I 

111TH CONGRESS 

1ST SESSION H. R. 1265 

To restrict the use of offshore tax havens and abusive tax shelters to 

inappropriately avoid Federal taxation, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 3, 2009 

Mr. DOGGETT (for himself, Mr. LARSON of Connecticut, Mr. VAN HOLLEN, 

Ms. BERKLEY, Mr. BLUMENAUER, Mr. DAVIS of Illinois, Mr. HIGGINS, 

Mr. LEVIN, Mr. LEWIS of Georgia, Mr. MCDERMOTT, Mr. NEAL of Massachusetts, Mr. PASCRELL, Ms. LINDA T. SA ́NCHEZ of California, Mr. 

STARK, Mr. YARMUTH, Ms. DELAURO, Mr. GEORGE MILLER of California, Mr. ABERCROMBIE, Mr. ANDREWS, Mr. BISHOP of New York, Mr. 

CLEAVER, Mr. CONYERS, Mr. COSTELLO, Mr. CUMMINGS, Mr. DEFAZIO, 

Mr. ELLISON, Mr. FARR, Mr. FATTAH, Mr. FILNER, Mr. GENE GREEN

of Texas, Mr. GRIJALVA, Mr. HARE, Mr. HINCHEY, Ms. EDDIE BERNICE

JOHNSON of Texas, Mr. JOHNSON of Georgia, Ms. KAPTUR, Ms. LEE of 

California, Mr. LOEBSACK, Mr. LYNCH, Mr. MARKEY of Massachusetts, 

Mr. MCGOVERN, Ms. MOORE of Wisconsin, Mr. MORAN of Virginia, Mr. 

NADLER of New York, Mr. PAYNE, Mr. RUSH, Ms. SCHAKOWSKY, Mr. 

SESTAK, Mr. SHERMAN, Ms. SLAUGHTER, Mr. STUPAK, Ms. SUTTON, 

Mr. TIERNEY, Ms. WATSON, Mr. WELCH, Mr. HOLT, and Ms. JACKSONLEE of Texas) introduced the following bill; which was referred to the 

Committee on Ways and Means, and in addition to the Committees on 

Financial Services and the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL 

To restrict the use of offshore tax havens and abusive tax 

shelters to inappropriately avoid Federal taxation, and 

for other purposes. 


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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 ‘‘Stop Tax Haven Abuse Act’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

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

10 shall be considered to be made to a section or other provi11 sion of the Internal Revenue Code of 1986. 

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

13 this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—DETERRING THE USE OF TAX HAVENS FOR TAX 

EVASION 

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

Sec. 102. Authorizing special measures against foreign jurisdictions, financial 

institutions, and others that impede United States tax enforcement. 

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

United States as domestic corporations. 

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

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

accounts. 

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

Sec. 107. Limitation on legal opinion protection from penalties with respect to 

transactions involving offshore secrecy jurisdictions. 

Sec. 108. Closing the offshore dividend tax loophole. 

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

TITLE II—OTHER MEASURES TO COMBAT TAX HAVEN AND TAX 

SHELTER ABUSES 

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


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

equity funds. 

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

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

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

TITLE III—COMBATING TAX SHELTER PROMOTERS 

Sec. 301. Penalty for promoting abusive tax shelters. 

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

Sec. 303. Tax planning inventions not patentable. 

Sec. 304. Prohibited fee arrangement. 

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

Sec. 306. Information sharing for enforcement purposes. 

Sec. 307. Disclosure of information to Congress. 

Sec. 308. Tax opinion standards for tax practitioners. 

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

TITLE IV—REQUIRING ECONOMIC SUBSTANCE 

Sec. 401. Clarification of economic substance doctrine. 

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

Sec. 403. Denial of deduction for interest on underpayments attributable to 

noneconomic substance transactions. 

1 TITLE I—DETERRING THE USE 

2 OF TAX HAVENS FOR TAX 

3 EVASION 

4 SEC. 101. ESTABLISHING PRESUMPTIONS FOR ENTITIES 

5 AND TRANSACTIONS INVOLVING OFFSHORE 

6 SECRECY JURISDICTIONS. 

7 (a) PRESUMPTIONS FOR INTERNAL REVENUE CODE

8 OF 1986.— 

9 (1) IN GENERAL.—Chapter 76 is amended by 

10 inserting after section 7491 the following new sub11 chapter: 


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1 ‘‘Subchapter F—Presumptions for Certain 

2 Legal Proceedings 

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

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

4 TRANSACTIONS INVOLVING OFFSHORE SE5 CRECY JURISDICTIONS. 

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

7 civil judicial or administrative proceeding to determine or 

8 collect tax, there shall be a rebuttable presumption that 

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

10 regularly traded on an established securities market) who 

11 directly or indirectly formed, transferred assets to, was a 

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

13 money or property or the use thereof from an entity, in14 cluding a trust, corporation, limited liability company, 

15 partnership, or foundation (other than an entity with 

16 shares regularly traded on an established securities mar17 ket), formed, domiciled, or operating in an offshore se18 crecy jurisdiction, exercised control over such entity. The 

19 presumption of control created by this subsection shall not 

20 be applied to prevent the Secretary from determining or 

21 arguing the absence of control. 

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

23 United States civil judicial or administrative proceeding 

24 to determine or collect tax, there shall be a rebuttable preVerDate Nov 24 2008 04:14 Mar 05, 2009 Jkt 079200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1265.IH H1265

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1 sumption that any amount or thing of value received by 

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

3 regularly traded on an established securities market) di4 rectly or indirectly from an account or entity (other than 

5 an entity with shares regularly traded on an established 

6 securities market) in an offshore secrecy jurisdiction, con7 stitutes income of such person taxable in the year of re8 ceipt, and any amount or thing of value paid or trans9 ferred by or on behalf of a United States person (other 

10 than an entity with shares regularly traded on an estab11 lished securities market) directly or indirectly to an ac12 count or entity (other than an entity with shares regularly 

13 traded on an established securities market) in any such 

14 jurisdiction represents previously unreported income of 

15 such person taxable in the year of the transfer. 

16 ‘‘(c) REBUTTING THE PRESUMPTIONS.—The pre17 sumptions established in this section may be rebutted only 

18 by clear and convincing evidence, including detailed docu19 mentary, testimonial, and transactional evidence, estab20 lishing that— 

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

22 no control, directly or indirectly, over such entity at 

23 the time in question, and 


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

2 of value did not represent income related to such 

3 United States person. 

4 Any court having jurisdiction of a civil proceeding in which 

5 control of such an offshore entity or the income character 

6 of such receipts or amounts transferred is an issue shall 

7 prohibit the introduction by the taxpayer of any foreign 

8 based document that is not authenticated in open court 

9 by a person with knowledge of such document, or any 

10 other evidence supplied by a person outside the jurisdic11 tion of a United States court, unless such person appears 

12 before the court.’’. 

13 (2) The table of subchapters for chapter 76 is 

14 amended by inserting after the item relating to sub15 chapter E the following new item: 

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

16 (b) DEFINITION OF OFFSHORE SECRECY JURISDIC17 TION.—Section 7701(a) is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(50) OFFSHORE SECRECY JURISDICTION.— 

20 ‘‘(A) IN GENERAL.—The term ‘offshore se21 crecy jurisdiction’ means any foreign jurisdic22 tion which is listed by the Secretary as an off23 shore secrecy jurisdiction for purposes of this 

24 title. 


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1 ‘‘(B) DETERMINATION OF JURISDICTIONS

2 ON LIST.—A jurisdiction shall be listed under 

3 paragraph (A) if the Secretary determines that 

4 such jurisdiction has corporate, business, bank, 

5 or tax secrecy rules and practices which, in the 

6 judgment of the Secretary, unreasonably re7 strict the ability of the United States to obtain 

8 information relevant to the enforcement of this 

9 title, unless the Secretary also determines that 

10 such country has effective information exchange 

11 practices. 

12 ‘‘(C) SECRECY OR CONFIDENTIALITY

13 RULES AND PRACTICES.—For purposes of sub14 paragraph (B), corporate, business, bank, or 

15 tax secrecy or confidentiality rules and practices 

16 include both formal laws and regulations and 

17 informal government or business practices hav18 ing the effect of inhibiting access of law en19 forcement and tax administration authorities to 

20 beneficial ownership and other financial infor21 mation. 

22 ‘‘(D) INEFFECTIVE INFORMATION EX23 CHANGE PRACTICES.—For purposes of subpara24 graph (B), a jurisdiction shall be deemed to 

25 have ineffective information exchange practices 


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1 unless the Secretary determines, on an annual 

2 basis, that— 

3 ‘‘(i) such jurisdiction has in effect a 

4 treaty or other information exchange 

5 agreement with the United States that 

6 provides for the prompt, obligatory, and 

7 automatic exchange of such information as 

8 is forseeably relevant for carrying out the 

9 provisions of the treaty or agreement or 

10 the administration or enforcement of this 

11 title, 

12 ‘‘(ii) during the 12-month period pre13 ceding the annual determination, the ex14 change of information between the United 

15 States and such jurisdiction was in prac16 tice adequate to prevent evasion or avoid17 ance of United States income tax by 

18 United States persons and to enable the 

19 United States effectively to enforce this 

20 title, and 

21 ‘‘(iii) during the 12-month period pre22 ceding the annual determination, such ju23 risdiction was not identified by an inter24 governmental group or organization of 

25 which the United States is a member as 


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1 uncooperative with international tax en2 forcement or information exchange and the 

3 United States concurs in such identifica4 tion. 

5 ‘‘(E) INITIAL LIST OF OFFSHORE SECRECY

6 JURISDICTIONS.—For purposes of this para7 graph, each of the following foreign jurisdic8 tions, which have been previously and publicly 

9 identified by the Internal Revenue Service as 

10 secrecy jurisdictions in Federal court pro11 ceedings, shall be deemed listed by the Sec12 retary as an offshore secrecy jurisdiction unless 

13 delisted by the Secretary under subparagraph 

14 (F)(ii): 

15 ‘‘(i) Anguilla. 

16 ‘‘(ii) Antigua and Barbuda. 

17 ‘‘(iii) Aruba. 

18 ‘‘(iv) Bahamas. 

19 ‘‘(v) Barbados. 

20 ‘‘(vi) Belize. 

21 ‘‘(vii) Bermuda. 

22 ‘‘(viii) British Virgin Islands. 

23 ‘‘(ix) Cayman Islands. 

24 ‘‘(x) Cook Islands. 

25 ‘‘(xi) Costa Rica. 


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1 ‘‘(xii) Cyprus. 

2 ‘‘(xiii) Dominica. 

3 ‘‘(xiv) Gibraltar. 

4 ‘‘(xv) Grenada. 

5 ‘‘(xvi) Guernsey/Sark/Alderney. 

6 ‘‘(xvii) Hong Kong. 

7 ‘‘(xviii) Isle of Man. 

8 ‘‘(xix) Jersey. 

9 ‘‘(xx) Latvia. 

10 ‘‘(xxi) Liechtenstein. 

11 ‘‘(xxii) Luxembourg. 

12 ‘‘(xxiii) Malta. 

13 ‘‘(xxiv) Nauru. 

14 ‘‘(xxv) Netherlands Antilles. 

15 ‘‘(xxvi) Panama. 

16 ‘‘(xxvii) Samoa. 

17 ‘‘(xxviii) St. Kitts and Nevis. 

18 ‘‘(xxix) St. Lucia. 

19 ‘‘(xxx) St. Vincent and the Grena20 dines. 

21 ‘‘(xxxi) Singapore. 

22 ‘‘(xxxii) Switzerland. 

23 ‘‘(xxxiii) Turks and Caicos. 

24 ‘‘(xxxiv) Vanuatu. 


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1 ‘‘(F) MODIFICATIONS TO LIST.—The Sec2 retary— 

3 ‘‘(i) shall add to the list under para4 graph (A) jurisdictions which meet the re5 quirements of paragraph (B), and 

6 ‘‘(ii) may remove from such list only 

7 those jurisdictions which do not meet the 

8 requirements of paragraph (B).’’. 

9 (c) PRESUMPTIONS FOR SECURITIES LAW PUR10 POSES.—Section 21 of the Securities Exchange Act of 

11 1934 (15 U.S.C. 78u) is amended by adding at the end 

12 the following the following new subsection: 

13 ‘‘(j) PRESUMPTIONS PERTAINING TO CONTROL AND

14 BENEFICIAL OWNERSHIP.— 

15 ‘‘(1) CONTROL.—For purposes of any civil judi16 cial or administrative proceeding under this title, 

17 there shall be a rebuttable presumption that a 

18 United States person (other than an entity with 

19 shares regularly traded on an established securities 

20 market) who directly or indirectly formed, trans21 ferred assets to, was a beneficiary of, had a bene22 ficial interest in, or received money or property or 

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

24 corporation, limited liability company, partnership, 

25 or foundation (other than an entity with shares regVerDate Nov 24 2008 04:14 Mar 05, 2009 Jkt 079200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H1265.IH H1265

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1 ularly traded on an established securities market), 

2 formed, domiciled, or operating in an offshore se3 crecy jurisdiction (as defined in section 7701(a)(50) 

4 of the Internal Revenue Code of 1986), exercised 

5 control over such entity. The presumption of control 

6 created by this paragraph shall not be applied to 

7 prevent the Commission from determining or argu8 ing the absence of control. 

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

10 of any civil judicial or administrative proceeding 

11 under this title, there shall be a rebuttable presump12 tion that securities that are nominally owned by an 

13 entity, including a trust, corporation, limited liability 

14 company, partnership, or foundation (other than an 

15 entity with shares regularly traded on an established 

16 securities market), formed, domiciled, or operating 

17 in an offshore secrecy jurisdiction (as so defined), 

18 are beneficially owned by any United States person 

19 (other than an entity with shares regularly traded on 

20 an established securities market) who directly or in21 directly exercised control over such entity. The pre22 sumption of beneficial ownership created by this 

23 paragraph shall not be applied to prevent the Com24 mission from determining or arguing the absence of 

25 beneficial ownership.’’. 


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1 (d) PRESUMPTION FOR REPORTING PURPOSES RE2 LATING TO FOREIGN FINANCIAL ACCOUNTS.—Section 

3 5314 of title 31, United States Code, is amended by add4 ing at the end the following: 

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

6 this section, there shall be a rebuttable presumption that 

7 any account with a financial institution formed, domiciled, 

8 or operating in an offshore secrecy jurisdiction (as defined 

9 in section 7701(a)(50) 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 (e) REGULATORY AUTHORITY AND EFFECTIVE

14 DATE.— 

15 (1) REGULATORY AUTHORITY.—Not later than 

16 180 days after the date of the enactment of this Act, 

17 the Secretary of the Treasury and the Chairman of 

18 the Securities and Exchange Commission shall each 

19 adopt regulations or other guidance necessary to im20 plement the amendments made by this section. The 

21 Secretary and the Chairman may by regulation or 

22 guidance provide that the presumption of control 

23 shall not extend to particular classes of transactions, 

24 such as corporate reorganizations or transactions 

25 below a specified dollar threshold, if either deterVerDate Nov 24 2008 04:14 Mar 05, 2009 Jkt 079200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\H1265.IH H1265

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1 mines that applying such amendments to such trans2 actions is not necessary to carry out the purposes of 

3 such amendments. 

4 (2) EFFECTIVE DATE.—The amendments made 

5 by this section shall take effect on the date of the 

6 enactment of this Act. 

7 SEC. 102. AUTHORIZING SPECIAL MEASURES AGAINST FOR8 EIGN JURISDICTIONS, FINANCIAL INSTITU9 TIONS, AND OTHERS THAT IMPEDE UNITED 

10 STATES TAX ENFORCEMENT. 

11 Section 5318A of title 31, United States Code, is 

12 amended— 

13 (1) by striking the section heading and insert14 ing the following: 

15 ‘‘§ 5318A. Special measures for jurisdictions, financial 

16 institutions, or international transactions 

17 that are of primary money laundering 

18 concern or impede United States tax en19 forcement’’; 

20 (2) in subsection (a), by striking the subsection 

21 heading and inserting the following: 

22 ‘‘(a) SPECIAL MEASURES TO COUNTER MONEY

23 LAUNDERING AND EFFORTS TO IMPEDE UNITED STATES

24 TAX ENFORCEMENT.—’’; 


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1 (3) in subsection (c), by striking the subsection 

2 heading and inserting the following: 

3 ‘‘(c) CONSULTATIONS AND INFORMATION TO BE

4 CONSIDERED IN FINDING JURISDICTIONS, INSTITUTIONS, 

5 TYPES OF ACCOUNTS, OR TRANSACTIONS TO BE OF PRI6 MARY MONEY LAUNDERING CONCERN OR TO BE IMPED7 ING UNITED STATES TAX ENFORCEMENT.—’’; 

8 (4) in subsection (a)(1), by inserting ‘‘or is im9 peding United States tax enforcement’’ after ‘‘pri10 mary money laundering concern’’; 

11 (5) in subsection (a)(4)— 

12 (A) in subparagraph (A)— 

13 (i) by inserting ‘‘in matters involving 

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

15 and 

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

17 (B) by redesignating subparagraph (B) as 

18 subparagraph (C); and 

19 (C) by inserting after subparagraph (A) 

20 the following: 

21 ‘‘(B) in matters involving United States 

22 tax enforcement, shall consult with the Commis23 sioner of the Internal Revenue Service, the Sec24 retary of State, the Attorney General of the 

25 United States, and in the sole discretion of the 


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1 Secretary, such other agencies and interested 

2 parties as the Secretary may find to be appro3 priate; and’’; 

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

5 (4) of subsection (b), by inserting ‘‘or to be imped6 ing United States tax enforcement’’ after ‘‘primary 

7 money laundering concern’’ each place that term ap8 pears; 

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

10 and inserting the following: 

11 ‘‘(5) PROHIBITIONS OR CONDITIONS ON OPEN12 ING OR MAINTAINING CERTAIN CORRESPONDENT OR

13 PAYABLE-THROUGH ACCOUNTS OR AUTHORIZING

14 CERTAIN PAYMENT CARDS.—If the Secretary finds a 

15 jurisdiction outside of the United States, 1 or more 

16 financial institutions operating outside of the United 

17 States, or 1 or more classes of transactions within 

18 or involving a jurisdiction outside of the United 

19 States to be of primary money laundering concern or 

20 to be impeding United States tax enforcement, the 

21 Secretary, in consultation with the Secretary of 

22 State, the Attorney General of the United States, 

23 and the Chairman of the Board of Governors of the 

24 Federal Reserve System, may prohibit, or impose 

25 conditions upon— 


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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.’’; and 

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 


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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’’. 


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1 SEC. 103. TREATMENT OF FOREIGN CORPORATIONS MAN2 AGED AND CONTROLLED IN THE UNITED 

3 STATES AS DOMESTIC CORPORATIONS. 

4 (a) IN GENERAL.—Section 7701 (relating to defini5 tions) is amended by redesignating subsection (o) as sub6 section (p) and by inserting after subsection (n) the fol7 lowing new subsection: 

8 ‘‘(o) CERTAIN CORPORATIONS MANAGED AND CON9 TROLLED IN THE UNITED STATES TREATED AS DOMES10 TIC FOR INCOME TAX.— 

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

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

13 paragraph (2) if— 

14 ‘‘(A) the corporation would not otherwise 

15 be treated as a domestic corporation for pur16 poses of this title, but 

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

18 corporation occurs, directly or indirectly, pri19 marily within the United States, 

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

21 provision of this title relating to chapter 1), the cor22 poration shall be treated as a domestic corporation. 

23 ‘‘(2) CORPORATION DESCRIBED.— 

24 ‘‘(A) IN GENERAL.—A corporation is de25 scribed in this paragraph if— 


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

2 regularly traded on an established securi3 ties market, or 

4 ‘‘(ii) the aggregate gross assets of 

5 such corporation (or any predecessor there6 of), including assets under management 

7 for investors, whether held directly or indi8 rectly, at any time during the taxable year 

9 or any preceding taxable year is 

10 $50,000,000 or more. 

11 ‘‘(B) GENERAL EXCEPTION.—A corpora12 tion shall not be treated as described in this 

13 paragraph if— 

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

15 corporation described in this paragraph in 

16 a preceding taxable year, 

17 ‘‘(ii) such corporation— 

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

19 established securities market, and 

20 ‘‘(II) has, and is reasonably ex21 pected to continue to have, aggregate 

22 gross assets (including assets under 

23 management for investors, whether 

24 held directly or indirectly) of less than 

25 $50,000,000, and 


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

2 such corporation under this subparagraph. 

3 ‘‘(C) EXCEPTION FROM GROSS ASSETS

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

5 a corporation which is a controlled foreign cor6 poration (as defined in section 957) and which 

7 is a member of an affiliated group (as defined 

8 section 1504, but determined without regard to 

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

10 which— 

11 ‘‘(i) is a domestic corporation (deter12 mined without regard to this subsection), 

13 and 

14 ‘‘(ii) has substantial assets (other 

15 than cash and cash equivalents and other 

16 than stock of foreign subsidiaries) held for 

17 use in the active conduct of a trade or 

18 business in the United States. 

19 ‘‘(3) MANAGEMENT AND CONTROL.— 

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

21 prescribe regulations for purposes of deter22 mining cases in which the management and 

23 control of a corporation is to be treated as oc24 curring primarily within the United States. 


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1 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

2 MANAGEMENT.—Such regulations shall provide 

3 that— 

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

5 corporation shall be treated as occurring 

6 primarily within the United States if sub7 stantially all of the executive officers and 

8 senior management of the corporation who 

9 exercise day-to-day responsibility for mak10 ing decisions involving strategic, financial, 

11 and operational policies of the corporation 

12 are located primarily within the United 

13 States, and 

14 ‘‘(ii) individuals who are not executive 

15 officers and senior management of the cor16 poration (including individuals who are of17 ficers or employees of other corporations in 

18 the same chain of corporations as the cor19 poration) shall be treated as executive offi20 cers and senior management if such indi21 viduals exercise the day-to day responsibil22 ities of the corporation described in clause 

23 (i). 

24 ‘‘(C) CORPORATIONS PRIMARILY HOLDING

25 INVESTMENT ASSETS.—Such regulations shall 


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1 also provide that the management and control 

2 of a corporation shall be treated as occurring 

3 primarily within the United States if— 

4 ‘‘(i) the assets of such corporation (di5 rectly or indirectly) consist primarily of as6 sets being managed on behalf of investors, 

7 and 

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

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

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

11 this section shall apply to taxable years beginning on or 

12 after the date which is 2 years after the date of the enact13 ment of this Act. 

14 SEC. 104. ALLOWING MORE TIME FOR INVESTIGATIONS IN15 VOLVING OFFSHORE SECRECY JURISDIC16 TIONS. 

17 (a) IN GENERAL.—Section 6501(c) is amended by 

18 adding at the end the following new paragraph: 

19 ‘‘(11) RETURNS INVOLVING OFFSHORE SE20 CRECY JURISDICTIONS.—In the case of a return for 

21 a year in which the taxpayer directly or indirectly 

22 formed, owned, transferred assets to, was a bene23 ficiary of, had a beneficial interest in, or received 

24 money or property or the use thereof from a finan25 cial account or an entity (other than an entity with 


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1 shares regularly traded on an established securities 

2 market), including a trust, corporation, limited li3 ability company, partnership, or foundation formed, 

4 located, domiciled or operating in an offshore secrecy 

5 jurisdiction, the tax may be assessed, or a pro6 ceeding in court for the collection of such tax may 

7 be begun without assessment, at any time within 6 

8 years after the return was filed.’’. 

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

10 this section shall apply to— 

11 (1) returns filed after the date of the enactment 

12 of this Act, and 

13 (2) returns filed on or before such date if the 

14 period specified in section 6501 of the Internal Rev15 enue Code of 1986 (determined without regard to 

16 the amendments made by subsection (a)) for assess17 ment of such taxes has not expired as of such date. 

18 SEC. 105. REPORTING UNITED STATES BENEFICIAL OWN19 ERS OF FOREIGN OWNED FINANCIAL AC20 COUNTS. 

21 (a) IN GENERAL.—Subpart B of part III of sub22 chapter A of chapter 61 is amended by inserting after sec23 tion 6045B the following new sections: 


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1 ‘‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENE2 FICIAL OWNERS OF FOREIGN OWNED FINAN3 CIAL ACCOUNTS. 

4 ‘‘(a) REQUIREMENT OF RETURN.—If— 

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

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

7 or payment of any amount constituting gross income 

8 from sources within the United States of any foreign 

9 entity, including a trust, corporation, limited liability 

10 company, partnership, or foundation (other than an 

11 entity with shares regularly traded on an established 

12 securities market), and 

13 ‘‘(2) such withholding agent determines for pur14 poses of titles 14, 18, or 31 of the United States 

15 Code that a United States person has any beneficial 

16 interest in the foreign entity or in the account in 

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

18 to as ‘United States beneficial owner’), 

19 then the withholding agent shall make a return according 

20 to the forms or regulations prescribed by the Secretary. 

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

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

23 the return shall include— 

24 ‘‘(1) the name, address, and, if known, the tax25 payer identification number of the United States 

26 beneficial owner, 


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1 ‘‘(2) the known facts pertaining to the relation2 ship of such United States beneficial owner to the 

3 foreign entity and the account, 

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

5 within the United States (including gross proceeds 

6 from brokerage transactions), and 

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

8 may by forms or regulations provide. 

9 ‘‘(c) STATEMENTS TO BE FURNISHED TO BENE10 FICIAL OWNERS WITH RESPECT TO WHOM INFORMATION

11 IS REQUIRED TO BE REPORTED.—A withholding agent 

12 required to make a return under subsection (a) shall fur13 nish to each United States beneficial owner whose name 

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

15 showing— 

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

17 of the information contact of the person required to 

18 make such return, and 

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

20 such return with respect to such United States bene21 ficial owner. 

22 The written statement required under the preceding sen23 tence shall be furnished to the United States beneficial 

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

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


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

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

3 States beneficial owner, such written statement may be 

4 mailed to the address of the foreign entity. 

5 ‘‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS RE6 GARDING ESTABLISHMENT OF ACCOUNTS 

7 AND CREATION OF ENTITIES IN OFFSHORE 

8 SECRECY JURISDICTIONS. 

9 ‘‘(a) REQUIREMENT OF RETURN.—Any financial in10 stitution directly or indirectly— 

11 ‘‘(1) opening a bank, brokerage, or other finan12 cial account, or 

13 ‘‘(2) forming or acquiring an entity, including a 

14 trust, corporation, limited liability company, partner15 ship, or foundation (other than an entity with shares 

16 regularly traded on an established securities mar17 ket), 

18 in an offshore secrecy jurisdiction at the direction of, on 

19 behalf of, or for the benefit of a United States person shall 

20 make a return according to the forms or regulations pre21 scribed by the Secretary. 

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

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

24 the return shall include— 


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1 ‘‘(1) the name, address, and taxpayer identifica2 tion number of such United States person, 

3 ‘‘(2) the name and address of the financial in4 stitution at which a financial account is opened, the 

5 type of account, the account number, the name 

6 under which the account was opened, and the 

7 amount of the initial deposit, 

8 ‘‘(3) the name and address of an entity formed 

9 or acquired, the type of entity, and the name and 

10 address of any company formation agent or other 

11 professional employed to form or acquire the entity, 

12 and 

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

14 may by forms or regulations provide. 

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

16 STATES PERSONS WITH RESPECT TO WHOM INFORMA17 TION IS REQUIRED TO BE REPORTED.—A financial insti18 tution required to make a return under subsection (a) 

19 shall furnish to each United States person whose name 

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

21 showing— 

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

23 of the information contact of the person required to 

24 make such return, and 


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

2 such return with respect to such United States per3 son. 

4 The written statement required under the preceding sen5 tence shall be furnished to such United States person on 

6 or before January 31 of the year following the calendar 

7 year for which the return under subsection (a) was re8 quired to be made. 

9 ‘‘(d) EXEMPTION.—The Secretary may by regula10 tions exempt any class of United States persons or any 

11 class of accounts or entities from the requirements of this 

12 section if the Secretary determines that applying this sec13 tion to such persons, accounts, or entities is not necessary 

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

15 (b) PENALTIES.— 

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

17 amended by redesignating clauses (v) through (xxiii) 

18 as clauses (vii) through (xxv), respectively, and by 

19 inserting after clause (iv) the following new clauses: 

20 ‘‘(v) section 6045C(a) (relating to re21 turns regarding United States beneficial 

22 owners of foreign owned financial ac23 counts), 

24 ‘‘(vi) section 6045D(a) (relating to re25 turns by financial institutions regarding 


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1 establishment of accounts and creation of 

2 entities in offshore secrecy jurisdictions),’’. 

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

4 is amended by redesignating subparagraphs (K) 

5 through (FF) as subparagraphs (M) through (HH), 

6 respectively, and by inserting after subparagraph (J) 

7 the following new subparagraphs: 

8 ‘‘(K) section 6045C(c) (relating to returns 

9 regarding United States beneficial owners of 

10 foreign owned financial accounts), 

11 ‘‘(L) section 6045D(c) (relating to returns 

12 by financial institutions regarding establish13 ment of accounts and creation of entities in off14 shore secrecy jurisdictions),’’. 

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

16 for such subpart is amended by inserting after the item 

17 relating to section 6045B the following new items: 

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

owned financial accounts. 

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

18 (d) ADDITIONAL PENALTIES.— 

19 (1) ADDITIONAL PENALTIES ON BANKS.—Sec20 tion 5239(b)(1) of the Revised Statutes (12 U.S.C. 

21 93(b)(1)) is amended by inserting ‘‘or any of the 

22 provisions of section 6045D of the Internal Revenue 


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1 Code of 1986,’’ after ‘‘any regulation issued pursu2 ant to,’’. 

3 (2) ADDITIONAL PENALTIES ON SECURITIES

4 FIRMS.—Section 21(d)(3)(A) of the Securities Ex5 change Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is 

6 amended by inserting ‘‘any of the provisions of sec7 tion 6045D of the Internal Revenue Code of 1986,’’ 

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

9 (e) REGULATORY AUTHORITY AND EFFECTIVE

10 DATE.— 

11 (1) REGULATORY AUTHORITY.—Not later than 

12 180 days after the date of the enactment of this Act, 

13 the Secretary of the Treasury shall adopt regula14 tions, forms, or other guidance necessary to imple15 ment this section. 

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

17 Internal Revenue Code of 1986 (as added by this 

18 section) and the amendment made by subsection 

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

20 into foreign owned accounts after December 31 of 

21 the year of the date of the enactment of this Act. 

22 Section 6045D of such Code (as so added) and the 

23 amendment made by subsection (d)(2) shall take ef24 fect with respect to accounts opened or entities 


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1 formed or acquired after December 31 of the year 

2 of the date of the enactment of this Act. 

3 SEC. 106. PREVENTING MISUSE OF FOREIGN TRUSTS FOR 

4 TAX EVASION. 

5 (a) ATTRIBUTION OF TRUST PROTECTOR POWERS

6 TO GRANTORS.—Section 672 is amended by redesignating 

7 subsection (f) as subsection (g) and by inserting after sub8 section (e) the following new subsection: 

9 ‘‘(f) GRANTOR TREATED AS HOLDING ANY POWER

10 OR INTEREST OF TRUST PROTECTOR OR ENFORCER.— 

11 For purposes of this subpart, a grantor shall be treated 

12 as holding any power or interest held by any trust pro13 tector or trust enforcer or similar person appointed to ad14 vise, influence, oversee, or veto the actions of the trustee.’’. 

15 (b) TREATMENT OF UNITED STATES RECIPIENTS OF

16 FOREIGN TRUST ASSETS AS TRUST BENEFICIARIES.— 

17 Section 679 is amended by redesignating subsections (c) 

18 and (d) as subsections (d) and (e), respectively, and by 

19 inserting after subsection (b) the following new subsection: 

20 ‘‘(c) CERTAIN UNITED STATES PERSONS TREATED

21 AS BENEFICIARIES.—Any United States person receiving 

22 from a foreign trust cash or other property, or receiving 

23 the use thereof, shall be treated as a beneficiary of such 

24 trust regardless of whether such person is a named beneVerDate Nov 24 2008 04:14 Mar 05, 2009 Jkt 079200 PO 00000 Frm 00032 Fmt 6652 Sfmt 6201 E:\BILLS\H1265.IH H1265

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1 ficiary, except to the extent that such person paid fair 

2 market value for the benefit received.’’. 

3 (c) TREATMENT OF FOREIGN TRUST TRANSFERS OF

4 REAL ESTATE, ARTWORK, OR JEWELRY CONSISTENTLY

5 WITH TRANSFERS OF SECURITIES.—Section 643(i)(1) is 

6 amended by striking ‘‘or marketable securities’’ and in7 serting ‘‘or other property, including real estate, market8 able securities, artwork, jewelry, and other personal prop9 erty,’’. 

10 (d) TREATMENT OF TRUSTS WITH FUTURE OR CON11 TINGENT UNITED STATES BENEFICIARIES.—Section 

12 679(a)(1) is amended— 

13 (1) by inserting ‘‘or for any subsequent year’’ 

14 after ‘‘such year’’, and 

15 (2) by inserting ‘‘(including a contingent bene16 ficiary)’’ after ‘‘beneficiary’’. 

17 SEC. 107. LIMITATION ON LEGAL OPINION PROTECTION 

18 FROM PENALTIES WITH RESPECT TO TRANS19 ACTIONS INVOLVING OFFSHORE SECRECY 

20 JURISDICTIONS. 

21 (a) IN GENERAL.—Section 6664 is amended by add22 ing at the end the following new subsection: 

23 ‘‘(e) CERTAIN OPINIONS MAY NOT BE RELIED

24 UPON.—For purposes of this part, an opinion of a tax 

25 advisor may not be relied upon to establish that there was 


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1 reasonable cause for any portion of an underpayment, or 

2 that the taxpayer acted in good faith with respect to such 

3 portion, if such portion is attributable to a transaction any 

4 part of which involves an entity or financial account in 

5 an offshore secrecy jurisdiction.’’. 

6 (b) REGULATORY AUTHORITY.—The Secretary of the 

7 Treasury may by regulation or guidance provide that sub8 section (e) of section 6664 of the Internal Revenue Code 

9 of 1986, as added by subsection (a), does not apply to 

10 legal opinions that express a confidence level that substan11 tially exceeds the ‘‘more likely than not’’ confidence level; 

12 or that such subsection does not apply to classes of trans13 actions, such as corporate reorganizations, where the Sec14 retary determines that applying such subsection to such 

15 transactions is not necessary to carry out the purposes of 

16 such subsection. 

17 SEC. 108. CLOSING THE OFFSHORE DIVIDEND TAX LOOP18 HOLE. 

19 (a) IN GENERAL.—Section 871 is amended by redes20 ignating subsection (l) as subsection (m) and by inserting 

21 after subsection (k) the following new subsection: 

22 ‘‘(l) TREATMENT OF DIVIDEND EQUIVALENTS AND

23 SUBSTITUTE DIVIDEND PAYMENTS.— 

24 ‘‘(1) IN GENERAL.—For purposes of this sec25 tion and section 881— 


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1 ‘‘(A) the term ‘dividend’ shall include divi2 dend equivalents and substitute dividends, 

3 ‘‘(B) a dividend equivalent with respect to 

4 the stock of one or more domestic corporations 

5 shall be treated as sourced within the United 

6 States, and 

7 ‘‘(C) a substitute dividend payment shall 

8 be sourced in the same manner as a dividend 

9 distribution with respect to the transferred se10 curity to which the substitute dividend relates. 

11 ‘‘(2) DIVIDEND EQUIVALENT.—For purposes of 

12 this subsection— 

13 ‘‘(A) IN GENERAL.—The term ‘dividend 

14 equivalent’ includes any payment that is made 

15 pursuant to a notional principal contract and is 

16 contingent upon, or is referenced to, the pay17 ment of a dividend on stock or the payment of 

18 a dividend on property that is substantially 

19 similar or related to stock (determined in a 

20 manner similar to the manner under section 

21 246(c)(4)(C)). 

22 ‘‘(B) NOTIONAL PRINCIPAL CONTRACT.— 

23 For purposes of subparagraph (A), the term 

24 ‘notional principal contract’ means a financial 

25 instrument that provides for the payment of 


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1 amounts by 1 party to another at specified in2 tervals calculated by reference to a specified 

3 index upon a notional principal amount in ex4 change for specified consideration or a promise 

5 to pay similar amounts. 

6 ‘‘(3) SUBSTITUTE DIVIDEND.—For purposes of 

7 this subsection— 

8 ‘‘(A) IN GENERAL.—The term ‘substitute 

9 dividend’ means a payment, made to the trans10 feror of a security in a securities lending trans11 action or a sale-repurchase transaction, of an 

12 amount equivalent to a dividend distribution 

13 which the owner of the transferred security is 

14 entitled to receive during the term of the trans15 action. 

16 ‘‘(B) SECURITIES LENDING TRANS17 ACTION.—For purposes of subparagraph (A), 

18 the term ‘securities lending transaction’ means 

19 a transfer of 1 or more securities that is de20 scribed in section 1058(a) or a substantially 

21 similar transaction. 

22 ‘‘(C) SALE-REPURCHASE TRANSACTION.— 

23 For purposes of subparagraph (A), the term 

24 ‘sale-repurchase transaction’ means an agree25 ment under which a person transfers a security 


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1 in exchange for cash and simultaneously agrees 

2 to receive substantially identical securities from 

3 the transferee in the future in exchange for 

4 cash. 

5 ‘‘(4) COORDINATION WITH TAX TREATIES.— 

6 The meaning of the term ‘dividend’ in any income 

7 tax convention shall be construed to include dividend 

8 equivalents and substitute dividends in accordance 

9 with this section. 

10 ‘‘(5) PREVENTION OF OVER-WITHHOLDING.—In 

11 the case of any dividend equivalent or substitute div12 idend that is subject to withholding under this sec13 tion or section 881, the Secretary may by regulation 

14 reduce such withholding, but only to the extent that 

15 the taxpayer can establish that the dividend for 

16 which the payment to be withheld upon is a dividend 

17 equivalent or a substitute dividend that was pre18 viously withheld upon under this section or under 

19 section 881.’’. 

20 (b) REGULATIONS.— 

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

22 after the date of the enactment of this Act, the Sec23 retary of the Treasury (or the Secretary’s designee) 

24 shall issue proposed regulations relating to section 


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1 871(l) of the Internal Revenue Code of 1986 (as 

2 added by this section). 

3 (2) FINAL RULE.—Not later than 150 days 

4 after the date of the enactment of this Act, the Sec5 retary of the Treasury (or the Secretary’s designee) 

6 shall issue final regulations relating to such section. 

7 (3) MATTERS INCLUDED.—The regulations 

8 issued pursuant to this subsection shall require the 

9 imposition of withholding— 

10 (A) in cases where dividend equivalent pay11 ments under notional principal contracts are 

12 netted with other payments under the same in13 strument, 

14 (B) in cases where fees and other pay15 ments are netted to disguise the characteriza16 tion of a payment as a substitute dividend, and 

17 (C) in cases where option or forward con18 tracts (or similar arrangements) achieve the 

19 same or substantially similar economic results 

20 as the notional principal contracts covered 

21 under section 871(l) of such Code. 

22 (c) QUALIFIED INTERMEDIARIES.—The Secretary of 

23 the Treasury (or the Secretary’s designee) shall ensure 

24 that any qualified intermediary withholding agreement 

25 that the United States enters into or renews after the date 


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1 of the enactment of this Act with a foreign financial insti2 tution or foreign branch of a United States financial insti3 tution conforms with the amendments made by this sec4 tion to ensure appropriate withholding related to dividend 

5 equivalents and substitute dividends. 

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

7 this section shall apply to payments made on or after the 

8 date that is 90 days after the date of the enactment of 

9 this Act. 

10 (e) RULE OF CONSTRUCTION.—Nothing in this sec11 tion or the amendments made by this section shall be con12 strued to limit the authority of the Commissioner of the 

13 Internal Revenue Service to collect taxes, interest, and 

14 penalties on dividend equivalent or substitute dividend 

15 payments (as defined in section 871(l) of the Internal Rev16 enue Code of 1986) made prior to the date of the enact17 ment of this Act in connection with swap agreements, 

18 stock loan transactions, or other financial transactions in19 volving nonresident aliens or foreign corporations. 

20 SEC. 109. REPORTING OF ACTIVITIES WITH RESPECT TO 

21 PASSIVE FOREIGN INVESTMENT COMPANIES. 

22 (a) IN GENERAL.—Section 1298 is amended by re23 designating subsection (f) as subsection (g) and by insert24 ing after subsection (e) the following new subsection: 


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1 ‘‘(f) REPORTING REQUIREMENT.—Each person who 

2 is a shareholder of, or who directly or indirectly forms, 

3 transfers assets to, is a beneficiary of, has a beneficial in4 terest in, or receives money or property or the use thereof 

5 from, a passive foreign investment company shall file a 

6 report containing such information as the Secretary may 

7 require.’’. 

8 (b) CONFORMING AMENDMENT.—Subsection (e) of 

9 section 1291 is amended by striking ‘‘, (d), and (f)’’ and 

10 inserting ‘‘and (d)’’. 

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

12 this section take effect on the date of the enactment of 

13 this Act. 

14 TITLE II—OTHER MEASURES TO 

15 COMBAT TAX HAVEN AND TAX 

16 SHELTER ABUSES 

17 SEC. 201. PENALTY FOR FAILING TO DISCLOSE OFFSHORE 

18 HOLDINGS. 

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

20 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 

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

22 the following: 

23 ‘‘(iv) FOURTH TIER.—Notwithstanding 

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

25 penalty for each such violation shall not exceed 


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1 $1,000,000 for any person if the violation de2 scribed in subparagraph (A) 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 that is directly or indirectly controlled by such 

9 person, and which would have been otherwise 

10 subject to disclosure by such person under this 

11 title.’’. 

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

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

14 amended by adding at the end the 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, 


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1 and which would have been otherwise subject to 

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

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

4 9(d)(2) of the Investment Company Act of 1940 (15 

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

6 following: 

7 ‘‘(D) FOURTH TIER.—Notwithstanding 

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

9 penalty for each such violation shall not exceed 

10 $1,000,000 for any person, if the violation de11 scribed in paragraph (1) involved a knowing 

12 failure to disclose any holding or transaction in13 volving equity or debt instruments of an issuer 

14 and known by such person to involve a foreign 

15 entity, including any trust, corporation, limited 

16 liability company, partnership, or foundation, 

17 directly or indirectly controlled by such person, 

18 and which would have been otherwise subject to 

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

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

21 203(i)(2) of the Investment Advisers Act of 1940 (15 

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

23 following: 

24 ‘‘(D) FOURTH TIER.—Notwithstanding 

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


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1 penalty for each such violation shall not exceed 

2 $1,000,000 for any person, if the violation de3 scribed in paragraph (1) involved a knowing 

4 failure to disclose any holding or transaction in5 volving equity or debt instruments of an issuer 

6 and known by such person to involve a foreign 

7 entity, including any trust, corporation, limited 

8 liability company, partnership, or foundation, 

9 directly or indirectly controlled by such person, 

10 and which would have been otherwise subject to 

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

12 SEC. 202. DEADLINE FOR ANTI-MONEY LAUNDERING RULE 

13 FOR HEDGE FUNDS AND PRIVATE EQUITY 

14 FUNDS. 

15 (a) IN GENERAL.— 

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

17 after the date of the enactment of this Act, the Sec18 retary of the Treasury, in consultation with the 

19 Chairman of the Securities and Exchange Commis20 sion and the Chairman of the Commodity Futures 

21 Trading Commission, shall publish a proposed rule 

22 in the Federal Register requiring unregistered in23 vestment companies, including hedge funds or pri24 vate equity funds, to establish anti-money laundering 

25 programs and submit suspicious activity reports 


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

2 31, United States Code. 

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

4 after the date of the enactment of this Act, the Sec5 retary of the Treasury shall publish a final rule in 

6 the Federal Register on the matter described in 

7 paragraph (1). 

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

9 section— 

10 (1) shall require, at a minimum, that to safe11 guard against terrorist financing and money laun12 dering, all unregistered investment companies 

13 shall— 

14 (A) use risk-based due diligence policies, 

15 procedures, and controls that are reasonably de16 signed to ascertain the identity of any foreign 

17 person (including the nominal and beneficial 

18 owner or beneficiary of a foreign corporation, 

19 partnership, trust, or other foreign entity) plan20 ning to supply or supplying funds to be invested 

21 with the advice or assistance of that unregis22 tered investment company; and 

23 (B) be subject to section 5318(k)(2) of 

24 title 31, United States Code; and 


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1 (2) may incorporate aspects of the proposed 

2 rule for unregistered investment companies pub3 lished in the Federal Register on September 26, 

4 2002 (67 Fed. Reg. 60617) (relating to anti-money 

5 laundering programs). 

6 (c) DEFINITIONS.—In this section— 

7 (1) the terms ‘‘investment company’’ and 

8 ‘‘issuer’’ have the same meanings as in section 2 of 

9 the Investment Company Act of 1940 (15 U.S.C. 

10 80a–2); and 

11 (2) the term ‘‘unregistered investment com12 pany’’ means an issuer that would be an investment 

13 company, but for the exclusion under paragraph (1) 

14 or (7) of section 3(c) of the Investment Company 

15 Act of 1940 (15 U.S.C. 80a–3(c)). 

16 SEC. 203. ANTI-MONEY LAUNDERING REQUIREMENTS FOR 

17 FORMATION AGENTS. 

18 (a) ANTI-MONEY LAUNDERING OBLIGATIONS FOR

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

20 United States Code, is amended, by— 

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

22 the end; 

23 (2) by redesignating subparagraph (Z) as sub24 paragraph (AA); and 


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

3 ‘‘(Z) persons involved in forming new cor4 porations, limited liability companies, partner5 ships, trusts, or other legal entities; or’’. 

6 (b) DEADLINE FOR ANTI-MONEY LAUNDERING

7 RULE FOR FORMATION AGENTS.—Not later than 90 days 

8 after the date of the enactment of this Act, after con9 sulting with the Attorney General of the United States, 

10 the Commissioner of the Internal Revenue Service, and 

11 Chairman of the Securities and Exchange Commission, 

12 the Secretary of the Treasury shall publish a proposed rule 

13 in the Federal Register requiring persons described in sec14 tion 5312(a)(2)(Z) of title 31, United States Code, as 

15 added by this section, to establish anti-money laundering 

16 programs under subsection (h) of section 5318 of that 

17 title. The Secretary shall publish such rule in final form 

18 in the Federal Register not later than 180 days after the 

19 date of the enactment of this Act. 

20 SEC. 204. STRENGTHENING SUMMONS IN CASES INVOLVING 

21 OFFSHORE SECRECY JURISDICTIONS. 

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

23 amended to read as follows: 

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

25 JOHN DOE SUMMONS.— 


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

2 in subsection (c)(1) which does not identify the per3 son with respect to whose liability the summons is 

4 issued may be served only after a court proceeding 

5 in which the Secretary establishes that— 

6 ‘‘(A) the summons relates to the investiga7 tion of a particular person or ascertainable 

8 group or class of persons, 

9 ‘‘(B) there is a reasonable basis for believ10 ing that such person or group or class of per11 sons may fail or may have failed to comply with 

12 any provision of any internal revenue law, and 

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

14 from the examination of the records or testi15 mony (and the identity of the person or persons 

16 with respect to whose liability the summons is 

17 issued) is not readily available from other 

18 sources. 

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

20 apply to any summons which specifies that it is lim21 ited to information regarding a United States cor22 respondent account (as defined in section 

23 5318A(e)(1)(B) of title 31, United States Code) or 

24 a United States payable-through account (as defined 


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1 in section 5318A(e)(1)(C) of such title) of a finan2 cial institution in an offshore secrecy jurisdiction. 

3 ‘‘(3) PRESUMPTION IN CASES INVOLVING OFF4 SHORE SECRECY JURISDICTIONS.—For purposes of 

5 this section, in any case in which the particular per6 son or ascertainable group or class of persons have 

7 financial accounts in or transactions related to off8 shore secrecy jurisdictions, there shall be a presump9 tion that there is a reasonable basis for believing 

10 that such person or group or class of persons may 

11 fail or may have failed to comply with provisions of 

12 internal revenue law. 

13 ‘‘(4) PROJECT JOHN DOE SUMMONSES.— 

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

15 requirements of paragraph (1), the Secretary 

16 may issue a summons described in paragraph 

17 (1) if the summons— 

18 ‘‘(i) relates to a project which is ap19 proved under subparagraph (B), 

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

21 member of the group or class established 

22 under subparagraph (B)(i), and 

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

24 date on which such project was approved 

25 under subparagraph (B). 


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

2 may only be approved under this subparagraph 

3 after a court proceeding in which the Secretary 

4 establishes that— 

5 ‘‘(i) any summons issues with respect 

6 to the project will be issued to a member 

7 of an ascertainable group or class of per8 sons, and 

9 ‘‘(ii) any summons issued with respect 

10 to such project will meet the requirements 

11 of subparagraphs (A), (B), and (C) of 

12 paragraph (1). 

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

14 the Secretary, the court may extend the time 

15 for issuing such summonses under subpara16 graph (A)(i) for additional 3-year periods, but 

17 only if the court continues to exercise oversight 

18 of such project under subparagraph (D). 

19 ‘‘(D) ONGOING COURT OVERSIGHT.—Dur20 ing any period in which the Secretary is author21 ized to issue summonses in relation to a project 

22 approved under subparagraph (B) (including 

23 during any extension under subparagraph (C)), 

24 the Secretary shall report annually to the court 

25 on the use of such authority, provide copies of 


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1 all summonses with such report, and comply 

2 with the court’s direction with respect to the 

3 issuance of any John Doe summons under such 

4 project.’’. 

5 (b) JURISDICTION OF COURT.— 

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

7 7609(h) is amended by inserting after the first sen8 tence the following new sentence: ‘‘Any United 

9 States district court in which a member of the group 

10 or class to which a summons may be issued resides 

11 or is found shall have jurisdiction to hear and deter12 mine the approval of a project under subsection 

13 (f)(4)(B).’’. 

14 (2) CONFORMING AMENDMENT.—The first sen15 tence of section 7609(h)(1) is amended by striking 

16 ‘‘(f)’’ and inserting ‘‘(f)(1)’’. 

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

18 this section shall apply to summonses issued after the date 

19 of the enactment of this Act. 

20 (d) GAO REPORT.—Not later than the date which 

21 is 5 years after the date of the enactment of this Act, 

22 the Comptroller General of the United States shall issue 

23 a report on the implementation of section 7609(f)(4) of 

24 the Internal Revenue Code of 1986, as added by this sec25 tion. 


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1 SEC. 205. IMPROVING ENFORCEMENT OF FOREIGN FINAN2 CIAL ACCOUNT REPORTING. 

3 (a) CLARIFYING THE CONNECTION OF FOREIGN FI4 NANCIAL ACCOUNT REPORTING TO TAX ADMINISTRA5 TION.—Paragraph (4) of section 6103(b) (relating to tax 

6 administration) is amended by adding at the end the fol7 lowing new sentence: 

8 ‘‘For purposes of clause (i), section 5314 of title 31, 

9 United States Code, and sections 5321 and 5322 of 

10 such title (as such sections pertain to such section 

11 5314), shall be considered to be an internal revenue 

12 law.’’. 

13 (b) SIMPLIFYING THE CALCULATION OF FOREIGN

14 FINANCIAL ACCOUNT REPORTING PENALTIES.—Section 

15 5321(a)(5)(D)(ii) of title 31, United States Code, is 

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

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

18 in the account during the reporting period to which the 

19 violation relates’’. 

20 (c) CLARIFYING THE USE OF SUSPICIOUS ACTIVITY

21 REPORTS UNDER THE BANK SECRECY ACT FOR CIVIL

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

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

24 criminal enforcement divisions of the Internal Revenue 

25 Service,’’ after ‘‘including’’. 


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1 TITLE III—COMBATING TAX 

2 SHELTER PROMOTERS 

3 SEC. 301. PENALTY FOR PROMOTING ABUSIVE TAX SHEL4 TERS. 

5 (a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL6 TERS.—Section 6700 (relating to promoting abusive tax 

7 shelters, etc.) is amended— 

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

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

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

11 through the period in the first sentence of subsection 

12 (a) and inserting ‘‘a penalty determined under sub13 section (b)’’, and 

14 (3) by inserting after subsection (a) the fol15 lowing new subsections: 

16 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN17 ALTY; LIABILITY FOR PENALTY.— 

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

19 the penalty imposed by subsection (a) shall not ex20 ceed 150 percent of the gross income derived (or to 

21 be derived) from such activity by the person or per22 sons subject to such penalty. 

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

24 amount determined under paragraph (1) shall be 

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1 ity described in subsection (a), each instance in 

2 which income was derived by the person or persons 

3 subject to such penalty, and each person who par4 ticipated in such an activity. 

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

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

7 such activity, all such persons shall be jointly and 

8 severally liable for the penalty under such sub9 section. 

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

11 any penalty imposed under this section or the payment 

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

13 penalty shall not be considered an ordinary and necessary 

14 expense in carrying on a trade or business for purposes 

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

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

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

18 amended by striking the last sentence. 

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

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

21 enactment of this Act. 

22 SEC. 302. PENALTY FOR AIDING AND ABETTING THE UN23 DERSTATEMENT OF TAX LIABILITY. 

24 (a) IN GENERAL.—Section 6701(a) (relating to impo25 sition of penalty) is amended— 


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1 (1) by inserting ‘‘the tax liability or’’ after ‘‘re2 spect to,’’ in paragraph (1), 

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

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

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

6 and 

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

8 procurement, or advice or each such’’ before ‘‘docu9 ment’’ in the matter following paragraph (3). 

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

11 6701 (relating to penalties for aiding and abetting under12 statement of tax liability) is amended to read as follows: 

13 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN14 ALTY; LIABILITY FOR PENALTY.— 

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

16 the penalty imposed by subsection (a) shall not ex17 ceed 150 percent of the gross income derived (or to 

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

19 or advice provided by the person or persons subject 

20 to such penalty. 

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

22 amount determined under paragraph (1) shall be 

23 calculated with respect to each instance of aid, as24 sistance, procurement, or advice described in sub25 section (a), each instance in which income was deVerDate Nov 24 2008 04:14 Mar 05, 2009 Jkt 079200 PO 00000 Frm 00054 Fmt 6652 Sfmt 6201 E:\BILLS\H1265.IH H1265

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1 rived by the person or persons subject to such pen2 alty, and each person who made such an understate3 ment of the liability for tax. 

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

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

6 providing such aid, assistance, procurement, or ad7 vice, all such persons shall be jointly and severally 

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

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

10 amended by adding at the end the following new sub11 section: 

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

13 any penalty imposed under this section or the payment 

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

15 penalty shall not be considered an ordinary and necessary 

16 expense in carrying on a trade or business for purposes 

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

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

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

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

21 enactment of this Act. 

22 SEC. 303. TAX PLANNING INVENTIONS NOT PATENTABLE. 

23 (a) IN GENERAL.—Section 101 of title 35, United 

24 States Code, is amended— 


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1 (1) by striking ‘‘Whoever’’ and inserting ‘‘(A) 

2 PATENTABLE INVENTIONS.—Whoever’’, and 

3 (2) by adding at the end the following: 

4 ‘‘(b) TAX PLANNING INVENTIONS.— 

5 ‘‘(1) UNPATENTABLE SUBJECT MATTER.—A 

6 patent may not be obtained for a tax planning inven7 tion. 

8 ‘‘(2) DEFINITIONS.—For purposes of paragraph 

9 (1)— 

10 ‘‘(A) the term ‘tax planning invention’ 

11 means a plan, strategy, technique, scheme, 

12 process, or system that is designed to reduce, 

13 minimize, determine, avoid, or defer, or has, 

14 when implemented, the effect of reducing, mini15 mizing, determining, avoiding, or deferring, a 

16 taxpayer’s tax liability or is designed to facili17 tate compliance with tax laws, but does not in18 clude tax preparation software and other tools 

19 or systems used solely to prepare tax or infor20 mation returns, 

21 ‘‘(B) the term ‘taxpayer’ means an indi22 vidual, entity, or other person (as defined in 

23 section 7701 of the Internal Revenue Code of 

24 1986), 


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1 ‘‘(C) the terms ‘tax’, ‘tax laws’, ‘tax liabil2 ity’, and ‘taxation’ refer to any Federal, State, 

3 county, city, municipality, foreign, or other gov4 ernmental levy, assessment, or imposition, 

5 whether measured by income, value, or other6 wise, and 

7 ‘‘(D) the term ‘State’ means each of the 

8 several States, the District of Columbia, and 

9 any commonwealth, territory, or possession of 

10 the United States.’’. 

11 (b) APPLICABILITY.—The amendments made by this 

12 section— 

13 (1) shall take effect on the date of the enact14 ment of this Act, 

15 (2) shall apply to any application for patent or 

16 application for a reissue patent that is— 

17 (A) filed on or after the date of the enact18 ment of this Act, or 

19 (B) filed before that date if a patent or re20 issue patent has not been issued pursuant to 

21 the application as of that date, and 

22 (3) shall not be construed as validating any pat23 ent issued before the date of the enactment of this 

24 Act for an invention described in section 101(b) of 


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1 title 35, United States Code, as added by this sec2 tion. 

3 SEC. 304. PROHIBITED FEE ARRANGEMENT. 

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

5 Act, is amended— 

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

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

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

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

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

11 (f).’’, and 

12 (3) by inserting after subsection (e) the fol13 lowing new subsection: 

14 ‘‘(f) PROHIBITED FEE ARRANGEMENT.— 

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

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

17 services provided in connection with the internal rev18 enue laws, and the amount of which is calculated ac19 cording to, or is dependent upon, a projected or ac20 tual amount of— 

21 ‘‘(A) tax savings or benefits, or 

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

23 other taxable income, 


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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. 305. 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 


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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 2010 and 2013 on their progress 

18 in preventing violations of sections 6700 and 6701 of the 

19 Internal Revenue Code of 1986, by depository institutions, 

20 brokers, 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); 


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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. 306. INFORMATION SHARING FOR ENFORCEMENT 

12 PURPOSES. 

13 (a) PROMOTION OF PROHIBITED TAX SHELTERS OR

14 TAX AVOIDANCE SCHEMES.—Section 6103(h) (relating to 

15 disclosure to certain Federal officers and employees for 

16 purposes of tax administration, etc.) is amended by adding 

17 at the end the following new paragraph: 

18 ‘‘(7) DISCLOSURE OF RETURNS AND RETURN

19 INFORMATION RELATED TO PROMOTION OF PROHIB20 ITED TAX SHELTERS OR TAX AVOIDANCE

21 SCHEMES.— 

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

23 by the Secretary of a written request which 

24 meets the requirements of subparagraph (B) 

25 from the head of the United States Securities 


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1 and Exchange Commission, an appropriate 

2 Federal banking agency as defined under sec3 tion 1813(q) of title 12, United States Code, or 

4 the Public Company Accounting Oversight 

5 Board, a return or return information shall be 

6 disclosed to such requestor’s officers and em7 ployees who are personally and directly engaged 

8 in an investigation, examination, or proceeding 

9 by such requestor to evaluate, determine, penal10 ize, or deter conduct by a financial institution, 

11 issuer, or public accounting firm, or associated 

12 person, in connection with a potential or actual 

13 violation of section 6700 (promotion of abusive 

14 tax shelters), 6701 (aiding and abetting under15 statement of tax liability), or activities related 

16 to promoting or facilitating inappropriate tax 

17 avoidance or tax evasion. Such disclosure shall 

18 be solely for use by such officers and employees 

19 in such investigation, examination, or pro20 ceeding. In the discretion of the Secretary, such 

21 disclosure may take the form of the participa22 tion of Internal Revenue Service employees in a 

23 joint investigation, examination, or proceeding 

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1 eral banking agency, or Public Company Ac2 counting Oversight Board. 

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

4 the requirements of this subparagraph if it sets 

5 forth— 

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

7 examination, or proceeding, 

8 ‘‘(ii) the statutory authority under 

9 which such investigation, examination, or 

10 proceeding is being conducted, 

11 ‘‘(iii) the name or names of the finan12 cial institution, issuer, or public accounting 

13 firm to which such return information re14 lates, 

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

16 which such return information relates, and 

17 ‘‘(v) the specific reason or reasons 

18 why such disclosure is, or may be, relevant 

19 to such investigation, examination or pro20 ceeding. 

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

22 purposes of this paragraph, the term ‘financial 

23 institution’ means a depository institution, for24 eign bank, insured institution, industrial loan 

25 company, broker, dealer, investment company, 


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1 investment advisor, or other entity subject to 

2 regulation or oversight by the United States Se3 curities and Exchange Commission or an appro4 priate Federal banking agency.’’. 

5 (b) FINANCIAL AND ACCOUNTING FRAUD INVESTIGA6 TIONS.—Section 6103(i) (relating to disclosure to Federal 

7 officers or employees for administration of Federal laws 

8 not relating to tax administration) is amended by adding 

9 at the end the following new paragraph: 

10 ‘‘(9) DISCLOSURE OF RETURNS AND RETURN

11 INFORMATION FOR USE IN FINANCIAL AND AC12 COUNTING FRAUD INVESTIGATIONS.— 

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

14 by the Secretary of a written request which 

15 meets the requirements of subparagraph (B) 

16 from the head of the United States Securities 

17 and Exchange Commission or the Public Com18 pany Accounting Oversight Board, a return or 

19 return information shall be disclosed to such re20 questor’s officers and employees who are per21 sonally and directly engaged in an investigation, 

22 examination, or proceeding by such requester to 

23 evaluate the accuracy of a financial statement 

24 or report, or to determine whether to require a 

25 restatement, penalize, or deter conduct by an 


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1 issuer, investment company, or public account2 ing firm, or associated person, in connection 

3 with a potential or actual violation of auditing 

4 standards or prohibitions against false or mis5 leading statements or omissions in financial 

6 statements or reports. Such disclosure shall be 

7 solely for use by such officers and employees in 

8 such investigation, examination, or proceeding. 

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

10 the requirements of this subparagraph if it sets 

11 forth— 

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

13 examination, or proceeding, 

14 ‘‘(ii) the statutory authority under 

15 which such investigation, examination, or 

16 proceeding is being conducted, 

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

18 investment company, or public accounting 

19 firm to which such return information re20 lates, 

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

22 which such return information relates, and 

23 ‘‘(v) the specific reason or reasons 

24 why such disclosure is, or may be, relevant 


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1 to such investigation, examination or pro2 ceeding.’’. 

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

4 this section shall apply to disclosures and to information 

5 and document requests made after the date of the enact6 ment of this Act. 

7 SEC. 307. DISCLOSURE OF INFORMATION TO CONGRESS. 

8 (a) DISCLOSURE BY TAX RETURN PREPARER.— 

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

10 7216(b)(1) (relating to disclosures) is amended to 

11 read as follows: 

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

13 documents, if clearly identified: 

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

15 or local court of record. 

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

17 or State grand jury. 

18 ‘‘(iii) An administrative order, sum19 mons, or subpoena which is issued in the 

20 performance of its duties by— 

21 ‘‘(I) any Federal agency, includ22 ing Congress or any committee or 

23 subcommittee thereof, or 

24 ‘‘(II) any State agency, body, or 

25 commission charged under the laws of 


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1 the State or a political subdivision of 

2 the State with the licensing, registra3 tion, or regulation of tax return pre4 parers.’’. 

5 (2) EFFECTIVE DATE.—The amendment made 

6 by this subsection shall apply to disclosures made 

7 after the date of the enactment of this Act pursuant 

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

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

10 section 6104(a) (relating to inspection of applications for 

11 tax exemption or notice of status) is amended to read as 

12 follows: 

13 ‘‘(2) INSPECTION BY CONGRESS.— 

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

15 written request from a committee or sub16 committee of Congress, copies of documents re17 lated to a determination by the Secretary to 

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

19 exemption from taxation under section 501 

20 shall be provided to such committee or sub21 committee, including any application, notice of 

22 status, or supporting information provided by 

23 such organization to the Internal Revenue Serv24 ice; any letter, analysis, or other document pro25 duced by or for the Internal Revenue Service 


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1 evaluating, determining, explaining, or relating 

2 to the tax exempt status of such organization 

3 (other than returns, unless such returns are 

4 available to the public under this section or sec5 tion 6103 or 6110); and any communication be6 tween the Internal Revenue Service and any 

7 other party relating to the tax exempt status of 

8 such organization. 

9 ‘‘(B) ADDITIONAL INFORMATION.—Section 

10 6103(f) shall apply with respect to— 

11 ‘‘(i) the application for exemption of 

12 any organization described in subsection 

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

14 from taxation under section 501(a) for any 

15 taxable year and any application referred 

16 to in subparagraph (B) of subsection 

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

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

19 the possession of the Secretary and which 

20 relate to such application, 

21 as if such papers constituted returns.’’. 

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

23 this section shall apply to disclosures and to information 

24 and document requests made after the date of the enact25 ment of this Act. 


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1 SEC. 308. TAX OPINION STANDARDS FOR TAX PRACTI2 TIONERS. 

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

4 amended to read as follows: 

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

6 standards applicable to the rendering of written advice 

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

8 arrangement, or other transaction which has a potential 

9 for tax avoidance or evasion. Such standards shall ad10 dress, but not be limited to, the following issues: 

11 ‘‘(1) Independence of the practitioner issuing 

12 such written advice from persons promoting, mar13 keting, or recommending the subject of the advice. 

14 ‘‘(2) Collaboration among practitioners, or be15 tween a practitioner and other party, which could re16 sult in such collaborating parties having a joint fi17 nancial interest in the subject of the advice. 

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

19 would impair auditor independence. 

20 ‘‘(4) For written advice issued by a firm, stand21 ards for reviewing the advice and ensuring the con22 sensus support of the firm for positions taken. 

23 ‘‘(5) Reliance on reasonable factual representa24 tions by the taxpayer and other parties. 

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

26 practitioner for the written advice. 


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1 ‘‘(7) Preventing practitioners and firms from 

2 aiding or abetting the understatement of tax liability 

3 by clients. 

4 ‘‘(8) Banning the promotion of potentially abu5 sive or illegal tax shelters.’’. 

6 SEC. 309. DENIAL OF DEDUCTION FOR CERTAIN FINES, 

7 PENALTIES, AND OTHER AMOUNTS. 

8 (a) IN GENERAL.—Subsection (f) of section 162 (re9 lating to trade or business expenses) is amended to read 

10 as follows: 

11 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.— 

12 ‘‘(1) IN GENERAL.—Except as provided in para13 graph (2), no deduction otherwise allowable shall be 

14 allowed under this chapter for any amount paid or 

15 incurred (whether by suit, agreement, or otherwise) 

16 to, or at the direction of, a government or entity de17 scribed in paragraph (4) in relation to the violation 

18 of any law or the investigation or inquiry by such 

19 government or entity into the potential violation of 

20 any law. 

21 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

22 RESTITUTION.—Paragraph (1) shall not apply to 

23 any amount which— 

24 ‘‘(A) the taxpayer establishes constitutes 

25 restitution (including remediation of property) 


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1 for damage or harm caused by or which may be 

2 caused by the violation of any law or the poten3 tial violation of any law, and 

4 ‘‘(B) is identified as restitution in the 

5 court order or settlement agreement. 

6 Identification pursuant to subparagraph (B) alone 

7 shall not satisfy the requirement under subpara8 graph (A). This paragraph shall not apply to any 

9 amount paid or incurred as reimbursement to the 

10 government or entity for the costs of any investiga11 tion or litigation. 

12 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN13 CURRED AS THE RESULT OF CERTAIN COURT OR14 DERS.—Paragraph (1) shall not apply to any 

15 amount paid or incurred by order of a court in a 

16 suit in which no government or entity described in 

17 paragraph (4) is a party. 

18 ‘‘(4) CERTAIN NONGOVERNMENTAL REGU19 LATORY ENTITIES.—An entity is described in this 

20 paragraph if it is— 

21 ‘‘(A) a nongovernmental entity which exer22 cises self-regulatory powers (including imposing 

23 sanctions) in connection with a qualified board 

24 or exchange (as defined in section 1256(g)(7)), 

25 or 


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1 ‘‘(B) to the extent provided in regulations, 

2 a nongovernmental entity which exercises self3 regulatory powers (including imposing sanc4 tions) as part of performing an essential gov5 ernmental function. 

6 ‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph 

7 (1) shall not apply to any amount paid or incurred 

8 as taxes due.’’. 

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

10 this section shall apply to amounts paid or incurred on 

11 or after the date of the enactment of this Act, except that 

12 such amendment shall not apply to amounts paid or in13 curred under any binding order or agreement entered into 

14 before such date. Such exception shall not apply to an 

15 order or agreement requiring court approval unless the ap16 proval was obtained before such date. 

17 TITLE IV—REQUIRING 

18 ECONOMIC SUBSTANCE 

19 SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOC20 TRINE. 

21 (a) IN GENERAL.—Section 7701, as amended by sec22 tion 103, is amended by redesignating subsection (p) as 

23 subsection (q) and by inserting after subsection (o) the 

24 following new subsection: 


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1 ‘‘(p) CLARIFICATION OF ECONOMIC SUBSTANCE

2 DOCTRINE; ETC.— 

3 ‘‘(1) GENERAL RULES.— 

4 ‘‘(A) IN GENERAL.—In any case in which 

5 a court determines that the economic substance 

6 doctrine is relevant for purposes of this title to 

7 a transaction (or series of transactions), such 

8 transaction (or series of transactions) shall have 

9 economic substance only if the requirements of 

10 this paragraph are met. 

11 ‘‘(B) DEFINITION OF ECONOMIC SUB12 STANCE.—For purposes of subparagraph (A)— 

13 ‘‘(i) IN GENERAL.—A transaction has 

14 economic substance only if— 

15 ‘‘(I) the transaction changes in a 

16 meaningful way (apart from Federal 

17 tax effects) the taxpayer’s economic 

18 position, and 

19 ‘‘(II) subject to clause (iii), the 

20 taxpayer has a substantial purpose 

21 (other than a Federal tax purpose) for 

22 entering into such transaction. 

23 ‘‘(ii) SPECIAL RULE WHERE TAX24 PAYER RELIES ON PROFIT POTENTIAL.—A 

25 transaction shall not be treated as having 


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1 economic substance solely by reason of 

2 having a potential for profit unless the 

3 present value of the reasonably expected 

4 pre-Federal tax profit from the transaction 

5 is substantial in relation to the present 

6 value of the expected net Federal tax bene7 fits that would be allowed if the trans8 action were respected. In determining pre9 Federal tax profit, there shall be taken 

10 into account fees and other transaction ex11 penses and to the extent provided by the 

12 Secretary, foreign taxes. 

13 ‘‘(iii) SPECIAL RULES FOR DETER14 MINING WHETHER NON-FEDERAL TAX

15 PURPOSE.—For purposes of clause 

16 (i)(II)— 

17 ‘‘(I) a purpose of achieving a fi18 nancial accounting benefit shall not be 

19 taken into account in determining 

20 whether a transaction has a substan21 tial purpose (other than a Federal tax 

22 purpose) if the origin of such financial 

23 accounting benefit is a reduction of 

24 Federal tax, and 


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1 ‘‘(II) the taxpayer shall not be 

2 treated as having a substantial pur3 pose (other than a Federal tax pur4 pose) with respect to a transaction if 

5 the only such purpose is the reduction 

6 of non-Federal taxes and the trans7 action will result in a reduction of 

8 Federal taxes substantially equal to, 

9 or greater than, the reduction in non10 Federal taxes because of similarities 

11 between the laws imposing the taxes. 

12 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For 

13 purposes of this subsection— 

14 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

15 The term ‘economic substance doctrine’ means 

16 the common law doctrine under which tax bene17 fits under subtitle A with respect to a trans18 action are not allowable if the transaction does 

19 not have economic substance or lacks a business 

20 purpose. 

21 ‘‘(B) EXCEPTION FOR PERSONAL TRANS22 ACTIONS OF INDIVIDUALS.—In the case of an 

23 individual, this subsection shall apply only to 

24 transactions entered into in connection with a 


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1 trade or business or an activity engaged in for 

2 the production of income. 

3 ‘‘(3) OTHER PROVISIONS NOT AFFECTED.—Ex4 cept as specifically provided in this subsection, the 

5 provisions of this subsection shall not be construed 

6 as altering or supplanting any other rule of law or 

7 provision of this title, and the requirements of this 

8 subsection shall be construed as being in addition to 

9 any such other rule of law or provision of this title. 

10 ‘‘(4) REGULATIONS.—The Secretary shall pre11 scribe such regulations as may be necessary or ap12 propriate to carry out the purposes of this sub13 section. Such regulations may include exemptions 

14 from the application of this subsection.’’. 

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

16 this section shall apply to transactions entered into after 

17 the date of the enactment of this Act. 

18 SEC. 402. PENALTY FOR UNDERSTATEMENTS ATTRIB19 UTABLE TO TRANSACTIONS LACKING ECO20 NOMIC SUBSTANCE, ETC. 

21 (a) IN GENERAL.—Subchapter A of chapter 68 is 

22 amended by inserting after section 6662A the following 

23 new section: 


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1 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB2 UTABLE TO TRANSACTIONS LACKING ECO3 NOMIC SUBSTANCE, ETC. 

4 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 

5 noneconomic substance transaction understatement for 

6 any taxable year, there shall be added to the tax an 

7 amount equal to 30 percent of the amount of such under8 statement. 

9 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

10 TRANSACTIONS.—Subsection (a) shall be applied by sub11 stituting ‘20 percent’ for ‘30 percent’ with respect to the 

12 portion of any noneconomic substance transaction under13 statement with respect to which the relevant facts affect14 ing the tax treatment of the item are adequately disclosed 

15 in the return or a statement attached to the return. 

16 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN17 DERSTATEMENT.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘noneconomic 

19 substance transaction understatement’ means any 

20 amount which would be an understatement under 

21 section 6662A(b)(1) if section 6662A were applied 

22 by taking into account items attributable to non23 economic substance transactions rather than items 

24 to which section 6662A would apply without regard 

25 to this paragraph. 


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1 ‘‘(2) NONECONOMIC SUBSTANCE TRANS2 ACTION.—The term ‘noneconomic substance trans3 action’ means any transaction if there is a lack of 

4 economic substance (within the meaning of section 

5 7701(p)(1)(B)) for the transaction giving rise to the 

6 claimed benefit. 

7 ‘‘(d) RULES APPLICABLE TO ASSERTION, COM8 PROMISE, AND COLLECTION OF PENALTY.— 

9 ‘‘(1) IN GENERAL.—Only the Chief Counsel for 

10 the Internal Revenue Service may assert a penalty 

11 imposed under this section or may compromise all or 

12 any portion of such penalty. The Chief Counsel may 

13 delegate the authority under this paragraph only to 

14 an individual holding the position of chief of a 

15 branch within the Office of the Chief Counsel for the 

16 Internal Revenue Service. 

17 ‘‘(2) SPECIFIC REQUIREMENTS.— 

18 ‘‘(A) ASSERTION OF PENALTY.—The Chief 

19 Counsel for the Internal Revenue Service (or 

20 the Chief Counsel’s delegate under paragraph 

21 (1)) shall not assert a penalty imposed under 

22 this section unless, before the assertion of the 

23 penalty, the taxpayer is provided— 

24 ‘‘(i) a notice of intent to assert the 

25 penalty, and 


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1 ‘‘(ii) an opportunity to provide to the 

2 Commissioner (or the Chief Counsel’s dele3 gate under paragraph (1)) a written re4 sponse to the proposed penalty within a 

5 reasonable period of time after such notice. 

6 ‘‘(B) COMPROMISE OF PENALTY.—A com7 promise shall not result in a reduction in the 

8 penalty imposed by this section in an amount 

9 greater than the amount which bears the same 

10 ratio to the amount of the penalty determined 

11 without regard to the compromise as— 

12 ‘‘(i) the reduction under the com13 promise in the noneconomic substance 

14 transaction understatement to which the 

15 penalty relates, bears to 

16 ‘‘(ii) the amount of the noneconomic 

17 substance transaction understatement de18 termined without regard to the com19 promise. 

20 ‘‘(3) RULES RELATING TO RELEVANCY RE21 QUIREMENT.— 

22 ‘‘(A) DETERMINATION OF RELEVANCE BY

23 CHIEF COUNSEL.—The Chief Counsel for the 

24 Internal Revenue Service (or the Chief Coun25 sel’s delegate under paragraph (1)) may assert, 


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1 compromise, or collect a penalty imposed by 

2 this section with respect to a noneconomic sub3 stance transaction even if there has not been a 

4 court determination that the economic sub5 stance doctrine was relevant for purposes of 

6 this title to the transaction if the Chief Counsel 

7 (or delegate) determines that either was so rel8 evant. 

9 ‘‘(B) FINAL ORDER OF COURT.—If there is 

10 a final order of a court that determines that the 

11 economic substance doctrine was not relevant 

12 for purposes of this title to a transaction (or se13 ries of transactions), any penalty imposed under 

14 this section with respect to the transaction (or 

15 series of transactions) shall be rescinded. 

16 ‘‘(4) APPLICABLE RULES.—The rules of para17 graphs (2) and (3) of section 6707A(d) shall apply 

18 to a compromise under paragraph (1). 

19 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex20 cept as otherwise provided in this part, the penalty im21 posed by this section shall be in addition to any other pen22 alty imposed by this title. 

23 ‘‘(f) CROSS REFERENCES.— 


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1 ‘‘(1) For coordination of penalty with under2 statements under section 6662 and other special 

3 rules, see section 6662A(e). 

4 ‘‘(2) For reporting of penalty imposed under 

5 this section to the Securities and Exchange Commis6 sion, see section 6707A(e).’’. 

7 (b) COORDINATION WITH OTHER UNDERSTATE8 MENTS AND PENALTIES.— 

9 (1) The second sentence of section 

10 6662(d)(2)(A) is amended by inserting ‘‘and without 

11 regard to items with respect to which a penalty is 

12 imposed by section 6662B’’ before the period at the 

13 end. 

14 (2) Subsection (e) of section 6662A is amend15 ed— 

16 (A) in paragraph (1), by inserting ‘‘and 

17 noneconomic substance transaction understate18 ments’’ after ‘‘reportable transaction under19 statements’’ both places it appears, 

20 (B) in paragraph (2)(A)— 

21 (i) by inserting ‘‘6662B or’’ before 

22 ‘‘6663’’ in the text, and 

23 (ii) by striking ‘‘PENALTY’’ in the 

24 heading and inserting ‘‘AND ECONOMIC

25 SUBSTANCE PENALTIES’’, 


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1 (C) in paragraph (2)(B)— 

2 (i) by inserting ‘‘and section 6662B’’ 

3 after ‘‘This section’’, and 

4 (ii) by striking ‘‘PENALTY’’ in the 

5 heading and inserting ‘‘AND ECONOMIC

6 SUBSTANCE PENALTIES’’, 

7 (D) in paragraph (3), by inserting ‘‘or 

8 noneconomic substance transaction understate9 ment’’ after ‘‘reportable transaction understate10 ment’’, and 

11 (E) by adding at the end the following new 

12 paragraph: 

13 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

14 UNDERSTATEMENT.—For purposes of this sub15 section, the term ‘noneconomic substance trans16 action understatement’ has the meaning given such 

17 term by section 6662B(c).’’. 

18 (3) Subsection (e) of section 6707A is amend19 ed— 

20 (A) by striking ‘‘or’’ at the end of subpara21 graph (B), and 

22 (B) by striking subparagraph (C) and in23 serting the following new subparagraphs: 


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1 ‘‘(C) is required to pay a penalty under 

2 section 6662B with respect to any noneconomic 

3 substance transaction, or 

4 ‘‘(D) is required to pay a penalty under 

5 section 6662(h) with respect to any transaction 

6 and would (but for section 6662A(e)(2)(B)) 

7 have been subject to penalty under section 

8 6662A at a rate prescribed under section 

9 6662A(c) or to penalty under section 6662B,’’. 

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

11 for part II of subchapter A of chapter 68 is amended by 

12 inserting after the item relating to section 6662A the fol13 lowing new item: 

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking 

economic substance, etc.’’. 

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

15 this section shall apply to transactions entered into after 

16 the date of the enactment of this Act. 

17 SEC. 403. DENIAL OF DEDUCTION FOR INTEREST ON UN18 DERPAYMENTS ATTRIBUTABLE TO NON19 ECONOMIC SUBSTANCE TRANSACTIONS. 

20 (a) IN GENERAL.—Section 163(m) (relating to inter21 est on unpaid taxes attributable to nondisclosed reportable 

22 transactions) is amended— 

23 (1) by striking ‘‘attributable’’ and all that fol24 lows and inserting the following: ‘‘attributable to— 


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1 ‘‘(1) the portion of any reportable transaction 

2 understatement (as defined in section 6662A(b)) 

3 with respect to which the requirement of section 

4 6664(d)(2)(A) is not met, or 

5 ‘‘(2) any noneconomic substance transaction 

6 understatement (as defined in section 6662B(c)).’’, 

7 and 

8 (2) by inserting ‘‘AND NONECONOMIC SUB9 STANCE TRANSACTIONS’’ in the heading thereof 

10 after ‘‘TRANSACTIONS’’. 

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

12 this section shall apply to transactions after the date of 

13 the enactment of this Act in taxable years ending after 

14 such date. 

Æ 


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