secretary, such 

19 disclosure may take the form of the participa20 tion of Internal Revenue Service employees in a 

21 joint investigation, examination, or proceeding 

22 with the Securities Exchange Commission, Fed23 eral banking agency, or Public Company Ac24 counting Oversight Board. 


jbell on DSK7SPTVN1PROD with BILLS
55 

•S 2075 IS

1 ‘‘(B) REQUIREMENTS.—A request meets 

2 the requirements of this subparagraph if it sets 

3 forth— 

4 ‘‘(i) the nature of the investigation, 

5 examination, or proceeding, 

6 ‘‘(ii) the statutory authority under 

7 which such investigation, examination, or 

8 proceeding is being conducted, 

9 ‘‘(iii) the name or names of the finan10 cial institution, issuer, or public accounting 

11 firm to which such return information re12 lates, 

13 ‘‘(iv) the taxable period or periods to 

14 which such return information relates, and 

15 ‘‘(v) the specific reason or reasons 

16 why such disclosure is, or may be, relevant 

17 to such investigation, examination or pro18 ceeding. 

19 ‘‘(C) FINANCIAL INSTITUTION.—For the 

20 purposes of this paragraph, the term ‘financial 

21 institution’ means a depository institution, for22 eign bank, insured institution, industrial loan 

23 company, broker, dealer, investment company, 

24 investment advisor, or other entity subject to 

25 regulation or oversight by the United States SeVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00055 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
56 

•S 2075 IS

1 curities and Exchange Commission or an appro2 priate Federal banking agency.’’. 

3 (b) FINANCIAL AND ACCOUNTING FRAUD INVESTIGA4 TIONS.—Section 6103(i) is amended by adding at the end 

5 the following new paragraph: 

6 ‘‘(9) DISCLOSURE OF RETURNS AND RETURN

7 INFORMATION FOR USE IN FINANCIAL AND AC8 COUNTING FRAUD INVESTIGATIONS.— 

9 ‘‘(A) WRITTEN REQUEST.—Upon receipt 

10 by the Secretary of a written request which 

11 meets the requirements of subparagraph (B) 

12 from the head of the United States Securities 

13 and Exchange Commission or the Public Com14 pany Accounting Oversight Board, a return or 

15 return information shall be disclosed to such re16 questor’s officers and employees who are per17 sonally and directly engaged in an investigation, 

18 examination, or proceeding by such requester to 

19 evaluate the accuracy of a financial statement 

20 or report, or to determine whether to require a 

21 restatement, penalize, or deter conduct by an 

22 issuer, investment company, or public account23 ing firm, or associated person, in connection 

24 with a potential or actual violation of auditing 

25 standards or prohibitions against false or misVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00056 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
57 

•S 2075 IS

1 leading statements or omissions in financial 

2 statements or reports. Such disclosure shall be 

3 solely for use by such officers and employees in 

4 such investigation, examination, or proceeding. 

5 ‘‘(B) REQUIREMENTS.—A request meets 

6 the requirements of this subparagraph if it sets 

7 forth— 

8 ‘‘(i) the nature of the investigation, 

9 examination, or proceeding, 

10 ‘‘(ii) the statutory authority under 

11 which such investigation, examination, or 

12 proceeding is being conducted, 

13 ‘‘(iii) the name or names of the issuer, 

14 investment company, or public accounting 

15 firm to which such return information re16 lates, 

17 ‘‘(iv) the taxable period or periods to 

18 which such return information relates, and 

19 ‘‘(v) the specific reason or reasons 

20 why such disclosure is, or may be, relevant 

21 to such investigation, examination or pro22 ceeding.’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to disclosures and to information 


jbell on DSK7SPTVN1PROD with BILLS
58 

•S 2075 IS

1 and document requests made after the date of the enact2 ment of this Act. 

3 SEC. 126. DISCLOSURE OF INFORMATION TO CONGRESS. 

4 (a) DISCLOSURE BY TAX RETURN PREPARER.— 

5 (1) IN GENERAL.—Subparagraph (B) of section 

6 7216(b)(1) is amended to read as follows: 

7 ‘‘(B) pursuant to any 1 of the following 

8 documents, if clearly identified: 

9 ‘‘(i) The order of any Federal, State, 

10 or local court of record. 

11 ‘‘(ii) A subpoena issued by a Federal 

12 or State grand jury. 

13 ‘‘(iii) An administrative order, sum14 mons, or subpoena which is issued in the 

15 performance of its duties by— 

16 ‘‘(I) any Federal agency, includ17 ing Congress or any committee or 

18 subcommittee thereof, or 

19 ‘‘(II) any State agency, body, or 

20 commission charged under the laws of 

21 the State or a political subdivision of 

22 the State with the licensing, registra23 tion, or regulation of tax return pre24 parers.’’. 


jbell on DSK7SPTVN1PROD with BILLS
59 

•S 2075 IS

1 (2) EFFECTIVE DATE.—The amendment made 

2 by this subsection shall apply to disclosures made 

3 after the date of the enactment of this Act pursuant 

4 to any document in effect on or after such date. 

5 (b) DISCLOSURE BY SECRETARY.—Paragraph (2) of 

6 section 6104(a) is amended to read as follows: 

7 ‘‘(2) INSPECTION BY CONGRESS.— 

8 ‘‘(A) IN GENERAL.—Upon receipt of a 

9 written request from a committee or sub10 committee of Congress, copies of documents re11 lated to a determination by the Secretary to 

12 grant, deny, revoke, or restore an organization’s 

13 exemption from taxation under section 501 

14 shall be provided to such committee or sub15 committee, including any application, notice of 

16 status, or supporting information provided by 

17 such organization to the Internal Revenue Serv18 ice; any letter, analysis, or other document pro19 duced by or for the Internal Revenue Service 

20 evaluating, determining, explaining, or relating 

21 to the tax exempt status of such organization 

22 (other than returns, unless such returns are 

23 available to the public under this section or sec24 tion 6103 or 6110); and any communication be25 tween the Internal Revenue Service and any 


jbell on DSK7SPTVN1PROD with BILLS
60 

•S 2075 IS

1 other party relating to the tax exempt status of 

2 such organization. 

3 ‘‘(B) ADDITIONAL INFORMATION.—Section 

4 6103(f) shall apply with respect to— 

5 ‘‘(i) the application for exemption of 

6 any organization described in subsection 

7 (c) or (d) of section 501 which is exempt 

8 from taxation under section 501(a) for any 

9 taxable year and any application referred 

10 to in subparagraph (B) of subsection 

11 (a)(1) of this section, and 

12 ‘‘(ii) any other papers which are in 

13 the possession of the Secretary and which 

14 relate to such application, 

15 as if such papers constituted returns.’’. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to disclosures and to information 

18 and document requests made after the date of the enact19 ment of this Act. 

20 SEC. 127. TAX OPINION STANDARDS FOR TAX PRACTI21 TIONERS. 

22 Section 330(d) of title 31, United States Code, is 

23 amended to read as follows: 

24 ‘‘(d) The Secretary of the Treasury shall impose 

25 standards applicable to the rendering of written advice 


jbell on DSK7SPTVN1PROD with BILLS
61 

•S 2075 IS

1 with respect to any listed transaction or any entity, plan, 

2 arrangement, or other transaction which has a potential 

3 for tax avoidance or evasion. Such standards shall ad4 dress, but not be limited to, the following issues: 

5 ‘‘(1) Independence of the practitioner issuing 

6 such written advice from persons promoting, mar7 keting, or recommending the subject of the advice. 

8 ‘‘(2) Collaboration among practitioners, or be9 tween a practitioner and other party, which could re10 sult in such collaborating parties having a joint fi11 nancial interest in the subject of the advice. 

12 ‘‘(3) Avoidance of conflicts of interest which 

13 would impair auditor independence. 

14 ‘‘(4) For written advice issued by a firm, stand15 ards for reviewing the advice and ensuring the con16 sensus support of the firm for positions taken. 

17 ‘‘(5) Reliance on reasonable factual representa18 tions by the taxpayer and other parties. 

19 ‘‘(6) Appropriateness of the fees charged by the 

20 practitioner for the written advice. 

21 ‘‘(7) Preventing practitioners and firms from 

22 aiding or abetting the understatement of tax liability 

23 by clients. 

24 ‘‘(8) Banning the promotion of potentially abu25 sive or illegal tax shelters.’’. 


jbell on DSK7SPTVN1PROD with BILLS
62 

•S 2075 IS

1 Subtitle D—Reformation of U.S. 

2 International Tax System 

3 SEC. 131. ALLOCATION OF EXPENSES AND TAXES ON BASIS 

4 OF REPATRIATION OF FOREIGN INCOME. 

5 (a) IN GENERAL.—Part III of subchapter N of chap6 ter 1 is amended by inserting after subpart G the following 

7 new subpart: 

8 ‘‘Subpart H—Special Rules for Allocation of Foreign9 Related Deductions and Foreign Tax Credits 

‘‘Sec. 975. Deductions allocated to deferred foreign income may not offset 

United States source income. 

‘‘Sec. 976. Amount of foreign taxes computed on overall basis. 

‘‘Sec. 977. Application of subpart. 

10 ‘‘SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOR11 EIGN INCOME MAY NOT OFFSET UNITED 

12 STATES SOURCE INCOME. 

13 ‘‘(a) CURRENT YEAR DEDUCTIONS.—For purposes 

14 of this chapter, foreign-related deductions for any taxable 

15 year— 

16 ‘‘(1) shall be taken into account for such tax17 able year only to the extent that such deductions are 

18 allocable to currently-taxed foreign income, and 

19 ‘‘(2) to the extent not so allowed, shall be taken 

20 into account in subsequent taxable years as provided 

21 in subsection (b). 

22 Foreign-related deductions shall be allocated to currently 

23 taxed foreign income in the same proportion which curVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00062 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
63 

•S 2075 IS

1 rently taxed foreign income bears to the sum of currently 

2 taxed foreign income and deferred foreign income. 

3 ‘‘(b) DEDUCTIONS RELATED TO REPATRIATED DE4 FERRED FOREIGN INCOME.— 

5 ‘‘(1) IN GENERAL.—If there is repatriated for6 eign income for a taxable year, the portion of the 

7 previously deferred deductions allocated to the repa8 triated foreign income shall be taken into account 

9 for the taxable year as a deduction allocated to in10 come from sources outside the United States. Any 

11 such amount shall not be included in foreign-related 

12 deductions for purposes of applying subsection (a) to 

13 such taxable year. 

14 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED DE15 DUCTIONS.—For purposes of paragraph (1), the por16 tion of the previously deferred deductions allocated 

17 to repatriated foreign income is— 

18 ‘‘(A) the amount which bears the same 

19 proportion to such deductions, as 

20 ‘‘(B) the repatriated income bears to the 

21 previously deferred foreign income. 

22 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur23 poses of this section— 

24 ‘‘(1) FOREIGN-RELATED DEDUCTIONS.—The 

25 term ‘foreign-related deductions’ means the total 


jbell on DSK7SPTVN1PROD with BILLS
64 

•S 2075 IS

1 amount of deductions and expenses which would be 

2 allocated or apportioned to gross income from 

3 sources without the United States for the taxable 

4 year if both the currently-taxed foreign income and 

5 deferred foreign income were taken into account. 

6 ‘‘(2) CURRENTLY-TAXED FOREIGN INCOME.— 

7 The term ‘currently-taxed foreign income’ means the 

8 amount of gross income from sources without the 

9 United States for the taxable year (determined with10 out regard to repatriated foreign income for such 

11 year). 

12 ‘‘(3) DEFERRED FOREIGN INCOME.—The term 

13 ‘deferred foreign income’ means the excess of— 

14 ‘‘(A) the amount that would be includible 

15 in gross income under subpart F of this part 

16 for the taxable year if— 

17 ‘‘(i) all controlled foreign corporations 

18 were treated as one controlled foreign cor19 poration, and 

20 ‘‘(ii) all earnings and profits of all 

21 controlled foreign corporations were sub22 part F income (as defined in section 952), 

23 over 

24 ‘‘(B) the sum of— 


jbell on DSK7SPTVN1PROD with BILLS
65 

•S 2075 IS

1 ‘‘(i) all dividends received during the 

2 taxable year from controlled foreign cor3 porations, plus 

4 ‘‘(ii) amounts includible in gross in5 come under section 951(a). 

6 ‘‘(4) PREVIOUSLY DEFERRED FOREIGN IN7 COME.—The term ‘previously deferred foreign in8 come’ means the aggregate amount of deferred for9 eign income for all prior taxable years to which this 

10 part applies, determined as of the beginning of the 

11 taxable year, reduced by the repatriated foreign in12 come for all such prior taxable years. 

13 ‘‘(5) REPATRIATED FOREIGN INCOME.—The 

14 term ‘repatriated foreign income’ means the amount 

15 included in gross income on account of distributions 

16 out of previously deferred foreign income. 

17 ‘‘(6) PREVIOUSLY DEFERRED DEDUCTIONS.— 

18 The term ‘previously deferred deductions’ means the 

19 aggregate amount of foreign-related deductions not 

20 taken into account under subsection (a) for all prior 

21 taxable years (determined as of the beginning of the 

22 taxable year), reduced by any amounts taken into 

23 account under subsection (b) for such prior taxable 

24 years. 


jbell on DSK7SPTVN1PROD with BILLS
66 

•S 2075 IS

1 ‘‘(7) TREATMENT OF CERTAIN FOREIGN

2 TAXES.— 

3 ‘‘(A) PAID BY CONTROLLED FOREIGN COR4 PORATION.—Section 78 shall not apply for pur5 poses of determining currently-taxed foreign in6 come and deferred foreign income. 

7 ‘‘(B) PAID BY TAXPAYER.—For purposes 

8 of determining currently-taxed foreign income, 

9 gross income from sources without the United 

10 States shall be reduced by the aggregate 

11 amount of taxes described in the applicable 

12 paragraph of section 901(b) which are paid by 

13 the taxpayer (without regard to sections 902 

14 and 960) during the taxable year. 

15 ‘‘(8) COORDINATION WITH SECTION 976.—In 

16 determining currently-taxed foreign income and de17 ferred foreign income, the amount of deemed foreign 

18 tax credits shall be determined with regard to sec19 tion 976. 

20 ‘‘SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON 

21 OVERALL BASIS. 

22 ‘‘(a) CURRENT YEAR ALLOWANCE.—For purposes of 

23 this chapter, the amount taken into account as foreign in24 come taxes for any taxable year shall be an amount which 


jbell on DSK7SPTVN1PROD with BILLS
67 

•S 2075 IS

1 bears the same ratio to the total foreign income taxes for 

2 that taxable year as— 

3 ‘‘(1) the currently-taxed foreign income for such 

4 taxable year, bears to 

5 ‘‘(2) the sum of the currently-taxed foreign in6 come and deferred foreign income for such year. 

7 The portion of the total foreign income taxes for any tax8 able year not taken into account under the preceding sen9 tence for a taxable year shall only be taken into account 

10 as provided in subsection (b) (and shall not be taken into 

11 account for purposes of applying sections 902 and 960). 

12 ‘‘(b) ALLOWANCE RELATED TO REPATRIATED DE13 FERRED FOREIGN INCOME.— 

14 ‘‘(1) IN GENERAL.—If there is repatriated for15 eign income for any taxable year, the portion of the 

16 previously deferred foreign income taxes paid or ac17 crued during such taxable year shall be taken into 

18 account for the taxable year as foreign taxes paid or 

19 accrued. Any such taxes so taken into account shall 

20 not be included in foreign income taxes for purposes 

21 of applying subsection (a) to such taxable year. 

22 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED FOR23 EIGN INCOME TAXES.—For purposes of paragraph 

24 (1), the portion of the previously deferred foreign inVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00067 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
68 

•S 2075 IS

1 come taxes allocated to repatriated deferred foreign 

2 income is— 

3 ‘‘(A) the amount which bears the same 

4 proportion to such taxes, as 

5 ‘‘(B) the repatriated deferred income bears 

6 to the previously deferred foreign income. 

7 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur8 poses of this section— 

9 ‘‘(1) PREVIOUSLY DEFERRED FOREIGN INCOME

10 TAXES.—The term ‘previously deferred foreign in11 come taxes’ means the aggregate amount of total 

12 foreign income taxes not taken into account under 

13 subsection (a) for all prior taxable years (determined 

14 as of the beginning of the taxable year), reduced by 

15 any amounts taken into account under subsection 

16 (b) for such prior taxable years. 

17 ‘‘(2) TOTAL FOREIGN INCOME TAXES.—The 

18 term ‘total foreign income taxes’ means the sum of 

19 foreign income taxes paid or accrued during the tax20 able year (determined without regard to section 

21 904(c)) plus the increase in foreign income taxes 

22 that would be paid or accrued during the taxable 

23 year under sections 902 and 960 if— 


jbell on DSK7SPTVN1PROD with BILLS
69 

•S 2075 IS

1 ‘‘(A) all controlled foreign corporations 

2 were treated as one controlled foreign corpora3 tion, and 

4 ‘‘(B) all earnings and profits of all con5 trolled foreign corporations were subpart F in6 come (as defined in section 952). 

7 ‘‘(3) FOREIGN INCOME TAXES.—The term ‘for8 eign income taxes’ means any income, war profits, or 

9 excess profits taxes paid by the taxpayer to any for10 eign country or possession of the United States. 

11 ‘‘(4) CURRENTLY-TAXED FOREIGN INCOME AND

12 DEFERRED FOREIGN INCOME.—The terms ‘cur13 rently-taxed foreign income’ and ‘deferred foreign in14 come’ have the meanings given such terms by sec15 tion 975(c)). 

16 ‘‘SEC. 977. APPLICATION OF SUBPART. 

17 ‘‘This subpart— 

18 ‘‘(1) shall be applied before subpart A, and 

19 ‘‘(2) shall be applied separately with respect to 

20 the categories of income specified in section 

21 904(d)(1).’’. 

22 (b) CLERICAL AMENDMENT.—The table of subparts 

23 for part III of subpart N of chapter 1 is amended by in24 serting after the item relating to subpart G the following 

25 new item: 


jbell on DSK7SPTVN1PROD with BILLS
70 

•S 2075 IS

‘‘SUBPART H. SPECIAL RULES FOR ALLOCATION OF FOREIGN-RELATED

DEDUCTIONS AND FOREIGN TAX CREDITS.’’. 

1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 132. EXCESS INCOME FROM TRANSFERS OF INTANGI5 BLES TO LOW-TAXED AFFILIATES TREATED 

6 AS SUBPART F INCOME. 

7 (a) IN GENERAL.—Subsection (a) of section 954 is 

8 amended by inserting after paragraph (3) the following 

9 new paragraph: 

10 ‘‘(4) the foreign base company excess intangible 

11 income for the taxable year (determined under sub12 section (f) and reduced as provided in subsection 

13 (b)(5)), and’’. 

14 (b) FOREIGN BASE COMPANY EXCESS INTANGIBLE

15 INCOME.—Section 954 is amended by inserting after sub16 section (e) the following new subsection: 

17 ‘‘(f) FOREIGN BASE COMPANY EXCESS INTANGIBLE

18 INCOME.—For purposes of subsection (a)(4) and this sub19 section: 

20 ‘‘(1) FOREIGN BASE COMPANY EXCESS INTAN21 GIBLE INCOME DEFINED.— 

22 ‘‘(A) IN GENERAL.—The term ‘foreign 

23 base company excess intangible income’ means, 


jbell on DSK7SPTVN1PROD with BILLS
71 

•S 2075 IS

1 with respect to any covered intangible, the ex2 cess of— 

3 ‘‘(i) the sum of— 

4 ‘‘(I) gross income from the sale, 

5 lease, license, or other disposition of 

6 property in which such covered intan7 gible is used directly or indirectly, and 

8 ‘‘(II) gross income from the pro9 vision of services related to such cov10 ered intangible or in connection with 

11 property in which such covered intan12 gible is used directly or indirectly, 

13 over 

14 ‘‘(ii) 150 percent of the costs properly 

15 allocated and apportioned to the gross in16 come taken into account under clause (i) 

17 other than expenses for interest and taxes 

18 and any expenses which are not directly al19 locable to such gross income. 

20 ‘‘(B) SAME COUNTRY INCOME NOT TAKEN

21 INTO ACCOUNT.—If— 

22 ‘‘(i) the sale, lease, license, or other 

23 disposition of the property referred to in 

24 subparagraph (A)(i)(I) is for use, con25 sumption, or disposition in the country 


jbell on DSK7SPTVN1PROD with BILLS
72 

•S 2075 IS

1 under the laws of which the controlled for2 eign corporation is created or organized, or 

3 ‘‘(ii) the services referred to in sub4 paragraph (A)(i)(II) are performed in such 

5 country, 

6 the gross income from such sale, lease, license, 

7 or other disposition, or provision of services, 

8 shall not be taken into account under subpara9 graph (A)(i). 

10 ‘‘(2) EXCEPTION BASED ON EFFECTIVE FOR11 EIGN INCOME TAX RATE.— 

12 ‘‘(A) IN GENERAL.—Foreign base company 

13 excess intangible income shall not include the 

14 applicable percentage of any item of income re15 ceived by a controlled foreign corporation if the 

16 taxpayer establishes to the satisfaction of the 

17 Secretary that such income was subject to an 

18 effective rate of income tax imposed by a for19 eign country in excess of 5 percent. 

20 ‘‘(B) APPLICABLE PERCENTAGE.—For 

21 purposes of subparagraph (A), the term ‘appli22 cable percentage’ means the ratio (expressed as 

23 a percentage), not greater than 100 percent, 

24 of— 


jbell on DSK7SPTVN1PROD with BILLS
73 

•S 2075 IS

1 ‘‘(i) the number of percentage points 

2 by which the effective rate of income tax 

3 referred to in subparagraph (A) exceeds 5 

4 percentage points, over 

5 ‘‘(ii) 10 percentage points. 

6 ‘‘(C) TREATMENT OF LOSSES IN DETER7 MINING EFFECTIVE RATE OF FOREIGN INCOME

8 TAX.—For purposes of determining the effective 

9 rate of income tax imposed by any foreign 

10 country— 

11 ‘‘(i) such effective rate shall be deter12 mined without regard to any losses carried 

13 to the relevant taxable year, and 

14 ‘‘(ii) to the extent the income with re15 spect to such intangible reduces losses in 

16 the relevant taxable year, such effective 

17 rate shall be treated as being the effective 

18 rate which would have been imposed on 

19 such income without regard to such losses. 

20 ‘‘(3) COVERED INTANGIBLE.—The term ‘cov21 ered intangible’ means, with respect to any con22 trolled foreign corporation, any intangible property 

23 (as defined in section 936(h)(3)(B))— 

24 ‘‘(A) which is sold, leased, licensed, or oth25 erwise transferred (directly or indirectly) to 


jbell on DSK7SPTVN1PROD with BILLS
74 

•S 2075 IS

1 such controlled foreign corporation from a re2 lated person, or 

3 ‘‘(B) with respect to which such controlled 

4 foreign corporation and one or more related 

5 persons has (directly or indirectly) entered into 

6 any shared risk or development agreement (in7 cluding any cost sharing agreement). 

8 ‘‘(4) RELATED PERSON.—The term ‘related 

9 person’ has the meaning given such term in sub10 section (d)(3).’’. 

11 (c) SEPARATE BASKET FOR FOREIGN TAX CRED12 IT.—Subsection (d) of section 904 is amended by redesig13 nating paragraph (7) as paragraph (8) and by inserting 

14 after paragraph (6) the following new paragraph: 

15 ‘‘(6) SEPARATE APPLICATION TO FOREIGN

16 BASE COMPANY EXCESS INTANGIBLE INCOME.— 

17 ‘‘(A) IN GENERAL.—Subsections (a), (b), 

18 and (c) of this section and sections 902, 907, 

19 and 960 shall be applied separately with respect 

20 to each item of income which is taken into ac21 count under section 954(a)(4) as foreign base 

22 company excess intangible income. 

23 ‘‘(B) REGULATIONS.—The Secretary may 

24 issue such regulations or other guidance as is 

25 necessary or appropriate to carry out the purVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00074 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
75 

•S 2075 IS

1 poses of this subsection, including regulations 

2 or other guidance which provides that related 

3 items of income may be aggregated for pur4 poses of this paragraph.’’. 

5 (d) CONFORMING AMENDMENTS.— 

6 (1) Paragraph (4) of section 954(b) is amended 

7 by inserting ‘‘foreign base company excess intangible 

8 income described in subsection (a)(4) or’’ before 

9 ‘‘foreign base company oil-related income’’ in the 

10 last sentence thereof. 

11 (2) Subsection (b) of section 954 is amended by 

12 adding at the end the following new paragraph: 

13 ‘‘(7) FOREIGN BASE COMPANY EXCESS INTAN14 GIBLE INCOME NOT TREATED AS ANOTHER KIND OF

15 BASE COMPANY INCOME.—Income of a corporation 

16 which is foreign base company excess intangible in17 come shall not be considered foreign base company 

18 income of such corporation under paragraph (2), 

19 (3), or (5) of subsection (a).’’. 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 


jbell on DSK7SPTVN1PROD with BILLS
76 

•S 2075 IS

1 SEC. 133. LIMITATIONS ON INCOME SHIFTING THROUGH IN2 TANGIBLE PROPERTY TRANSFERS. 

3 (a) CLARIFICATION OF DEFINITION OF INTANGIBLE

4 ASSET.—Clause (vi) of section 936(h)(3)(B) is amended 

5 by inserting ‘‘(including any section 197 intangible de6 scribed in subparagraph (A), (B), or (C)(i) of subsection 

7 (d)(1) of such section)’’ after ‘‘item’’. 

8 (b) CLARIFICATION OF ALLOWABLE VALUATION

9 METHODS.— 

10 (1) FOREIGN CORPORATIONS.—Paragraph (2) 

11 of section 367(d) is amended by adding at the end 

12 the following new subparagraph: 

13 ‘‘(D) REGULATORY AUTHORITY.—For pur14 poses of the last sentence of subparagraph (A), 

15 the Secretary may require— 

16 ‘‘(i) the valuation of transfers of in17 tangible property on an aggregate basis, or 

18 ‘‘(ii) the valuation of such a transfer 

19 on the basis of the realistic alternatives to 

20 such a transfer, 

21 in any case in which the Secretary determines 

22 that such basis is the most reliable means of 

23 valuation of such transfers.’’. 

24 (2) ALLOCATION AMONG TAXPAYERS.—Section 

25 482 is amended by adding at the end the following: 

26 ‘‘For purposes of the preceding sentence, the SecVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00076 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
77 

•S 2075 IS

1 retary may require the valuation of transfers of in2 tangible property on an aggregate basis or the valu3 ation of such a transfer on the basis of the realistic 

4 alternatives to such a transfer, in any case in which 

5 the Secretary determines that such basis is the most 

6 reliable means of valuation of such transfers.’’. 

7 (c) EFFECTIVE DATE.— 

8 (1) IN GENERAL.—The amendments made by 

9 this section shall apply to transfers in taxable years 

10 beginning after the date of the enactment of this 

11 Act. 

12 (2) NO INFERENCE.—Nothing in the amend13 ment made by subsection (a) shall be construed to 

14 create any inference with respect to the application 

15 of section 936(h)(3) of the Internal Revenue Code of 

16 1986, or the authority of the Secretary of the Treas17 ury to provide regulations for such application, on or 

18 before the date of the enactment of such amend19 ment. 

20 SEC. 134. LIMITATION ON EARNINGS STRIPPING BY EXPA21 TRIATED ENTITIES. 

22 (a) IN GENERAL.—Subsection (j) of section 163 is 

23 amended— 

24 (1) by redesignating paragraph (9) as para25 graph (10), and 


jbell on DSK7SPTVN1PROD with BILLS
78 

•S 2075 IS

1 (2) by inserting after paragraph (8) the fol2 lowing new paragraph: 

3 ‘‘(9) SPECIAL RULES FOR EXPATRIATED ENTI4 TIES.— 

5 ‘‘(A) IN GENERAL.—In the case of a cor6 poration to which this subsection applies which 

7 is an expatriated entity, this subsection shall 

8 apply to such corporation with the following 

9 modifications: 

10 ‘‘(i) Paragraph (2)(A) shall be applied 

11 without regard to clause (ii) thereof. 

12 ‘‘(ii) Paragraph (1)(B) shall be ap13 plied— 

14 ‘‘(I) without regard to the par15 enthetical, and 

16 ‘‘(II) by substituting ‘in the 1st 

17 succeeding taxable year and in the 

18 2nd through 10th succeeding taxable 

19 years to the extent not previously 

20 taken into account under this sub21 paragraph’ for ‘in the succeeding tax22 able year’. 

23 ‘‘(iii) Paragraph (2)(B) shall be ap24 plied— 


jbell on DSK7SPTVN1PROD with BILLS
79 

•S 2075 IS

1 ‘‘(I) without regard to clauses (ii) 

2 and (iii), and 

3 ‘‘(II) by substituting ‘25 percent 

4 of the adjusted taxable income of the 

5 corporation for such taxable year’ for 

6 the matter of clause (i)(II) thereof. 

7 ‘‘(B) EXPATRIATED ENTITY.—For pur8 poses of this paragraph— 

9 ‘‘(i) IN GENERAL.—With respect to a 

10 corporation and a taxable year, the term 

11 ‘expatriated entity’ has the meaning given 

12 such term by section 7874(a)(2), deter13 mined as if such section and the regula14 tions under such section as in effect on the 

15 first day of such taxable year applied to all 

16 taxable years of the corporation beginning 

17 after July 10, 1989. 

18 ‘‘(ii) EXCEPTION FOR SURROGATES

19 TREATED AS A DOMESTIC CORPORATION.— 

20 The term ‘expatriated entity’ does not in21 clude a surrogate foreign corporation 

22 which is treated as a domestic corporation 

23 by reason of section 7874(b).’’. 


jbell on DSK7SPTVN1PROD with BILLS
80 

•S 2075 IS

1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 TITLE II—ENDING EXCESSIVE 

5 CORPORATE TAX DEDUC6 TIONS FOR STOCK OPTIONS 

7 SEC. 201. CONSISTENT TREATMENT OF STOCK OPTIONS BY 

8 CORPORATIONS. 

9 (a) CONSISTENT TREATMENT FOR WAGE DEDUC10 TION.— 

11 (1) IN GENERAL.—Section 83(h) is amended— 

12 (A) by striking ‘‘In the case of’’ and in13 serting: 

14 ‘‘(1) IN GENERAL.—In the case of’’, and 

15 (B) by adding at the end the following new 

16 paragraph: 

17 ‘‘(2) STOCK OPTIONS.—In the case of property 

18 transferred to a person in connection with a stock 

19 option, any deduction related to such stock option 

20 shall be allowed only under section 162(q) and para21 graph (1) shall not apply.’’. 

22 (2) TREATMENT OF COMPENSATION PAID WITH

23 STOCK OPTIONS.—Section 162 is amended by redes24 ignating subsection (q) as subsection (r) and by inVerDate Mar 15 2010 03:20 Feb 08, 2012 Jkt 019200 PO 00000 Frm 00080 Fmt 6652 Sfmt 6201 E:\BILLS\S2075.IS S2075

jbell on DSK7SPTVN1PROD with BILLS
81 

•S 2075 IS

1 serting after subsection (p) the following new sub2 section: 

3 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

4 STOCK OPTIONS.— 

5 ‘‘(1) IN GENERAL.—In the case of compensa6 tion for personal services that is paid with stock op7 tions, the deduction under subsection (a)(1) shall 

8 not exceed the amount the taxpayer has treated as 

9 compensation cost with respect to such stock options 

10 for the purpose of ascertaining income, profit, or 

11 loss in a report or statement to shareholders, part12 ners, or other proprietors (or to beneficiaries), and 

13 shall be taken into account in the same period that 

14 such compensation cost is recognized for such pur15 pose. 

16 ‘‘(2) SPECIAL RULES FOR CONTROLLED

17 GROUPS.—The Secretary may prescribe rules for the 

18 application of paragraph (1) in cases where the 

19 stock option is granted by— 

20 ‘‘(A) a parent or subsidiary corporation 

21 (within the meaning of section 424) of the tax22 payer, or 

23 ‘‘(B) another corporation.’’. 


jbell on DSK7SPTVN1PROD with BILLS
82 

•S 2075 IS

1 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

2 CREDIT.—Section 41(b)(2)(D) is amended by inserting at 

3 the end the following new clause: 

4 ‘‘(iv) SPECIAL RULE FOR STOCK OP5 TIONS.—The amount which may be treated 

6 as wages for any taxable year in connec7 tion with the issuance of a stock option 

8 shall not exceed the amount allowed for 

9 such taxable year as a compensation de10 duction under section 162(q) with respect 

11 to such stock option.’’. 

12 (c) APPLICATION OF AMENDMENTS.—The amend13 ments made by this section shall apply to stock options 

14 exercised after the date of the enactment of this Act, ex15 cept that— 

16 (1) such amendments shall not apply to stock 

17 options that were granted before such date and that 

18 vested in taxable periods beginning on or before 

19 June 15, 2005, 

20 (2) for stock options that were granted before 

21 such date of enactment and vested during taxable 

22 periods beginning after June 15, 2005, and ending 

23 before such date of enactment, a deduction under 

24 section 162(q) of the Internal Revenue Code of 1986 

25 (as added by subsection (a)(2)) shall be allowed in 


jbell on DSK7SPTVN1PROD with BILLS
83 

•S 2075 IS

1 the first taxable period of the taxpayer that ends 

2 after such date of enactment, 

3 (3) for public entities reporting as small busi4 ness issuers and for non-public entities required to 

5 file public reports of financial condition, paragraphs 

6 (1) and (2) shall be applied by substituting ‘‘Decem7 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 

8 (4) no deduction shall be allowed under section 

9 83(h) or section 162(q) of such Code with respect to 

10 any stock option the vesting date of which is 

11 changed to accelerate the time at which the option 

12 may be exercised in order to avoid the applicability 

13 of such amendments. 

14 SEC. 202. APPLICATION OF EXECUTIVE PAY DEDUCTION 

15 LIMIT. 

16 (a) IN GENERAL.—Subparagraph (D) of section 

17 162(m)(4) is amended to read as follows: 

18 ‘‘(D) STOCK OPTION COMPENSATION.— 

19 The term ‘applicable employee remuneration’ 

20 shall include any compensation deducted under 

21 subsection (q), and such compensation shall not 

22 qualify as performance-based compensation 

23 under subparagraph (C).’’. 


jbell on DSK7SPTVN1PROD with BILLS
84 

•S 2075 IS

1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to stock options exercised or grant3 ed after the date of the enactment of this Act. 

Æ 


jbell on DSK7SPTVN1PROD with BILLS