II 

113TH CONGRESS 

1ST SESSION S. 268 

To reduce the deficit and protect important programs by ending tax loopholes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 11, 2013 

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

which was read twice and referred to the Committee on Finance 

A BILL 

To reduce the deficit and protect important programs by 

ending tax loopholes. 

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

3 SECTION 1. SHORT TITLE; ETC. 

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

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

6 Act’’. 

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

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

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

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

4 this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—ENDING OFFSHORE TAX ABUSES 

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

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

institutions, and others that significantly impede United States 

tax enforcement. 

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

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

United States as domestic corporations. 

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

accounts. 

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

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

Sec. 111. Country-by-country reporting. 

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

Sec. 113. Deadline for anti-money laundering rule for investment advisers. 

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

Sec. 115. Strengthening John Doe summons proceedings. 

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

Subtitle C—Ending Offshore Tax Avoidance 

Sec. 121. Allocation of expenses and taxes on basis of repatriation of foreign 

income. 

Sec. 122. Excess income from transfers of intangibles to low-taxed affiliates 

treated as subpart F income. 

Sec. 123. Limitations on income shifting through intangible property transfers. 

Sec. 124. Limitation on earnings stripping by expatriated entities. 

Sec. 125. Repeal of check-the-box rules for certain foreign entities and CFC 

look-thru rules. 

Sec. 126. Prohibition on offshore loan abuse. 

TITLE II—STRENGTHENING TAX ENFORCEMENT 

Subtitle A—Combating Tax Shelter Promotion 

Sec. 201. Penalty for promoting abusive tax shelters. 

Sec. 202. Penalty for aiding and abetting the understatement of tax liability. 

Sec. 203. Prohibited fee arrangement. 

Sec. 204. Preventing tax shelter activities by financial institutions. 

Sec. 205. Information sharing for enforcement purposes. 

Sec. 206. Disclosure of information to Congress. 

Sec. 207. Tax opinion standards for tax practitioners. 

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Subtitle B—Simplify Tax Lien Procedure 

Sec. 211. Short title. 

Sec. 212. Findings and purpose. 

Sec. 213. National tax lien filing system. 

TITLE III—ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS 

FOR STOCK OPTIONS 

Sec. 301. Consistent treatment of stock options by corporations. 

Sec. 302. Application of executive pay deduction limit. 

TITLE IV—CLOSING THE DERIVATIVES BLENDED RATE 

LOOPHOLE 

Sec. 401. Short title. 

Sec. 402. Modifications to treatment of section 1256 contracts. 

Sec. 403. Modifications to treatment of dealers in securities and commodities. 

TITLE V—ENDING THE TAR SANDS OIL SPILL LOOPHOLE 

Sec. 501. Short title. 

Sec. 502. Requirements for contribution to the Oil Spill Liability Trust Fund. 

Sec. 503. Extension of Oil Spill Liability Trust Fund financing rate. 

Sec. 504. Technical amendment. 

TITLE VI—ENDING THE CARRIED INTEREST LOOPHOLE 

Sec. 601. Short title; etc. 

Sec. 602. Partnership interests transferred in connection with performance of 

services. 

Sec. 603. Special rules for partners providing investment management services 

to partnerships. 

1 TITLE I—ENDING OFFSHORE 

2 TAX ABUSES 

3 Subtitle A—Deterring the Use of 

4 Tax Havens for Tax Evasion 

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

8 IMPEDE UNITED STATES TAX ENFORCEMENT. 

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

10 amended— 

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1 (1) by striking the section heading and insert2 ing the following: 

3 ‘‘§ 5318A. Special measures for jurisdictions, financial 

4 institutions, or international transactions 

5 that are of primary money laundering 

6 concern or significantly impede United 

7 States tax enforcement’’; 

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

9 heading and inserting the following: 

10 ‘‘(a) SPECIAL MEASURES TO COUNTER MONEY

11 LAUNDERING AND EFFORTS TO SIGNIFICANTLY IMPEDE

12 UNITED STATES TAX ENFORCEMENT.—’’; 

13 (3) in subsection (c)— 

14 (A) by striking the subsection heading and 

15 inserting the following: 

16 ‘‘(c) CONSULTATIONS AND INFORMATION TO BE

17 CONSIDERED IN FINDING JURISDICTIONS, INSTITUTIONS, 

18 TYPES OF ACCOUNTS, OR TRANSACTIONS TO BE OF PRI19 MARY MONEY LAUNDERING CONCERN OR TO BE SIGNIFI20 CANTLY IMPEDING UNITED STATES TAX ENFORCE21 MENT.—’’; and 

22 (B) by inserting at the end of paragraph 

23 (2) thereof the following new subparagraph: 

24 ‘‘(C) OTHER CONSIDERATIONS.—The fact 

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1 operating with the United States on imple2 menting the requirements specified in chapter 4 

3 of the Internal Revenue Code of 1986 may be 

4 favorably considered in evaluating whether such 

5 jurisdiction or financial institution is signifi6 cantly impeding United States tax enforce7 ment.’’; 

8 (4) in subsection (a)(1), by inserting ‘‘or is sig9 nificantly impeding United States tax enforcement’’ 

10 after ‘‘primary 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, the Secretary of 

24 State, the Attorney General of the United 

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1 retary, such other agencies and interested par2 ties 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 signifi6 cantly impeding United States tax enforcement’’ 

7 after ‘‘primary money laundering concern’’ each 

8 place that term appears; 

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 significantly impeding United States tax en21 forcement, the Secretary, in consultation with the 

22 Secretary of State, the Attorney General of the 

23 United States, and the Chairman of the Board of 

24 Governors of the Federal Reserve System, may pro25 hibit, or impose 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 sig20 nificantly impeding United States tax enforcement’’ 

21 after ‘‘primary 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. 102. STRENGTHENING THE FOREIGN ACCOUNT TAX 

2 COMPLIANCE ACT (FATCA). 

3 (a) REPORTING ACTIVITIES WITH RESPECT TO PAS4 SIVE FOREIGN INVESTMENT COMPANIES.—Section 

5 1298(f) is amended by inserting ‘‘, or who directly or indi6 rectly forms, transfers assets to, is a beneficiary of, has 

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

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

9 (b) WITHHOLDABLE PAYMENTS TO FOREIGN FINAN10 CIAL INSTITUTIONS.—Section 1471(d) is amended— 

11 (1) by inserting ‘‘or transaction’’ after ‘‘any de12 pository’’ in paragraph (2)(A), and 

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

14 follows in paragraph (5)(C) and inserting ‘‘deriva15 tives, or any interest (including a futures or forward 

16 contract, swap, or option) in such securities, part17 nership interests, commodities, or derivatives.’’. 

18 (c) WITHHOLDABLE PAYMENTS TO OTHER FOREIGN

19 FINANCIAL INSTITUTIONS.—Section 1472 is amended— 

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

21 identification, anti-money laundering, anti-corrup22 tion, or similar obligation to identify account hold23 ers,’’ after ‘‘reason to know,’’ in subsection (b)(2), 

24 and 

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

2 evasion’’ after ‘‘this subsection’’ in subsection 

3 (c)(1)(G). 

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

5 1473(2)(A) are each amended by inserting ‘‘or as a bene6 ficial owner’’ after ‘‘indirectly’’. 

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

8 (1) by inserting ‘‘, except that information pro9 vided under sections 1471(c) or 1472(b) may be dis10 closed to any Federal law enforcement agency, upon 

11 request or upon the initiation of the Secretary, to in12 vestigate or address a possible violation of United 

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

14 and 

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

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

17 1471(b)’’ in paragraph (2). 

18 (f) INFORMATION WITH RESPECT TO FOREIGN FI19 NANCIAL ASSETS.—Section 6038D(a) is amended by in20 serting ‘‘ownership or beneficial ownership’’ after ‘‘holds 

21 any’’. 

22 (g) ESTABLISHING PRESUMPTIONS FOR ENTITIES

23 AND TRANSACTIONS INVOLVING NON-FATCA INSTITU24 TIONS.— 

25 (1) PRESUMPTIONS FOR TAX PURPOSES.— 

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

2 by inserting after section 7491 the following 

3 new subchapter: 

4 ‘‘Subchapter F—Presumptions for Certain 

5 Legal Proceedings 

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

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

7 TRANSACTIONS INVOLVING NON-FATCA IN8 STITUTIONS. 

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

10 civil judicial or administrative proceeding to determine or 

11 collect tax, there shall be a rebuttable presumption that 

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

13 regularly traded on an established securities market) who, 

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

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

16 money or property or the use thereof from an entity, in17 cluding a trust, corporation, limited liability company, 

18 partnership, or foundation (other than an entity with 

19 shares regularly traded on an established securities mar20 ket), that holds an account, or in any other manner has 

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

22 such entity. The presumption of control created by this 

23 subsection shall not be applied to prevent the Secretary 

24 from determining or arguing the absence of control. 

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

2 United States civil judicial or administrative proceeding 

3 to determine or collect tax, there shall be a rebuttable pre4 sumption that any amount or thing of value received by 

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

6 regularly traded on an established securities market) di7 rectly or indirectly from an account or from an entity 

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

9 established securities market) that holds an account, or 

10 in any other manner has assets, in a non-FATCA institu11 tion, constitutes income of such person taxable in the year 

12 of receipt; and any amount or thing of value paid or trans13 ferred by or on behalf of a United States person (other 

14 than an entity with shares regularly traded on an estab15 lished securities market) directly or indirectly to an ac16 count, or entity (other than an entity with shares regularly 

17 traded on an established securities market) that holds an 

18 account, or in any other manner has assets, in a non19 FATCA institution, represents previously unreported in20 come of such person taxable in the year of the transfer. 

21 ‘‘(c) REBUTTING THE PRESUMPTIONS.—The pre22 sumptions established in this section may be rebutted only 

23 by clear and convincing evidence, including detailed docu24 mentary, testimonial, and transactional evidence, estab25 lishing that— 

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

2 no control, directly or indirectly, over account or en3 tity at the time in question, and 

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

5 of value did not represent income related to such 

6 United States person. 

7 Any court having jurisdiction of a civil proceeding in which 

8 control of such an offshore account or offshore entity or 

9 the income character of such receipts or amounts trans10 ferred is an issue shall prohibit the introduction by the 

11 taxpayer of any foreign based document that is not au12 thenticated in open court by a person with knowledge of 

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

14 outside the jurisdiction of a United States court, unless 

15 such person appears before the court.’’. 

16 (B) The table of subchapters for chapter 

17 76 is amended by inserting after the item relat18 ing to subchapter E the following new item: 

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

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

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

21 the following new paragraph: 

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

23 ‘non-FATCA institution’ means any financial insti24 tution that does not meet the reporting requirements 

25 of section 1471(b).’’. 

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1 (3) PRESUMPTIONS FOR SECURITIES LAW PUR2 POSES.—Section 21 of the Securities Exchange Act 

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

4 the end the following new subsection: 

5 ‘‘(j) PRESUMPTIONS PERTAINING TO CONTROL AND

6 BENEFICIAL OWNERSHIP.— 

7 ‘‘(1) CONTROL.—For purposes of any civil judi8 cial or administrative proceeding under this title, 

9 there shall be a rebuttable presumption that a 

10 United States person (other than an entity with 

11 shares regularly traded on an established securities 

12 market) who, directly or indirectly, formed, trans13 ferred assets to, was a beneficiary of, had a bene14 ficial interest in, or received money or property or 

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

16 corporation, limited liability company, partnership, 

17 or foundation (other than an entity with shares reg18 ularly traded on an established securities market), 

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

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

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

22 1986), exercised control over such entity. The pre23 sumption of control created by this paragraph shall 

24 not be applied to prevent the Commission from de25 termining or arguing the absence of control. 

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

2 of any civil judicial or administrative proceeding 

3 under this title, there shall be a rebuttable presump4 tion that securities that are nominally owned by an 

5 entity, including a trust, corporation, limited liability 

6 company, partnership, or foundation (other than an 

7 entity with shares regularly traded on an established 

8 securities market), and that are held in a non9 FATCA institution (as so defined), are beneficially 

10 owned by any United States person (other than an 

11 entity with shares regularly traded on an established 

12 securities market) who directly or indirectly exer13 cised control over such entity. The presumption of 

14 beneficial ownership created by this paragraph shall 

15 not be applied to prevent the Commission from de16 termining or arguing the absence of beneficial own17 ership.’’. 

18 (4) PRESUMPTION FOR REPORTING PURPOSES

19 RELATING TO FOREIGN FINANCIAL ACCOUNTS.—Sec20 tion 5314 of title 31, United States Code, is amend21 ed by adding at the end the following new sub22 section: 

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

24 this section, there shall be a rebuttable presumption that 

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

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

2 1986) contains funds in an amount that is at least suffi3 cient to require a report prescribed by regulations under 

4 this section.’’. 

5 (5) REGULATORY AUTHORITY.—Not later than 

6 180 days after the date of enactment of this Act, the 

7 Secretary of the Treasury and the Chairman of the 

8 Securities and Exchange Commission shall each 

9 adopt regulations or other guidance necessary to im10 plement the amendments made by this subsection. 

11 The Secretary and the Chairman may, by regulation 

12 or guidance, provide that the presumption of control 

13 shall not extend to particular classes of transactions, 

14 such as corporate reorganizations or transactions 

15 below a specified dollar threshold, if either deter16 mines that applying such amendments to such trans17 actions is not necessary to carry out the purposes of 

18 such amendments. 

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

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

21 after the date of enactment of this Act, whether or not 

22 regulations are issued under subsection (g)(5). 

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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 is amended by re5 designating subsection (p) as subsection (q) and by insert6 ing after subsection (o) the following new subsection: 

7 ‘‘(p) CERTAIN CORPORATIONS MANAGED AND CON8 TROLLED IN THE UNITED STATES TREATED AS DOMES9 TIC FOR INCOME TAX.— 

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

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

12 paragraph (2) if— 

13 ‘‘(A) the corporation would not otherwise 

14 be treated as a domestic corporation for pur15 poses of this title, but 

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

17 corporation occurs, directly or indirectly, pri18 marily within the United States, 

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

20 provision of this title relating to chapter 1), the cor21 poration shall be treated as a domestic corporation. 

22 ‘‘(2) CORPORATION DESCRIBED.— 

23 ‘‘(A) IN GENERAL.—A corporation is de24 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, whether or not regulations are issued 

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

15 of 1986, as added by this section. 

16 SEC. 104. REPORTING UNITED STATES BENEFICIAL OWN17 ERS OF FOREIGN OWNED FINANCIAL AC18 COUNTS. 

19 (a) IN GENERAL.—Subpart B of part III of sub20 chapter A of chapter 61 is amended by inserting after sec21 tion 6045B the following new sections: 

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1 ‘‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENE2 FICIAL OWNERS OF FINANCIAL ACCOUNTS 

3 LOCATED IN THE UNITED STATES AND HELD 

4 IN THE NAME OF A FOREIGN ENTITY. 

5 ‘‘(a) REQUIREMENT OF RETURN.—If— 

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

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

8 or payment of any amount constituting gross income 

9 from sources within the United States of any foreign 

10 entity, including a trust, corporation, limited liability 

11 company, partnership, or foundation (other than an 

12 entity with shares regularly traded on an established 

13 securities market), and 

14 ‘‘(2) such withholding agent determines for pur15 poses of titles 14, 18, or 31 of the United States 

16 Code that a United States person has any beneficial 

17 interest in the foreign entity or in the account in 

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

19 to as ‘United States beneficial owner’), 

20 then the withholding agent shall make a return according 

21 to the forms or regulations prescribed 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, if known, the tax2 payer identification number of the United States 

3 beneficial owner, 

4 ‘‘(2) the known facts pertaining to the relation5 ship of such United States beneficial owner to the 

6 foreign entity and the account, 

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

8 within the United States (including gross proceeds 

9 from brokerage transactions), and 

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

11 may by forms or regulations provide. 

12 ‘‘(c) STATEMENTS TO BE FURNISHED TO BENE13 FICIAL OWNERS WITH RESPECT TO WHOM INFORMATION

14 IS REQUIRED TO BE REPORTED.—A withholding agent 

15 required to make a return under subsection (a) shall fur16 nish to each United States beneficial owner whose name 

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

18 showing— 

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

20 of the information contact of the person required to 

21 make such return, and 

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

23 such return with respect to such United States bene24 ficial owner. 

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1 The written statement required under the preceding sen2 tence shall be furnished to the United States beneficial 

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

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

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

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

7 States beneficial owner, such written statement may be 

8 mailed to the address of the foreign entity. 

9 ‘‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS RE10 GARDING ESTABLISHMENT OF ACCOUNTS IN 

11 NON-FATCA INSTITUTIONS. 

12 ‘‘(a) REQUIREMENT OF RETURN.—Any financial in13 stitution directly or indirectly opening a bank, brokerage, 

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

15 entity, including a trust, corporation, limited liability com16 pany, partnership, or foundation (other than an entity 

17 with shares regularly traded on an established securities 

18 market), in a non-FATCA institution (as defined in sec19 tion 7701(a)(51)) at the direction of, on behalf of, or for 

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

21 according to the forms or regulations prescribed by the 

22 Secretary. 

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

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

25 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) if the account is held in the name of an 

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

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

11 formation agent or other professional employed to 

12 form or acquire the entity, 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 striking ‘‘or’’ at the end of clause 

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

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

20 clauses: 

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

22 returns regarding United States beneficial 

23 owners of financial accounts located in the 

24 United States and held in the name of a 

25 foreign entity), or 

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

2 returns by financial institutions regarding 

3 establishment of accounts at non-FATCA 

4 institutions), and’’. 

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

6 is amended by striking ‘‘or’’ at the end of subpara7 graph (GG), by striking the period at the end of 

8 subparagraph (HH), and by inserting after subpara9 graph (HH) the following new subparagraphs: 

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

11 regarding United States beneficial owners of fi12 nancial accounts located in the United States 

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

14 ‘‘(JJ) section 6045D(c) (relating to re15 turns by financial institutions regarding estab16 lishment of accounts at non-FATCA institu17 tions).’’. 

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

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

20 is amended by inserting after the item relating to section 

21 6045B the following new items: 

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

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

a foreign entity. 

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

22 (d) ADDITIONAL PENALTIES.— 

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1 (1) ADDITIONAL PENALTIES ON BANKS.—Sec2 tion 5239(b)(1) of the Revised Statutes of the 

3 United States (12 U.S.C. 93(b)(1)) is amended by 

4 inserting ‘‘or any of the provisions of section 6045D 

5 of the Internal Revenue Code of 1986,’’ after ‘‘any 

6 regulation issued pursuant to,’’. 

7 (2) ADDITIONAL PENALTIES ON SECURITIES

8 FIRMS.—Section 21(d)(3)(A) of the Securities Ex9 change Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is 

10 amended by inserting ‘‘any of the provisions of sec11 tion 6045D of the Internal Revenue Code of 1986,’’ 

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

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 shall adopt regula18 tions, forms, or other guidance necessary to imple19 ment this section. 

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

21 Internal Revenue Code of 1986 (as added by this 

22 section) and the amendment made by subsection 

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

24 into foreign owned accounts located in the United 

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

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

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

3 subsection (d)(2) shall take effect with respect to ac4 counts opened after December 31 of the year of the 

5 date of the enactment of this Act. 

6 SEC. 105. SWAP PAYMENTS MADE FROM THE UNITED 

7 STATES TO PERSONS OFFSHORE. 

8 (a) TAX ON SWAP PAYMENTS RECEIVED BY FOR9 EIGN PERSONS.—Section 871(a)(1) is amended— 

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

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

12 subparagraph (A), and 

13 (2) by adding at the end the following new sen14 tence: ‘‘In the case of swap payments, the source of 

15 a swap payment is determined by reference to the lo16 cation of the payor.’’. 

17 (b) TAX ON SWAP PAYMENTS RECEIVED BY FOR18 EIGN CORPORATIONS.—Section 881(a) is amended— 

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

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

21 paragraph (1), and 

22 (2) by adding at the end the following new sen23 tence: ‘‘In the case of swap payments, the source of 

24 a swap payment is determined by reference to the lo25 cation of the payor.’’. 

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1 Subtitle B—Other Measures To 

2 Combat Tax Haven and Tax 

3 Shelter Abuses 

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

5 (a) COUNTRY-BY-COUNTRY REPORTING.—Section 13 

6 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) 

7 is amended by adding at the end the following new sub8 section: 

9 ‘‘(s) DISCLOSURE OF FINANCIAL PERFORMANCE ON

10 A COUNTRY-BY-COUNTRY BASIS.— 

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

12 ‘‘(A) the term ‘issuer group’ means the 

13 issuer, each subsidiary of the issuer, and each 

14 entity under the control of the issuer; and 

15 ‘‘(B) the term ‘country of operation’ means 

16 each country in which a member of the issuer 

17 group is incorporated, organized, maintains em18 ployees, or conducts significant business activi19 ties. 

20 ‘‘(2) RULES REQUIRED.—The Commission shall 

21 issue rules that require each issuer to include in an 

22 annual report filed by the issuer with the Commis23 sion information on a country-by-country basis dur24 ing the covered period, consisting of— 

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1 ‘‘(A) a list of each country of operation 

2 and the name of each entity of the issuer group 

3 domiciled in each country of operation; 

4 ‘‘(B) the number of employees physically 

5 working in each country of operation; 

6 ‘‘(C) the total pre-tax gross revenues of 

7 each member of the issuer group in each coun8 try of operation; 

9 ‘‘(D) the total amount of payments made 

10 to governments by each member of the issuer 

11 group in each country of operation, without ex12 ception, including, and set forth according to— 

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

14 other tax assessed against each member of 

15 the issuer group with respect to each coun16 try of operation during the covered period; 

17 and 

18 ‘‘(ii) after any tax deductions, tax 

19 credits, tax forgiveness, or other tax bene20 fits or waivers, the total amount of tax 

21 paid from the treasury of each member of 

22 the issuer group to the government of each 

23 country of operation during the covered pe24 riod; and 

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1 ‘‘(E) such other financial information as 

2 the Commission may determine is necessary or 

3 appropriate in the public interest or for the pro4 tection of investors.’’. 

5 (b) RULEMAKING.— 

6 (1) DEADLINES.—The Securities and Exchange 

7 Commission (in this section referred to as the ‘‘Com8 mission’’) shall— 

9 (A) not later than 270 days after the date 

10 of enactment of this Act, issue a proposed rule 

11 to carry out this section and the amendment 

12 made by this section; and 

13 (B) not later than 1 year after the date of 

14 enactment of this Act, issue a final rule to 

15 carry out this section and the amendment made 

16 by this section. 

17 (2) DATA FORMAT.—The information required 

18 to be provided by this section shall be provided by 

19 the issuer in a format prescribed by the Commission, 

20 and shall be made available to the public online, in 

21 such format as the Commission shall prescribe. 

22 (3) EFFECTIVE DATE.—Subsection (s) of sec23 tion 13 of the Securities Exchange Act of 1934, as 

24 added by this section, shall become effective 1 year 

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1 after the date on which the Commission issues a 

2 final rule under this section. 

3 SEC. 112. PENALTY FOR FAILING TO DISCLOSE OFFSHORE 

4 HOLDINGS. 

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

6 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 

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

8 the following: 

9 ‘‘(iv) FOURTH TIER.—Notwith10 standing clauses (i), (ii), and (iii), for each 

11 violation, the amount of the penalty shall 

12 not exceed $1,000,000 for any natural per13 son or $10,000,000 for any other person, 

14 if— 

15 ‘‘(I) such person directly or indi16 rectly controlled any foreign entity, in17 cluding any trust, corporation, limited 

18 liability company, partnership, or 

19 foundation through which an issuer 

20 purchased, sold, or held equity or debt 

21 instruments; 

22 ‘‘(II) such person knowingly or 

23 recklessly failed to disclose any such 

24 holding, purchase, or sale by the 

25 issuer; and 

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1 ‘‘(III) the holding, purchase, or 

2 sale would have been otherwise sub3 ject to disclosure by the issuer or such 

4 person under this title.’’. 

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

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

7 amended by adding at the end the following: 

8 ‘‘(D) FOURTH TIER.—Notwithstanding 

9 subparagraphs (A), (B), and (C), for each viola10 tion, the amount of the penalty shall not exceed 

11 $1,000,000 for any natural person or 

12 $10,000,000 for any other person, if— 

13 ‘‘(i) such person directly or indirectly 

14 controlled any foreign entity, including any 

15 trust, corporation, limited liability com16 pany, partnership, or foundation through 

17 which an issuer purchased, sold, or held 

18 equity or debt instruments; 

19 ‘‘(ii) such person knowingly or reck20 lessly failed to disclose any such holding, 

21 purchase, or sale by the issuer; and 

22 ‘‘(iii) the holding, purchase, or sale 

23 would have been otherwise subject to dis24 closure by the issuer or such person under 

25 this title.’’. 

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1 (c) INVESTMENT ADVISERS ACT OF 1940.—Section 

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

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

4 following: 

5 ‘‘(D) FOURTH TIER.—Notwithstanding 

6 subparagraphs (A), (B), and (C), for each viola7 tion, the amount of the penalty shall not exceed 

8 $1,000,000 for any natural person or 

9 $10,000,000 for any other person, if— 

10 ‘‘(i) such person directly or indirectly 

11 controlled any foreign entity, including any 

12 trust, corporation, limited liability com13 pany, partnership, or foundation through 

14 which an issuer purchased, sold, or held 

15 equity or debt instruments; 

16 ‘‘(ii) such person knowingly or reck17 lessly failed to disclose any such holding, 

18 purchase, or sale by the issuer; and 

19 ‘‘(iii) the holding, purchase, or sale 

20 would have been otherwise subject to dis21 closure by the issuer or such person under 

22 this title.’’. 

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

2 FOR INVESTMENT ADVISERS. 

3 (a) ANTI-MONEY LAUNDERING OBLIGATIONS FOR

4 INVESTMENT ADVISERS.—Section 5312(a)(2) of title 31, 

5 United States Code, is amended— 

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

7 the end; 

8 (2) by redesigning subparagraph (Z) as sub9 paragraph (BB); and 

10 (3) by inserting after subparagraph (Y) the fol11 lowing: 

12 ‘‘(Z) an investment adviser;’’. 

13 (b) RULES REQUIRED.—The Secretary of the Treas14 ury shall— 

15 (1) in consultation with the Chairman of the 

16 Securities and Exchange Commission and the Chair17 man of the Commodity Futures Trading Commis18 sion, not later than 270 days after the date of enact19 ment of this Act, publish a proposed rule in the Fed20 eral Register to carry out the amendments made by 

21 this section; and 

22 (2) not later than 180 days after the date of 

23 enactment of this Act, publish a final rule in the 

24 Federal Register on the matter described in para25 graph (1). 

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1 (c) CONTENTS.—The final rule published under this 

2 section shall require, at a minimum, each investment ad3 viser (as defined in section 202(a)(11) of the Investment 

4 Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11))) reg5 istered with the Securities and Exchange Commission pur6 suant to section 203 of that Act (15 U.S.C. 80b–3)— 

7 (1) to submit suspicious activity reports and es8 tablish an anti-money laundering program under 

9 subsections (g) and (h), respectively, of section 5318 

10 of title 31, United States Code; and 

11 (2) to comply with— 

12 (A) the customer identification program 

13 requirements under section 5318(l) of title 31, 

14 United States Code; and 

15 (B) the due diligence requirements under 

16 section 5318(i) of title 31, United States Code. 

17 SEC. 114. ANTI-MONEY LAUNDERING REQUIREMENTS FOR 

18 FORMATION AGENTS. 

19 (a) ANTI-MONEY LAUNDERING OBLIGATIONS FOR

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

21 United States Code, as amended by section 113 of this 

22 Act, is amended by inserting after subparagraph (Z) the 

23 following: 

24 ‘‘(AA) any person engaged in the business 

25 of forming new corporations, limited liability 

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1 companies, partnerships, trusts, or other legal 

2 entities; or’’. 

3 (b) DEADLINE FOR ANTI-MONEY LAUNDERING

4 RULE FOR FORMATION AGENTS.— 

5 (1) PROPOSED RULE.—The Secretary of the 

6 Treasury, in consultation with the Attorney General 

7 of the United States, the Secretary of Homeland Se8 curity, and the Commissioner of Internal Revenue, 

9 shall— 

10 (A) not later than 120 days after the date 

11 of enactment of this Act, publish a proposed 

12 rule in the Federal Register requiring persons 

13 described in section 5312(a)(2)(AA) of title 31, 

14 United States Code, as added by this section, to 

15 establish anti-money laundering programs 

16 under section 5318(h) of that title; and 

17 (B) not later than 270 days after the date 

18 of enactment of this Act, publish a final rule in 

19 the Federal Register on the matter described in 

20 subparagraph (A). 

21 (2) EXCLUSIONS.—The rule promulgated under 

22 this subsection shall exclude from the category of 

23 persons engaged in the business of forming new cor24 porations or other entities— 

25 (A) any government agency; and 

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

2 paid formation agent operating within the 

3 United States to form such corporations or 

4 other entities. 

5 SEC. 115. STRENGTHENING JOHN DOE SUMMONS PRO6 CEEDINGS. 

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

8 amended to read as follows: 

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

10 JOHN DOE SUMMONS.— 

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

12 in subsection (c)(1) which does not identify the per13 son with respect to whose liability the summons is 

14 issued may be served only after a court proceeding 

15 in which the Secretary establishes that— 

16 ‘‘(A) the summons relates to the investiga17 tion of a particular person or ascertainable 

18 group or class of persons, 

19 ‘‘(B) there is a reasonable basis for believ20 ing that such person or group or class of per21 sons may fail or may have failed to comply with 

22 any provision of any internal revenue law, and 

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

24 from the examination of the records or testi25 mony (and the identity of the person or persons 

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1 with respect to whose liability the summons is 

2 issued) is not readily available from other 

3 sources. 

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

5 apply to any summons which specifies that it is lim6 ited to information regarding a United States cor7 respondent account (as defined in section 

8 5318A(e)(1)(B) of title 31, United States Code) or 

9 a United States payable-through account (as defined 

10 in section 5318A(e)(1)(C) of such title) of a finan11 cial institution that is held at a non-FATCA institu12 tion (as defined in section 7701(a)(51)). 

13 ‘‘(3) PRESUMPTION IN CASES INVOLVING NON14 FATCA INSTITUTIONS.—For purposes of this section, 

15 in any case in which the particular person or ascer16 tainable group or class of persons have financial ac17 counts in or transactions related to a non-FATCA 

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

19 shall be a presumption that there is a reasonable 

20 basis for believing that such person or group or class 

21 of persons may fail or may have failed to comply 

22 with provisions of internal revenue law. 

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

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

25 requirements of paragraph (1), the Secretary 

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1 may issue a summons described in paragraph 

2 (1) if the summons— 

3 ‘‘(i) relates to a project which is ap4 proved under subparagraph (B), 

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

6 member of the group or class established 

7 under subparagraph (B)(i), and 

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

9 date on which such project was approved 

10 under subparagraph (B). 

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

12 may only be approved under this subparagraph 

13 after a court proceeding in which the Secretary 

14 establishes that— 

15 ‘‘(i) any summons issues with respect 

16 to the project will be issued to a member 

17 of an ascertainable group or class of per18 sons, and 

19 ‘‘(ii) any summons issued with respect 

20 to such project will meet the requirements 

21 of paragraph (1). 

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

23 the Secretary, the court may extend the time 

24 for issuing such summonses under subpara25 graph (A)(i) for additional 3-year periods, but 

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1 only if the court continues to exercise oversight 

2 of such project under subparagraph (D). 

3 ‘‘(D) ONGOING COURT OVERSIGHT.—Dur4 ing any period in which the Secretary is author5 ized to issue summonses in relation to a project 

6 approved under subparagraph (B) (including 

7 during any extension under subparagraph (C)), 

8 the Secretary shall report annually to the court 

9 on the use of such authority, provide copies of 

10 all summonses with such report, and comply 

11 with the court’s direction with respect to the 

12 issuance of any John Doe summons under such 

13 project.’’. 

14 (b) JURISDICTION OF COURT.— 

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

16 7609(h) is amended by inserting after the first sen17 tence the following new sentence: ‘‘Any United 

18 States district court in which a member of the group 

19 or class to which a summons may be issued resides 

20 or is found shall have jurisdiction to hear and deter21 mine the approval of a project under subsection 

22 (f)(2)(B).’’. 

23 (2) CONFORMING AMENDMENT.—The first sen24 tence of section 7609(h)(1) is amended by striking 

25 ‘‘(f)’’ and inserting ‘‘(f)(1)’’. 

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

2 this section shall apply to summonses issued after the date 

3 of the enactment of this Act. 

4 SEC. 116. IMPROVING ENFORCEMENT OF FOREIGN FINAN5 CIAL ACCOUNT REPORTING. 

6 (a) CLARIFYING THE CONNECTION OF FOREIGN FI7 NANCIAL ACCOUNT REPORTING TO TAX ADMINISTRA8 TION.—Paragraph (4) of section 6103(b) is amended by 

9 adding at the end the following new sentence: 

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

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

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

13 such section 5314), shall be considered related stat14 utes.’’. 

15 (b) SIMPLIFYING THE CALCULATION OF FOREIGN

16 FINANCIAL ACCOUNT REPORTING PENALTIES.—Section 

17 5321(a)(5)(D)(ii) of title 31, United States Code, is 

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

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

20 in the account during the reporting period to which the 

21 violation relates’’. 

22 (c) CLARIFYING THE USE OF SUSPICIOUS ACTIVITY

23 REPORTS UNDER THE BANK SECRECY ACT FOR CIVIL

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

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

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1 criminal enforcement divisions of the Internal Revenue 

2 Service,’’ after ‘‘including’’. 

3 Subtitle C—Ending Offshore Tax 

4 Avoidance 

5 SEC. 121. ALLOCATION OF EXPENSES AND TAXES ON BASIS 

6 OF REPATRIATION OF FOREIGN INCOME. 

7 (a) IN GENERAL.—Part III of subchapter N of chap8 ter 1 is amended by inserting after subpart G the following 

9 new subpart: 

10 ‘‘Subpart H—Special Rules for Allocation of Foreign11 Related Deductions and Foreign Tax Credits 

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

United States source income. 

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

‘‘Sec. 977. Application of subpart. 

12 ‘‘SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOR13 EIGN INCOME MAY NOT OFFSET UNITED 

14 STATES SOURCE INCOME. 

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

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

17 year— 

18 ‘‘(1) shall be taken into account for such tax19 able year only to the extent that such deductions are 

20 allocable to currently-taxed foreign income, and 

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

22 into account in subsequent taxable years as provided 

23 in subsection (b). 

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1 Foreign-related deductions shall be allocated to currently 

2 taxed foreign income in the same proportion which cur3 rently taxed foreign income bears to the sum of currently 

4 taxed foreign income and deferred foreign income. 

5 ‘‘(b) DEDUCTIONS RELATED TO REPATRIATED DE6 FERRED FOREIGN INCOME.— 

7 ‘‘(1) IN GENERAL.—If there is repatriated for8 eign income for a taxable year, the portion of the 

9 previously deferred deductions allocated to the repa10 triated foreign income shall be taken into account 

11 for the taxable year as a deduction allocated to in12 come from sources outside the United States. Any 

13 such amount shall not be included in foreign-related 

14 deductions for purposes of applying subsection (a) to 

15 such taxable year. 

16 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED DE17 DUCTIONS.—For purposes of paragraph (1), the por18 tion of the previously deferred deductions allocated 

19 to repatriated foreign income is— 

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

21 proportion to such deductions, as 

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

23 previously deferred foreign income. 

24 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur25 poses of this section— 

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

2 term ‘foreign-related deductions’ means the total 

3 amount of deductions and expenses which would be 

4 allocated or apportioned to gross income from 

5 sources without the United States for the taxable 

6 year if both the currently-taxed foreign income and 

7 deferred foreign income were taken into account. 

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

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

10 amount of gross income from sources without the 

11 United States for the taxable year (determined with12 out regard to repatriated foreign income for such 

13 year). 

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

15 ‘deferred foreign income’ means the excess of— 

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

17 in gross income under subpart F of this part 

18 for the taxable year if— 

19 ‘‘(i) all controlled foreign corporations 

20 were treated as one controlled foreign cor21 poration, and 

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

23 controlled foreign corporations were sub24 part F income (as defined in section 952), 

25 over 

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1 ‘‘(B) the sum of— 

2 ‘‘(i) all dividends received during the 

3 taxable year from controlled foreign cor4 porations, plus 

5 ‘‘(ii) amounts includible in gross in6 come under section 951(a). 

7 ‘‘(4) PREVIOUSLY DEFERRED FOREIGN IN8 COME.—The term ‘previously deferred foreign in9 come’ means the aggregate amount of deferred for10 eign income for all prior taxable years to which this 

11 part applies, determined as of the beginning of the 

12 taxable year, reduced by the repatriated foreign in13 come for all such prior taxable years. 

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

15 term ‘repatriated foreign income’ means the amount 

16 included in gross income on account of distributions 

17 out of previously deferred foreign income. 

18 ‘‘(6) PREVIOUSLY DEFERRED DEDUCTIONS.— 

19 The term ‘previously deferred deductions’ means the 

20 aggregate amount of foreign-related deductions not 

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

22 taxable years (determined as of the beginning of the 

23 taxable year), reduced by any amounts taken into 

24 account under subsection (b) for such prior taxable 

25 years. 

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1 ‘‘(7) TREATMENT OF CERTAIN FOREIGN

2 TAXES.— 

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

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

8 of determining currently-taxed foreign income, 

9 gross income from sources without the United 

10 States shall be reduced by the aggregate 

11 amount of taxes described in the applicable 

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

13 the taxpayer (without regard to sections 902 

14 and 960) during the taxable year. 

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

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

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

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

21 OVERALL BASIS. 

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

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

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

2 that taxable year as— 

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

4 taxable year, bears to 

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

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

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

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

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

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

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

18 account for the taxable year as foreign taxes paid or 

19 accrued. Any such taxes so taken into account shall 

20 not be included in foreign income taxes for purposes 

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

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

24 (1), the portion of the previously deferred foreign inmstockstill on DSK4VPTVN1PROD with BILLS

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1 come taxes allocated to repatriated deferred foreign 

2 income is— 

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

4 proportion to such taxes, as 

5 ‘‘(B) the repatriated deferred income bears 

6 to the previously deferred foreign income. 

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

9 ‘‘(1) PREVIOUSLY DEFERRED FOREIGN INCOME

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

12 foreign income taxes not taken into account under 

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

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

15 any amounts taken into account under subsection 

16 (b) for such prior taxable years. 

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

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

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

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

22 that would be paid or accrued during the taxable 

23 year under sections 902 and 960 if— 

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1 ‘‘(A) all controlled foreign corporations 

2 were treated as one controlled foreign corpora3 tion, and 

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

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

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

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

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

16 ‘‘SEC. 977. APPLICATION OF SUBPART. 

17 ‘‘This subpart— 

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

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

20 the categories of income specified in section 

21 904(d)(1).’’. 

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

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

25 new item: 

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

DEDUCTIONS AND FOREIGN TAX CREDITS.’’. 

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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 122. EXCESS INCOME FROM TRANSFERS OF INTANGI5 BLES TO LOW-TAXED AFFILIATES TREATED 

6 AS SUBPART F INCOME. 

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

8 amended by inserting after paragraph (3) the following 

9 new paragraph: 

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

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

13 (b)(5)), and’’. 

14 (b) FOREIGN BASE COMPANY EXCESS INTANGIBLE

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

17 ‘‘(f) FOREIGN BASE COMPANY EXCESS INTANGIBLE

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

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

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

23 base company excess intangible income’ means, 

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

3 ‘‘(i) the sum of— 

4 ‘‘(I) gross income from the sale, 

5 lease, license, or other disposition of 

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

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

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

13 over 

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

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

17 other than expenses for interest and taxes 

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

20 ‘‘(B) SAME COUNTRY INCOME NOT TAKEN

21 INTO ACCOUNT.—If— 

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

23 disposition of the property referred to in 

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

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

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

5 country, 

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

7 or other disposition, or provision of services, 

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

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

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

13 excess intangible income shall not include the 

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

16 taxpayer establishes to the satisfaction of the 

17 Secretary that such income was subject to an 

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

20 ‘‘(B) APPLICABLE PERCENTAGE.—For 

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

23 a percentage), not greater than 100 percent, 

24 of— 

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1 ‘‘(i) the number of percentage points 

2 by which the effective rate of income tax 

3 referred to in subparagraph (A) exceeds 5 

4 percentage points, over 

5 ‘‘(ii) 10 percentage points. 

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

8 TAX.—For purposes of determining the effective 

9 rate of income tax imposed by any foreign 

10 country— 

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

13 to the relevant taxable year, and 

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

16 the relevant taxable year, such effective 

17 rate shall be treated as being the effective 

18 rate which would have been imposed on 

19 such income without regard to such losses. 

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

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

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

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

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

4 foreign corporation and one or more related 

5 persons has (directly or indirectly) entered into 

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

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

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

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

14 after paragraph (6) the following new paragraph: 

15 ‘‘(6) SEPARATE APPLICATION TO FOREIGN

16 BASE COMPANY EXCESS INTANGIBLE INCOME.— 

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

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

19 and 960 shall be applied separately with respect 

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

22 company excess intangible income. 

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

24 issue such regulations or other guidance as is 

25 necessary or appropriate to carry out the purmstockstill on DSK4VPTVN1PROD with BILLS

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1 poses of this subsection, including regulations 

2 or other guidance which provides that related 

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

5 (d) CONFORMING AMENDMENTS.— 

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

7 by inserting ‘‘foreign base company excess intangible 

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

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

10 last sentence thereof. 

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

12 adding at the end the following new paragraph: 

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

15 BASE COMPANY INCOME.—Income of a corporation 

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

18 income of such corporation under paragraph (2), 

19 (3), or (5) of subsection (a).’’. 

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

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 

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1 SEC. 123. LIMITATIONS ON INCOME SHIFTING THROUGH IN2 TANGIBLE PROPERTY TRANSFERS. 

3 (a) CLARIFICATION OF DEFINITION OF INTANGIBLE

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

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

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

8 (b) CLARIFICATION OF ALLOWABLE VALUATION

9 METHODS.— 

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

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

12 the following new subparagraph: 

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

15 the Secretary may require— 

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

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

19 on the basis of the realistic alternatives to 

20 such a transfer, 

21 in any case in which the Secretary determines 

22 that such basis is the most reliable means of 

23 valuation of such transfers.’’. 

24 (2) ALLOCATION AMONG TAXPAYERS.—Section 

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

26 ‘‘For purposes of the preceding sentence, the Secmstockstill on DSK4VPTVN1PROD with BILLS

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

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

5 the Secretary determines that such basis is the most 

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

7 (c) EFFECTIVE DATE.— 

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

9 this section shall apply to transfers in taxable years 

10 beginning after the date of the enactment of this 

11 Act. 

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

14 create any inference with respect to the application 

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

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

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

20 SEC. 124. LIMITATION ON EARNINGS STRIPPING BY EXPA21 TRIATED ENTITIES. 

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

23 amended— 

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

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

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

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

7 is an expatriated entity, this subsection shall 

8 apply to such corporation with the following 

9 modifications: 

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

11 without regard to clause (ii) thereof. 

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

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

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

17 succeeding taxable year and in the 

18 2nd through 10th succeeding taxable 

19 years to the extent not previously 

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

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

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

2 and (iii), and 

3 ‘‘(II) by substituting ‘25 percent 

4 of the adjusted taxable income of the 

5 corporation for such taxable year’ for 

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

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

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

10 corporation and a taxable year, the term 

11 ‘expatriated entity’ has the meaning given 

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

15 first day of such taxable year applied to all 

16 taxable years of the corporation beginning 

17 after July 10, 1989. 

18 ‘‘(ii) EXCEPTION FOR SURROGATES

19 TREATED AS A DOMESTIC CORPORATION.— 

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

22 which is treated as a domestic corporation 

23 by reason of section 7874(b).’’. 

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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 125. REPEAL OF CHECK-THE-BOX RULES FOR CERTAIN 

5 FOREIGN ENTITIES AND CFC LOOK-THRU 

6 RULES. 

7 (a) CHECK-THE-BOX RULES.—Paragraph (3) of sec8 tion 7701(a) is amended— 

9 (1) by striking ‘‘and’’, and 

10 (2) by inserting after ‘‘insurance companies’’ 

11 the following: ‘‘, and any foreign business entity 

12 that— 

13 ‘‘(A) has a single owner that does not have 

14 limited liability, or 

15 ‘‘(B) has one or more members all of 

16 which have limited liability’’. 

17 (b) LOOK-THRU RULE.—Subparagraph (C) of sec18 tion 954(c)(6) is amended to read as follows: 

19 ‘‘(C) TERMINATION.—Subparagraph (A) 

20 shall not apply to dividends, interest, rents, and 

21 royalties received or accrued after the date of 

22 the enactment of the CUT Loopholes Act.’’. 

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1 SEC. 126. PROHIBITION ON OFFSHORE LOAN ABUSE. 

2 (a) IN GENERAL.—Subpart F of part III of sub3 chapter N of chapter 1 is amended by adding at the end 

4 the following new section: 

5 ‘‘SEC. 966. INCOME INCLUSION FOR LOANS TO UNITED 

6 STATES SHAREHOLDERS FROM CONTROLLED 

7 FOREIGN CORPORATIONS. 

8 ‘‘(a) IN GENERAL.—In the case of a United States 

9 shareholder, there shall be included in income for the tax10 able year an amount equal to the disqualified CFC loan 

11 amount. 

12 ‘‘(b) DISQUALIFIED CFC LOAN AMOUNT.— 

13 ‘‘(1) IN GENERAL.—For purposes of this sec14 tion, the disqualified CFC loan amount for any tax15 able year is an amount equal to the lesser of— 

16 ‘‘(A) the aggregate amount of obligations 

17 of the United States shareholder which origi18 nated in such taxable year and are held (di19 rectly or indirectly) by controlled foreign cor20 porations, or 

21 ‘‘(B) the foreign group earnings amount. 

22 ‘‘(2) EXCEPTION.—In determining the amount 

23 of obligations under subparagraph (A), there shall 

24 be excluded any obligation described in section 

25 956(c)(2)(C). 

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1 ‘‘(3) CARRYFORWARD OF CERTAIN AMOUNTS.— 

2 If, for any taxable year, the amount under subpara3 graph (A) exceeds the amount under subparagraph 

4 (B), such excess shall be taken into account as an 

5 obligation to which subparagraph (A) applies for the 

6 succeeding taxable year. 

7 ‘‘(4) FOREIGN GROUP EARNINGS AMOUNT.— 

8 For purposes of this section, the term ‘foreign group 

9 earnings amount’ means the aggregate earnings and 

10 profits of all controlled foreign corporations in the 

11 worldwide affiliated group (as defined in section 

12 864(f)(1)(C)) of the United States shareholder, de13 termined— 

14 ‘‘(A) as of the last day of the taxable year 

15 of the United States shareholder, and 

16 ‘‘(B) without regard to any distributions 

17 made during such taxable year. 

18 ‘‘(c) DENIAL OF INTEREST DEDUCTION.—No deduc19 tion shall be allowed for interest paid or accrued with re20 spect to obligations taken into account under subsection 

21 (b). 

22 ‘‘(d) TREATMENT OF INCOME SOURCE.—Any 

23 amount included in income under subsection (a) shall be 

24 treated as income from sources within the United States.’’. 

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1 (b) COORDINATION WITH SECTION 956.—Paragraph 

2 (2) of section 956(c) is amended by striking ‘‘and’’ at the 

3 end of subparagraph (K), by striking the period at the 

4 end of subparagraph (L)(ii) and inserting ‘‘; and’’, and 

5 by inserting after subparagraph (L) the following new sub6 paragraph: 

7 ‘‘(M) any obligation which is taken into ac8 count in determining the disqualified CFC loan 

9 amount under section 966.’’. 

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

11 for subpart F of part III of subchapter N of chapter 1 

12 is amended by adding at the end the following new item: 

‘‘Sec. 966. Income inclusion for loans to certain United States shareholders 

from controlled foreign corporations.’’. 

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

14 this section shall apply to obligations originated after the 

15 date of the enactment of this Act. 

16 TITLE II—STRENGTHENING TAX 

17 ENFORCEMENT 

18 Subtitle A—Combating Tax Shelter 

19 Promotion 

20 SEC. 201. PENALTY FOR PROMOTING ABUSIVE TAX SHEL21 TERS. 

22 (a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL23 TERS.—Section 6700 is amended— 

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

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

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

4 through the period in the first sentence of subsection 

5 (a) and inserting ‘‘a penalty determined under sub6 section (b)’’, and 

7 (3) by inserting after subsection (a) the fol8 lowing new subsections: 

9 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN10 ALTY; LIABILITY FOR PENALTY.— 

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

12 the penalty imposed by subsection (a) shall not ex13 ceed 150 percent of the gross income derived (or to 

14 be derived) from such activity by the person or per15 sons subject to such penalty. 

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

17 amount determined under paragraph (1) shall be 

18 calculated with respect to each instance of an activ19 ity described in subsection (a), each instance in 

20 which income was derived by the person or persons 

21 subject to such penalty, and each person who par22 ticipated in such an activity. 

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

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

25 such activity, all such persons shall be jointly and 

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1 severally liable for the penalty under such sub2 section. 

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

4 any penalty imposed under this section or the payment 

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

6 penalty shall not be considered an ordinary and necessary 

7 expense in carrying on a trade or business for purposes 

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

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

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

11 amended by striking the last sentence. 

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

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

14 enactment of this Act. 

15 SEC. 202. PENALTY FOR AIDING AND ABETTING THE UN16 DERSTATEMENT OF TAX LIABILITY. 

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

18 (1) by inserting ‘‘the tax liability or’’ after ‘‘re19 spect to,’’ in paragraph (1), 

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

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

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

23 and 

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

2 procurement, or advice or each such’’ before ‘‘docu3 ment’’ in the matter following paragraph (3). 

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

5 6701 is amended to read as follows: 

6 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN7 ALTY; LIABILITY FOR PENALTY.— 

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

9 the penalty imposed by subsection (a) shall not ex10 ceed 150 percent of the gross income derived (or to 

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

12 or advice provided by the person or persons subject 

13 to such penalty. 

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

15 amount determined under paragraph (1) shall be 

16 calculated with respect to each instance of aid, as17 sistance, procurement, or advice described in sub18 section (a), each instance in which income was de19 rived by the person or persons subject to such pen20 alty, and each person who made such an understate21 ment of the liability for tax. 

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

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

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1 vice, all such persons shall be jointly and severally 

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

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

4 amended by adding at the end the following new sub5 section: 

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

7 any penalty imposed under this section or the payment 

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

9 penalty shall not be considered an ordinary and necessary 

10 expense in carrying on a trade or business for purposes 

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

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

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

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

15 enactment of this Act. 

16 SEC. 203. PROHIBITED FEE ARRANGEMENT. 

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

18 Act, is amended— 

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

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

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

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

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

24 (f).’’, and 

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1 (3) by inserting after subsection (e) the fol2 lowing new subsection: 

3 ‘‘(f) PROHIBITED FEE ARRANGEMENT.— 

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

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

6 services provided in connection with the internal rev7 enue laws, and the amount of which is calculated ac8 cording to, or is dependent upon, a projected or ac9 tual amount of— 

10 ‘‘(A) tax savings or benefits, or 

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

12 other taxable income, 

13 shall pay a penalty with respect to each such fee ac14 tivity in the amount determined under subsection 

15 (b). 

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

17 carry out the purposes of this subsection and may 

18 provide exceptions for fee arrangements that are in 

19 the public interest.’’. 

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

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

22 collections made after the date of the enactment of this 

23 Act. 

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1 SEC. 204. PREVENTING TAX SHELTER ACTIVITIES BY FI2 NANCIAL INSTITUTIONS. 

3 (a) EXAMINATIONS.— 

4 (1) DEVELOPMENT OF EXAMINATION TECH5 NIQUES.—Each of the Federal banking agencies and 

6 the Commission shall, in consultation with the Inter7 nal Revenue Service, develop examination techniques 

8 to detect potential violations of section 6700 or 6701 

9 of the Internal Revenue Code of 1986, by depository 

10 institutions, brokers, dealers, and investment advis11 ers, as appropriate. 

12 (2) IMPLEMENTATION.—Each of the Federal 

13 banking agencies and the Commission shall imple14 ment the examination techniques developed under 

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

16 institutions, brokers, dealers, or investment advisers 

17 subject to their enforcement authority. Such exam18 ination shall, to the extent possible, be combined 

19 with any examination by such agency otherwise re20 quired or authorized by Federal law. 

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

22 any case in which an examination conducted under this 

23 section with respect to a financial institution or other enti24 ty reveals a potential violation, such agency shall promptly 

25 notify the Internal Revenue Service of such potential viola26 tion for investigation and enforcement by the Internal 

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1 Revenue Service, in accordance with applicable provisions 

2 of law. 

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

4 agencies and the Commission shall submit a joint written 

5 report to Congress in 2014 on their progress in preventing 

6 violations of sections 6700 and 6701 of the Internal Rev7 enue Code of 1986, by depository institutions, brokers, 

8 dealers, and investment advisers, as appropriate. 

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

10 (1) the terms ‘‘broker’’, ‘‘dealer’’, and ‘‘invest11 ment adviser’’ have the same meanings as in section 

12 3 of the Securities Exchange Act of 1934 (15 U.S.C. 

13 78c); 

14 (2) the term ‘‘Commission’’ means the Securi15 ties and Exchange Commission; 

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

17 same meaning as in section 3(c) of the Federal De18 posit Insurance Act (12 U.S.C. 1813(c)); 

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

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

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

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

23 of the Treasury. 

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1 SEC. 205. INFORMATION SHARING FOR ENFORCEMENT 

2 PURPOSES. 

3 (a) PROMOTION OF PROHIBITED TAX SHELTERS OR

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

5 by adding at the end the following new paragraph: 

6 ‘‘(7) DISCLOSURE OF RETURNS AND RETURN

7 INFORMATION RELATED TO PROMOTION OF PROHIB8 ITED TAX SHELTERS OR TAX AVOIDANCE

9 SCHEMES.— 

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

11 by the Secretary of a written request which 

12 meets the requirements of subparagraph (B) 

13 from the head of the United States Securities 

14 and Exchange Commission, an appropriate 

15 Federal banking agency as defined under sec16 tion 1813(q) of title 12, United States Code, or 

17 the Public Company Accounting Oversight 

18 Board, a return or return information shall be 

19 disclosed to such requestor’s officers and em20 ployees who are personally and directly engaged 

21 in an investigation, examination, or proceeding 

22 by such requestor to evaluate, determine, penal23 ize, or deter conduct by a financial institution, 

24 issuer, or public accounting firm, or associated 

25 person, in connection with a potential or actual 

26 violation of section 6700 (promotion of abusive 

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1 tax shelters), 6701 (aiding and abetting under2 statement of tax liability), or activities related 

3 to promoting or facilitating inappropriate tax 

4 avoidance or tax evasion. Such disclosure shall 

5 be solely for use by such officers and employees 

6 in such investigation, examination, or pro7 ceeding. In the discretion of the Secretary, such 

8 disclosure may take the form of the participa9 tion of Internal Revenue Service employees in a 

10 joint investigation, examination, or proceeding 

11 with the Securities and Exchange Commission, 

12 Federal banking agency, or Public Company 

13 Accounting Oversight Board. 

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

15 the requirements of this subparagraph if it sets 

16 forth— 

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

18 examination, or proceeding, 

19 ‘‘(ii) the statutory authority under 

20 which such investigation, examination, or 

21 proceeding is being conducted, 

22 ‘‘(iii) the name or names of the finan23 cial institution, issuer, or public accounting 

24 firm to which such return information re25 lates, 

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

2 which such return information relates, and 

3 ‘‘(v) the specific reason or reasons 

4 why such disclosure is, or may be, relevant 

5 to such investigation, examination or pro6 ceeding. 

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

8 purposes of this paragraph, the term ‘financial 

9 institution’ means a depository institution, for10 eign bank, insured institution, industrial loan 

11 company, broker, dealer, investment company, 

12 investment advisor, or other entity subject to 

13 regulation or oversight by the United States Se14 curities and Exchange Commission or an appro15 priate Federal banking agency.’’. 

16 (b) FINANCIAL AND ACCOUNTING FRAUD INVESTIGA17 TIONS.—Section 6103(i) is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(9) DISCLOSURE OF RETURNS AND RETURN

20 INFORMATION FOR USE IN FINANCIAL AND AC21 COUNTING FRAUD INVESTIGATIONS.— 

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 or the Public Com2 pany Accounting Oversight Board, a return or 

3 return information shall be disclosed to such re4 questor’s officers and employees who are per5 sonally and directly engaged in an investigation, 

6 examination, or proceeding by such requester to 

7 evaluate the accuracy of a financial statement 

8 or report, or to determine whether to require a 

9 restatement, penalize, or deter conduct by an 

10 issuer, investment company, or public account11 ing firm, or associated person, in connection 

12 with a potential or actual violation of auditing 

13 standards or prohibitions against false or mis14 leading statements or omissions in financial 

15 statements or reports. Such disclosure shall be 

16 solely for use by such officers and employees in 

17 such investigation, examination, or proceeding. 

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

19 the requirements of this subparagraph if it sets 

20 forth— 

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

22 examination, or proceeding, 

23 ‘‘(ii) the statutory authority under 

24 which such investigation, examination, or 

25 proceeding is being conducted, 

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

2 investment company, or public accounting 

3 firm to which such return information re4 lates, 

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

6 which such return information relates, and 

7 ‘‘(v) the specific reason or reasons 

8 why such disclosure is, or may be, relevant 

9 to such investigation, examination or pro10 ceeding.’’. 

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

12 this section shall apply to disclosures and to information 

13 and document requests made after the date of the enact14 ment of this Act. 

15 SEC. 206. DISCLOSURE OF INFORMATION TO CONGRESS. 

16 (a) DISCLOSURE BY TAX RETURN PREPARER.— 

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

18 7216(b)(1) is amended to read as follows: 

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

20 documents, if clearly identified: 

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

22 or local court of record. 

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

24 or State grand jury. 

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1 ‘‘(iii) An administrative order, sum2 mons, or subpoena which is issued in the 

3 performance of its duties by— 

4 ‘‘(I) any Federal agency, includ5 ing Congress or any committee or 

6 subcommittee thereof, or 

7 ‘‘(II) any State agency, body, or 

8 commission charged under the laws of 

9 the State or a political subdivision of 

10 the State with the licensing, registra11 tion, or regulation of tax return pre12 parers.’’. 

13 (2) EFFECTIVE DATE.—The amendment made 

14 by this subsection shall apply to disclosures made 

15 after the date of the enactment of this Act pursuant 

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

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

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

19 ‘‘(2) INSPECTION BY CONGRESS.— 

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

21 written request from a committee or sub22 committee of Congress, copies of documents re23 lated to a determination by the Secretary to 

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

25 exemption from taxation under section 501 

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1 shall be provided to such committee or sub2 committee, including any application, notice of 

3 status, or supporting information provided by 

4 such organization to the Internal Revenue Serv5 ice; any letter, analysis, or other document pro6 duced by or for the Internal Revenue Service 

7 evaluating, determining, explaining, or relating 

8 to the tax exempt status of such organization 

9 (other than returns, unless such returns are 

10 available to the public under this section or sec11 tion 6103 or 6110); and any communication be12 tween the Internal Revenue Service and any 

13 other party relating to the tax exempt status of 

14 such organization. 

15 ‘‘(B) ADDITIONAL INFORMATION.—Section 

16 6103(f) shall apply with respect to— 

17 ‘‘(i) the application for exemption of 

18 any organization described in subsection 

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

20 from taxation under section 501(a) for any 

21 taxable year and any application referred 

22 to in subparagraph (B) of subsection 

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

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

2 the possession of the Secretary and which 

3 relate to such application, 

4 as if such papers constituted returns.’’. 

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

6 this section shall apply to disclosures and to information 

7 and document requests made after the date of the enact8 ment of this Act. 

9 SEC. 207. TAX OPINION STANDARDS FOR TAX PRACTI10 TIONERS. 

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

12 amended to read as follows: 

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

14 standards applicable to the rendering of written advice 

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

16 arrangement, or other transaction which has a potential 

17 for tax avoidance or evasion. Such standards shall ad18 dress, but not be limited to, the following issues: 

19 ‘‘(1) Independence of the practitioner issuing 

20 such written advice from persons promoting, mar21 keting, or recommending the subject of the advice. 

22 ‘‘(2) Collaboration among practitioners, or be23 tween a practitioner and other party, which could re24 sult in such collaborating parties having a joint fi25 nancial interest in the subject of the advice. 

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

2 would impair auditor independence. 

3 ‘‘(4) For written advice issued by a firm, stand4 ards for reviewing the advice and ensuring the con5 sensus support of the firm for positions taken. 

6 ‘‘(5) Reliance on reasonable factual representa7 tions by the taxpayer and other parties. 

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

9 practitioner for the written advice. 

10 ‘‘(7) Preventing practitioners and firms from 

11 aiding or abetting the understatement of tax liability 

12 by clients. 

13 ‘‘(8) Banning the promotion of potentially abu14 sive or illegal tax shelters.’’. 

15 Subtitle B—Simplify Tax Lien 

16 Procedure 

17 SEC. 211. SHORT TITLE. 

18 This subtitle may be cited as the ‘‘Tax Lien Sim19 plification Act’’. 

20 SEC. 212. FINDINGS AND PURPOSE. 

21 (a) FINDINGS.—Congress makes the following find22 ings: 

23 (1) The present decentralized system for filing 

24 Federal tax liens in local property offices, which was 

25 established before the advent of modern computers, 

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1 the Internet, and e-government programs, is ineffi2 cient, burdensome, and expensive. 

3 (2) Current technology permits the creation of 

4 a centralized Federal tax lien filing system which 

5 can provide for enhanced public notice of and access 

6 to accurate tax lien information in a manner that is 

7 more efficient, more timely, and less burdensome 

8 than the existing tax lien filing system; which would 

9 expedite the release of liens; and which would be less 

10 expensive for both taxpayers and users. 

11 (b) PURPOSE.—The purpose of this subtitle is to sim12 plify and modernize the process for filing notices of Fed13 eral tax liens, to improve public access to tax lien informa14 tion, and to save taxpayer dollars by establishing a nation15 wide, Internet accessible, and fully searchable filing sys16 tem for Federal tax liens which would replace the current 

17 system of local tax lien filings. 

18 SEC. 213. NATIONAL TAX LIEN FILING SYSTEM. 

19 (a) FILING OF NOTICE OF LIEN.—Subsection (f) of 

20 section 6323 is amended to read as follows: 

21 ‘‘(f) FILING OF NOTICE; FORM.— 

22 ‘‘(1) FILING OF NOTICE.—The notice referred 

23 to in subsection (a) shall be filed in the Federal tax 

24 lien registry operated under subsection (k). The fil25 ing of a notice of lien, or a certificate of release, dismstockstill on DSK4VPTVN1PROD with BILLS

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1 charge, subordination, or nonattachment of lien, or 

2 a notice of withdrawal of a notice of lien, in the Fed3 eral tax lien registry shall be effective for purposes 

4 of determining lien priority regardless of the nature 

5 or location of the property interest to which the lien 

6 attaches. 

7 ‘‘(2) FORM.—The form and content of the no8 tice referred to in subsection (a) shall be prescribed 

9 by the Secretary. Such notice shall be valid notwith10 standing any other provision of law regarding the 

11 form or content of a notice of lien. 

12 ‘‘(3) OTHER NATIONAL FILING SYSTEMS.— 

13 Once the Federal tax lien registry is operational 

14 under subsection (k), the filing of a notice of lien 

15 shall be governed by this title and shall not be sub16 ject to any other Federal law establishing a place or 

17 places for the filing of liens or encumbrances under 

18 a national filing system.’’. 

19 (b) REFILING OF NOTICE.—Paragraph (2) of section 

20 6323(g) is amended to read as follows: 

21 ‘‘(2) REFILING.—A notice of lien may be refiled 

22 in the Federal tax lien registry operated under sub23 section (k).’’. 

24 (c) RELEASE OF TAX LIENS OR DISCHARGE OF

25 PROPERTY.— 

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1 (1) IN GENERAL.—Section 6325(a) is amended 

2 by inserting ‘‘, and shall cause the certificate of re3 lease to be filed in the Federal tax lien registry oper4 ated under section 6323(k),’’ after ‘‘internal revenue 

5 tax’’. 

6 (2) RELEASE OF TAX LIENS EXPEDITED FROM

7 30 TO 20 DAYS.—Section 6325(a) is amended by 

8 striking ‘‘not later than 30 days’’ and inserting ‘‘not 

9 later than 20 days’’. 

10 (3) DISCHARGE OF PROPERTY FROM LIEN.— 

11 Section 6325(b) is amended— 

12 (A) by inserting ‘‘, and shall cause the cer13 tificate of discharge to be filed in the Federal 

14 tax lien registry operated under section 

15 6323(k),’’ after ‘‘under this chapter’’ in para16 graph (1), 

17 (B) by inserting ‘‘, and shall cause the cer18 tificate of discharge to be filed in such Federal 

19 tax lien registry,’’ after ‘‘property subject to the 

20 lien’’ in paragraph (2), 

21 (C) by inserting ‘‘, and shall cause the cer22 tificate of discharge to be filed in such Federal 

23 tax lien registry,’’ after ‘‘property subject to the 

24 lien’’ in paragraph (3), and 

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1 (D) by inserting ‘‘, and shall cause the cer2 tificate of discharge of property to be filed in 

3 such Federal tax lien registry,’’ after ‘‘certifi4 cate of discharge of such property’’ in para5 graph (4). 

6 (4) DISCHARGE OF PROPERTY FROM ESTATE

7 OR GIFT TAX LIEN.—Section 6325(c) is amended by 

8 inserting ‘‘, and shall cause the certificate of dis9 charge to be filed in the Federal tax lien registry op10 erated under section 6323(k),’’ after ‘‘imposed by 

11 section 6324’’. 

12 (5) SUBORDINATION OF LIEN.—Section 

13 6325(d) is amended by inserting ‘‘, and shall cause 

14 the certificate of subordination to be filed in the 

15 Federal tax lien registry operated under section 

16 6323(k),’’ after ‘‘subject to such lien’’. 

17 (6) NONATTACHMENT OF LIEN.—Section 

18 6325(e) is amended by inserting ‘‘, and shall cause 

19 the certificate of nonattachment to be filed in the 

20 Federal tax lien registry operated under section 

21 6323(k),’’ after ‘‘property of such person’’. 

22 (7) EFFECT OF CERTIFICATE.—Paragraphs (1) 

23 and (2)(B) of section 6325(f) are each amended by 

24 striking ‘‘in the same office as the notice of lien to 

25 which it relates is filed (if such notice of lien has 

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1 been filed)’’ and inserting ‘‘in the Federal tax lien 

2 registry operated under section 6323(k)’’. 

3 (8) RELEASE FOLLOWING ADMINISTRATIVE AP4 PEAL.—Section 6326(b) is amended— 

5 (A) by striking ‘‘and shall include’’ and in6 sert ‘‘, shall include’’, and 

7 (B) by inserting ‘‘, and shall cause the cer8 tificate of release to be filed in the Federal tax 

9 lien registry operated under section 6323(k),’’ 

10 after ‘‘erroneous’’. 

11 (9) WITHDRAWAL OF NOTICE.—Section 

12 6323(j)(1) is amended by striking ‘‘at the same of13 fice as the withdrawn notice’’ and inserting ‘‘in the 

14 Federal tax lien registry operated under section 

15 6323(k)’’. 

16 (10) CONFORMING AMENDMENTS.—Section 

17 6325 is amended by striking subsection (g) and by 

18 redesignating subsection (h) as subsection (g). 

19 (d) FEDERAL TAX LIEN REGISTRY.—Section 6323 

20 is amended by adding at the end the following new sub21 section: 

22 ‘‘(k) FEDERAL TAX LIEN REGISTRY.— 

23 ‘‘(1) IN GENERAL.—The Federal tax lien reg24 istry operated under this subsection shall be estab25 lished and maintained by the Secretary and shall be 

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1 accessible to and searchable by the public through 

2 the Internet at no cost to access or search. The reg3 istry shall identify the taxpayer to whom the Federal 

4 tax lien applies and reflect the date and time the no5 tice of lien was filed, and shall be made searchable 

6 by, at a minimum, taxpayer name, the State of the 

7 taxpayer’s address as shown on the notice of lien, 

8 the type of tax, and the tax period. The registry 

9 shall also provide for the filing of certificates of re10 lease, discharge, subordination, and nonattachment 

11 of Federal tax liens, as authorized in sections 6325 

12 and 6326, and may provide for publishing such 

13 other documents or information with respect to Fed14 eral tax liens as the Secretary may by regulation 

15 provide under paragraph (2)(C). 

16 ‘‘(2) ADMINISTRATIVE ACTION.— 

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

18 issue regulations or other guidance providing 

19 for the maintenance, reliability, accessibility, 

20 and use of the Federal tax lien registry estab21 lished under paragraph (1). Such regulations or 

22 guidance shall address, among other matters, 

23 issues related to periods during which the reg24 istry may be unavailable for use due to routine 

25 maintenance or other activities. 

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1 ‘‘(B) FEES.—The Secretary may charge a 

2 taxpayer’s account with a reasonable filing fee 

3 for each notice of lien and each related certifi4 cate, notice, or other filing recorded in the Fed5 eral tax lien registry with respect to such tax6 payer, in an amount determined by the Sec7 retary to be sufficient to defray the costs of op8 erating the registry. The Secretary may also 

9 charge a reasonable fee to any person who re10 quests and receives under section 6323(d)(1) 

11 information or a certified copy of a filing in the 

12 Federal tax lien registry to defray the costs of 

13 providing such information or copies. 

14 ‘‘(C) FILING OF OTHER ITEMS ON REG15 ISTRY.—The Secretary may, by regulation, pro16 vide for the filing of items on the registry other 

17 than Federal tax liens, including criminal fine 

18 judgments under section 3613 of title 18, 

19 United States Code, and civil judgments under 

20 section 3201 of such title, if the Secretary de21 termines that it would be useful and appro22 priate to do so.’’. 

23 (e) CERTIFIED COPIES OF INFORMATION FROM REG24 ISTRY.—Section 6323, as amended by subsection (d), is 

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1 amended by adding at the end the following new sub2 section: 

3 ‘‘(l) CERTIFIED COPIES OF INFORMATION FROM

4 FEDERAL REGISTRY.—The Secretary shall make available 

5 in a certificate that can be admitted into evidence in the 

6 courts of the United States without extrinsic evidence of 

7 its authenticity the following information to any person 

8 that submits a request in a form specified by the Sec9 retary: 

10 ‘‘(1) Whether there is on file in the Federal tax 

11 lien registry operated under subsection (k) at a date 

12 and time specified by the Secretary, but not a date 

13 earlier than 3 days before the creation of the certifi14 cate, any notice of a lien that— 

15 ‘‘(A) designates a particular taxpayer, 

16 ‘‘(B) has not been fully satisfied, become 

17 legally unenforceable, or been released or with18 drawn, and 

19 ‘‘(C) if the request so states, has been fully 

20 satisfied, become legally unenforceable, or been 

21 released or withdrawn, and a record of which is 

22 maintained on the registry at the time of filing 

23 of the request, 

24 ‘‘(2) the date and time of filing of and the in25 formation provided in each notice of lien, and 

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1 ‘‘(3) if the request so states, the date and time 

2 of filing of and the information provided in each cer3 tificate of release, discharge, subordination, or non4 attachment and each notice of withdrawal recorded 

5 in the registry with respect to each notice of lien.’’. 

6 (f) EFFECTIVE DATE; IMPLEMENTATION OF REG7 ISTRY.— 

8 (1) EFFECTIVE DATE.—The amendments made 

9 by this section shall take effect on the date deter10 mined by the Secretary of the Treasury under para11 graph (2)(E) and, except as provided in paragraph 

12 (2)(F), shall apply to notices of liens filed after such 

13 date. 

14 (2) IMPLEMENTATION OF FEDERAL TAX LIEN

15 REGISTRY.— 

16 (A) PILOT PROJECT.—Prior to the imple17 mentation of the Federal tax lien registry under 

18 section 6323(k)(1) of the Internal Revenue 

19 Code of 1986 (as added by this section), the 

20 Secretary of the Treasury, or the Secretary’s 

21 delegate, shall conduct and shall complete by 

22 not later than 2 years after the date of the en23 actment of this Act 1 or more pilot projects to 

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1 ness of the electronic systems designed to oper2 ate the registry. 

3 (B) GAO REVIEW.—Within 3 months after 

4 the completion of such a pilot project, the Gov5 ernment Accountability Office shall provide a 

6 written evaluation of the project results and 

7 provide such evaluation to the Secretary of the 

8 Treasury, the Commissioner of Internal Rev9 enue, and appropriate committees in Congress. 

10 The Secretary and Commissioner shall cooper11 ate with, and provide information requested by, 

12 the Government Accountability Office to enable 

13 the evaluation to be completed by the date spec14 ified. 

15 (C) NATIONWIDE TEST.—Upon the com16 pletion of 1 or more such pilot projects and 

17 after making a determination that the elec18 tronic systems designed to operate the Federal 

19 tax lien registry are sufficiently accessible, reli20 able, and effective, the Secretary of the Treas21 ury, or the Secretary’s delegate, shall conduct a 

22 nationwide test of the Federal tax lien registry 

23 to evaluate its capabilities and functionality. 

24 (D) DATA PROTECTION.—Prior to the im25 plementation of such registry, the Secretary of 

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1 the Treasury, or the Secretary’s delegate, shall 

2 take appropriate steps to— 

3 (i) secure and prevent tampering with 

4 the data recorded in the registry, 

5 (ii) review the information currently 

6 provided in public lien filings and deter7 mine whether any such information should 

8 be excluded or protected from public view9 ing in such registry, and 

10 (iii) develop a system, after consulta11 tion with the States, industry, and other 

12 interested parties, and after consideration 

13 of search criteria developed for other public 

14 filing systems including Article 9 of the 

15 Uniform Commercial Code, that will enable 

16 users of the registry, when examining tax 

17 lien information for a taxpayer with a com18 mon name, to identify through reasonable 

19 efforts the specific person to whom such 

20 tax lien relates. 

21 (E) DECLARATION OF REGISTRY EFFEC22 TIVE DATE.—Upon the successful completion of 

23 a nationwide test of the Federal tax lien reg24 istry system, the Secretary of the Treasury 

25 shall determine and announce publicly a date 

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1 upon which the registry shall take effect and 

2 become operational. 

3 (F) ORDERLY TRANSITION.—In order to 

4 permit an orderly transition to the Federal tax 

5 lien registry, the Secretary of the Treasury may 

6 by regulation prescribe for the continued filing 

7 of notices of Federal tax liens in the offices of 

8 the States, counties, and other governmental 

9 subdivisions after the determination of an effec10 tive date under subparagraph (E) under the 

11 provisions of section 6323(f) as in effect before 

12 such effective date, for an appropriate period 

13 not to exceed 2 years after such effective date. 

14 TITLE III—ENDING EXCESSIVE 

15 CORPORATE TAX DEDUC16 TIONS FOR STOCK OPTIONS 

17 SEC. 301. CONSISTENT TREATMENT OF STOCK OPTIONS BY 

18 CORPORATIONS. 

19 (a) CONSISTENT TREATMENT FOR WAGE DEDUC20 TION.— 

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

22 (A) by striking ‘‘In the case of’’ and in23 serting: 

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

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

2 paragraph: 

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

4 transferred to a person in connection with a stock 

5 option, any deduction related to such stock option 

6 shall be allowed only under section 162(q) and para7 graph (1) shall not apply.’’. 

8 (2) TREATMENT OF COMPENSATION PAID WITH

9 STOCK OPTIONS.—Section 162 is amended by redes10 ignating subsection (q) as subsection (r) and by in11 serting after subsection (p) the following new sub12 section: 

13 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

14 STOCK OPTIONS.— 

15 ‘‘(1) IN GENERAL.—In the case of compensa16 tion for personal services that is paid with stock op17 tions, the deduction under subsection (a)(1) shall 

18 not exceed the amount the taxpayer has treated as 

19 compensation cost with respect to such stock options 

20 for the purpose of ascertaining income, profit, or 

21 loss in a report or statement to shareholders, part22 ners, or other proprietors (or to beneficiaries), and 

23 shall be taken into account in the same period that 

24 such compensation cost is recognized for such pur25 pose. 

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1 ‘‘(2) SPECIAL RULES FOR CONTROLLED

2 GROUPS.—The Secretary may prescribe rules for the 

3 application of paragraph (1) in cases where the 

4 stock option is granted by— 

5 ‘‘(A) a parent or subsidiary corporation 

6 (within the meaning of section 424) of the tax7 payer, or 

8 ‘‘(B) another corporation.’’. 

9 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

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

11 the end the following new clause: 

12 ‘‘(iv) SPECIAL RULE FOR STOCK OP13 TIONS.—The amount which may be treated 

14 as wages for any taxable year in connec15 tion with the issuance of a stock option 

16 shall not exceed the amount allowed for 

17 such taxable year as a compensation de18 duction under section 162(q) with respect 

19 to such stock option.’’. 

20 (c) APPLICATION OF AMENDMENTS.—The amend21 ments made by this section shall apply to stock options 

22 exercised after the date of the enactment of this Act, ex23 cept that— 

24 (1) such amendments shall not apply to stock 

25 options that were granted before such date and that 

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1 vested in taxable periods beginning on or before 

2 June 15, 2005, 

3 (2) for stock options that were granted before 

4 such date of enactment and vested during taxable 

5 periods beginning after June 15, 2005, and ending 

6 before such date of enactment, a deduction under 

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

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

9 the first taxable period of the taxpayer that ends 

10 after such date of enactment, 

11 (3) for public entities reporting as small busi12 ness issuers and for non-public entities required to 

13 file public reports of financial condition, paragraphs 

14 (1) and (2) shall be applied by substituting ‘‘Decem15 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 

16 (4) no deduction shall be allowed under section 

17 83(h) or section 162(q) of such Code with respect to 

18 any stock option the vesting date of which is 

19 changed to accelerate the time at which the option 

20 may be exercised in order to avoid the applicability 

21 of such amendments. 

22 SEC. 302. APPLICATION OF EXECUTIVE PAY DEDUCTION 

23 LIMIT. 

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

25 162(m)(4) is amended to read as follows: 

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1 ‘‘(D) STOCK OPTION COMPENSATION.— 

2 The term ‘applicable employee remuneration’ 

3 shall include any compensation deducted under 

4 subsection (q), and such compensation shall not 

5 qualify as performance-based compensation 

6 under subparagraph (C).’’. 

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

8 this section shall apply to stock options exercised or grant9 ed after the date of the enactment of this Act. 

10 TITLE IV—CLOSING THE DE11 RIVATIVES BLENDED RATE 

12 LOOPHOLE 

13 SEC. 401. SHORT TITLE. 

14 This title may be cited as the ‘‘Closing the Deriva15 tives Blended Rate Loophole Act’’. 

16 SEC. 402. MODIFICATIONS TO TREATMENT OF SECTION 1256 

17 CONTRACTS. 

18 (a) ELIMINATION OF BLENDED CAPITAL GAIN OR

19 LOSS TREATMENT IN FAVOR OF SHORT-TERM CAPITAL

20 GAIN OR LOSS.— 

21 (1) IN GENERAL.—Paragraph (3) of section 

22 1256(a) is amended to read as follows: 

23 ‘‘(3) any gain or loss with respect to a section 

24 1256 contract shall be treated as short-term capital 

25 gain or loss, and’’. 

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1 (2) CONFORMING AMENDMENTS.—Subsection 

2 (f) of section 1256 is amended by striking para3 graphs (2), (3), and (4) and by redesignating para4 graph (5) as paragraph (2). 

5 (b) CONFORMING AMENDMENTS.— 

6 (1) Clause (iv) of section 988(c)(1)(E) is 

7 amended to read as follows: 

8 ‘‘(iv) TREATMENT OF CERTAIN CUR9 RENCY CONTRACTS.—Except as provided 

10 in regulations, in the case of a qualified 

11 fund, any bank forward contract, any for12 eign currency futures contract traded on a 

13 foreign exchange, or to the extent provided 

14 in regulations any similar instrument, 

15 which is not otherwise a section 1256 con16 tract shall be treated as a section 1256 

17 contract for purposes of section 1256.’’. 

18 (2) Subparagraph (A) of section 1212(c)(1) is 

19 amended by striking ‘‘preceding taxable year’’ and 

20 all that follows and inserting ‘‘preceding taxable 

21 year, the amount so allowed shall be treated as 

22 short-term capital loss from section 1256 con23 tracts.’’. 

24 (3) Subparagraph (A) of section 1212(c)(6) is 

25 amended by striking ‘‘preceding taxable year’’ and 

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1 all that follows and inserting ‘‘preceding taxable 

2 year, the amount allowed as a carryback shall be 

3 treated as short-term gain for the loss year.’’. 

4 (4) Subparagraph (B) of section 1212(c)(6) is 

5 amended by striking ‘‘or long-term’’. 

6 (5) Subsection (f) of section 1256 is amended 

7 by striking paragraphs (3) and (4) and by redesig8 nating paragraph (5) as paragraph (3). 

9 (c) EFFECTIVE DATES.— 

10 (1) IN GENERAL.—Except as provided in para11 graph (2), the amendments made by this section 

12 shall apply to taxable years beginning after the date 

13 of the enactment of this Act. 

14 (2) CONFORMING AMENDMENTS.—The amend15 ments made by paragraphs (2), (3), and (4) of sub16 section (b) shall apply to losses for taxable years be17 ginning after the date of the enactment of this Act. 

18 SEC. 403. MODIFICATIONS TO TREATMENT OF DEALERS IN 

19 SECURITIES AND COMMODITIES. 

20 (a) MODIFICATION OF DEFINITION OF SECURITY.— 

21 Paragraph (2) of section 475(c) is amended by striking 

22 the second sentence. 

23 (b) REQUIRED MARK TO MARKET FOR DEALERS IN

24 COMMODITIES.—Subsection (e) of section 475 is amend25 ed— 

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1 (1) by striking ‘‘In the case of a dealer in com2 modities who elects the application of this sub3 section, this section shall apply to commodities held 

4 by such dealer’’ in paragraph (1) and inserting 

5 ‘‘This section shall apply to commodities held by a 

6 dealer in commodities’’, and 

7 (2) by striking paragraph (3). 

8 (c) COMMODITIES DERIVATIVES DEALERS.—Clause 

9 (i) of section 1221(b)(1)(B) is amended by striking ‘‘a 

10 note, bond, or other evidence of indebtedness, or a section 

11 1256 contract (as defined in section 1256(b))’’ and insert12 ing ‘‘or a note, bond, or other evidence of indebtedness)’’. 

13 (d) TECHNICAL AMENDMENT.—Paragraph (1) of 

14 section 1402(i) is amended by striking ‘‘subsection 

15 (a)(3)(A)’’ and inserting ‘‘subsection (a)(3)’’. 

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

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

19 TITLE V—ENDING THE TAR 

20 SANDS OIL SPILL LOOPHOLE 

21 SEC. 501. SHORT TITLE. 

22 This title may be cited as the ‘‘Closing the Oil Spill 

23 Cleanup Loophole Act’’. 

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1 SEC. 502. REQUIREMENTS FOR CONTRIBUTION TO THE OIL 

2 SPILL LIABILITY TRUST FUND. 

3 (a) IN GENERAL.—Paragraph (1) of section 4612(a) 

4 is amended to read as follows: 

5 ‘‘(1) CRUDE OIL.—The term ‘crude oil’ includes 

6 crude oil condensates, natural gasoline, shale oil, any 

7 bitumen or bituminous mixture, any oil derived from 

8 a bitumen or bituminous mixture, and any oil de9 rived from kerogen-bearing sources.’’. 

10 (b) REGULATORY AUTHORITY TO ADDRESS OTHER

11 TYPES OF CRUDE OIL AND PETROLEUM PRODUCTS.— 

12 Subsection (a) of section 4612 is amended by adding at 

13 the end the following new paragraph: 

14 ‘‘(10) REGULATORY AUTHORITY TO ADDRESS

15 OTHER TYPES OF CRUDE OIL AND PETROLEUM

16 PRODUCTS.—Under such regulations as the Sec17 retary may prescribe, after consultation with the Ad18 ministrator of the Environmental Protection Agency, 

19 the Secretary may include as crude oil or as a petro20 leum product subject to tax under section 4611, any 

21 fuel feedstock or finished fuel product customarily 

22 transported by pipeline, vessel, railcar, or tanker 

23 truck if the Secretary determines that— 

24 ‘‘(A) the classification of such fuel feed25 stock or finished fuel product is consistent with 

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1 the definition of oil under the Oil Pollution Act 

2 of 1990, and 

3 ‘‘(B) such fuel feedstock or finished fuel 

4 product is produced in sufficient commercial 

5 quantities as to pose a significant risk of haz6 ard in the event of a discharge.’’. 

7 (c) REMOVING RESTRICTIONS RELATING TO OIL

8 WELLS AND EXTRACTION METHODS.—Paragraph (2) of 

9 section 4612(a) is amended by striking ‘‘from a well lo10 cated’’. 

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

12 this section shall apply to oil and petroleum products re13 ceived or entered during calendar quarters beginning more 

14 than 60 days after the date of the enactment of this Act, 

15 regardless of whether the Secretary of the Treasury has 

16 promulgated regulations implementing such amendments. 

17 SEC. 503. EXTENSION OF OIL SPILL LIABILITY TRUST FUND 

18 FINANCING RATE. 

19 Section 4611 is amended by striking subsection (f). 

20 SEC. 504. TECHNICAL AMENDMENT. 

21 Subclause (I) of section 4612(e)(2)(B)(ii) is amended 

22 by striking ‘‘tranferred’’ and inserting ‘‘transferred’’. 

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1 TITLE VI—ENDING THE CARRIED 

2 INTEREST LOOPHOLE 

3 SEC. 601. SHORT TITLE; ETC. 

4 This title may be cited as the ‘‘Carried Interest Fair5 ness Act of 2012’’. 

6 SEC. 602. PARTNERSHIP INTERESTS TRANSFERRED IN 

7 CONNECTION WITH PERFORMANCE OF SERV8 ICES. 

9 (a) MODIFICATION TO ELECTION TO INCLUDE PART10 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

11 TRANSFER.—Subsection (c) of section 83 is amended by 

12 redesignating paragraph (4) as paragraph (5) and by in13 serting after paragraph (3) the following new paragraph: 

14 ‘‘(4) PARTNERSHIP INTERESTS.—Except as 

15 provided by the Secretary— 

16 ‘‘(A) IN GENERAL.—In the case of any 

17 transfer of an interest in a partnership in con18 nection with the provision of services to (or for 

19 the benefit of) such partnership— 

20 ‘‘(i) the fair market value of such in21 terest shall be treated for purposes of this 

22 section as being equal to the amount of the 

23 distribution which the partner would re24 ceive if the partnership sold (at the time of 

25 the transfer) all of its assets at fair market 

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1 value and distributed the proceeds of such 

2 sale (reduced by the liabilities of the part3 nership) to its partners in liquidation of 

4 the partnership, and 

5 ‘‘(ii) the person receiving such interest 

6 shall be treated as having made the elec7 tion under subsection (b)(1) unless such 

8 person makes an election under this para9 graph to have such subsection not apply. 

10 ‘‘(B) ELECTION.—The election under sub11 paragraph (A)(ii) shall be made under rules 

12 similar to the rules of subsection (b)(2).’’. 

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

14 this section shall apply to interests in partnerships trans15 ferred after the date of the enactment of this Act. 

16 SEC. 603. SPECIAL RULES FOR PARTNERS PROVIDING IN17 VESTMENT MANAGEMENT SERVICES TO 

18 PARTNERSHIPS. 

19 (a) IN GENERAL.—Part I of subchapter K of chapter 

20 1 is amended by adding at the end the following new sec21 tion: 

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1 ‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN2 VESTMENT MANAGEMENT SERVICES TO 

3 PARTNERSHIPS. 

4 ‘‘(a) TREATMENT OF DISTRIBUTIVE SHARE OF

5 PARTNERSHIP ITEMS.—For purposes of this title, in the 

6 case of an investment services partnership interest— 

7 ‘‘(1) IN GENERAL.—Notwithstanding section 

8 702(b)— 

9 ‘‘(A) an amount equal to the net capital 

10 gain with respect to such interest for any part11 nership taxable year shall be treated as ordi12 nary income, and 

13 ‘‘(B) subject to the limitation of paragraph 

14 (2), an amount equal to the net capital loss 

15 with respect to such interest for any partner16 ship taxable year shall be treated as an ordi17 nary loss. 

18 ‘‘(2) RECHARACTERIZATION OF LOSSES LIM19 ITED TO RECHARACTERIZED GAINS.—The amount 

20 treated as ordinary loss under paragraph (1)(B) for 

21 any taxable year shall not exceed the excess (if any) 

22 of— 

23 ‘‘(A) the aggregate amount treated as ordi24 nary income under paragraph (1)(A) with re25 spect to the investment services partnership inmstockstill on DSK4VPTVN1PROD with BILLS

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1 terest for all preceding partnership taxable 

2 years to which this section applies, over 

3 ‘‘(B) the aggregate amount treated as or4 dinary loss under paragraph (1)(B) with re5 spect to such interest for all preceding partner6 ship taxable years to which this section applies. 

7 ‘‘(3) ALLOCATION TO ITEMS OF GAIN AND

8 LOSS.— 

9 ‘‘(A) NET CAPITAL GAIN.—The amount 

10 treated as ordinary income under paragraph 

11 (1)(A) shall be allocated ratably among the 

12 items of long-term capital gain taken into ac13 count in determining such net capital gain. 

14 ‘‘(B) NET CAPITAL LOSS.—The amount 

15 treated as ordinary loss under paragraph (1)(B) 

16 shall be allocated ratably among the items of 

17 long-term capital loss and short-term capital 

18 loss taken into account in determining such net 

19 capital loss. 

20 ‘‘(4) TERMS RELATING TO CAPITAL GAINS AND

21 LOSSES.—For purposes of this section— 

22 ‘‘(A) IN GENERAL.—Net capital gain, long23 term capital gain, and long-term capital loss, 

24 with respect to any investment services partner25 ship interest for any taxable year, shall be demstockstill on DSK4VPTVN1PROD with BILLS

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1 termined under section 1222, except that such 

2 section shall be applied— 

3 ‘‘(i) without regard to the recharacter4 ization of any item as ordinary income or 

5 ordinary loss under this section, 

6 ‘‘(ii) by only taking into account items 

7 of gain and loss taken into account by the 

8 holder of such interest under section 702 

9 with respect to such interest for such tax10 able year, and 

11 ‘‘(iii) by treating property which is 

12 taken into account in determining gains 

13 and losses to which section 1231 applies as 

14 capital assets held for more than 1 year. 

15 ‘‘(B) NET CAPITAL LOSS.—The term ‘net 

16 capital loss’ means the excess of the losses from 

17 sales or exchanges of capital assets over the 

18 gains from such sales or exchanges. Rules simi19 lar to the rules of clauses (i) through (iii) of 

20 subparagraph (A) shall apply for purposes of 

21 the preceding sentence. 

22 ‘‘(5) SPECIAL RULES FOR DIVIDENDS.— 

23 ‘‘(A) INDIVIDUALS.—Any dividend allo24 cated to any investment services partnership inmstockstill on DSK4VPTVN1PROD with BILLS

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1 terest shall not be treated as qualified dividend 

2 income for purposes of section 1(h). 

3 ‘‘(B) CORPORATIONS.—No deduction shall 

4 be allowed under section 243 or 245 with re5 spect to any dividend allocated to any invest6 ment services partnership interest. 

7 ‘‘(6) SPECIAL RULE FOR QUALIFIED SMALL

8 BUSINESS STOCK.—Section 1202 shall not apply to 

9 any gain from the sale or exchange of qualified small 

10 business stock (as defined in section 1202(c)) allo11 cated with respect to any investment services part12 nership interest. 

13 ‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 

14 ‘‘(1) GAIN.— 

15 ‘‘(A) IN GENERAL.—Any gain on the dis16 position of an investment services partnership 

17 interest shall be— 

18 ‘‘(i) treated as ordinary income, and 

19 ‘‘(ii) recognized notwithstanding any 

20 other provision of this subtitle. 

21 ‘‘(B) GIFT AND TRANSFERS AT DEATH.— 

22 In the case of a disposition of an investment 

23 services partnership interest by gift or by rea24 son of death of the taxpayer— 

25 ‘‘(i) subparagraph (A) shall not apply, 

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1 ‘‘(ii) such interest shall be treated as 

2 an investment services partnership interest 

3 in the hands of the person acquiring such 

4 interest, and 

5 ‘‘(iii) any amount that would have 

6 been treated as ordinary income under this 

7 subsection had the decedent sold such in8 terest immediately before death shall be 

9 treated as an item of income in respect of 

10 a decedent under section 691. 

11 ‘‘(2) LOSS.—Any loss on the disposition of an 

12 investment services partnership interest shall be 

13 treated as an ordinary loss to the extent of the ex14 cess (if any) of— 

15 ‘‘(A) the aggregate amount treated as ordi16 nary income under subsection (a) with respect 

17 to such interest for all partnership taxable 

18 years to which this section applies, over 

19 ‘‘(B) the aggregate amount treated as or20 dinary loss under subsection (a) with respect to 

21 such interest for all partnership taxable years 

22 to which this section applies. 

23 ‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX24 CHANGES.—Paragraph (1)(A)(ii) shall not apply to 

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1 ship interest to a partnership in exchange for an in2 terest in such partnership if— 

3 ‘‘(A) the taxpayer makes an irrevocable 

4 election to treat the partnership interest re5 ceived in the exchange as an investment serv6 ices partnership interest, and 

7 ‘‘(B) the taxpayer agrees to comply with 

8 such reporting and recordkeeping requirements 

9 as the Secretary may prescribe. 

10 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP11 ERTY.— 

12 ‘‘(A) IN GENERAL.—In the case of any dis13 tribution of property by a partnership with re14 spect to any investment services partnership in15 terest held by a partner, the partner receiving 

16 such property shall recognize gain equal to the 

17 excess (if any) of— 

18 ‘‘(i) the fair market value of such 

19 property at the time of such distribution, 

20 over 

21 ‘‘(ii) the adjusted basis of such prop22 erty in the hands of such partner (deter23 mined without regard to subparagraph 

24 (C)). 

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1 ‘‘(B) TREATMENT OF GAIN AS ORDINARY

2 INCOME.—Any gain recognized by such partner 

3 under subparagraph (A) shall be treated as or4 dinary income to the same extent and in the 

5 same manner as the increase in such partner’s 

6 distributive share of the taxable income of the 

7 partnership would be treated under subsection 

8 (a) if, immediately prior to the distribution, the 

9 partnership had sold the distributed property at 

10 fair market value and all of the gain from such 

11 disposition were allocated to such partner. For 

12 purposes of applying subsection (a)(2), any gain 

13 treated as ordinary income under this subpara14 graph shall be treated as an amount treated as 

15 ordinary income under subsection (a)(1)(A). 

16 ‘‘(C) ADJUSTMENT OF BASIS.—In the case 

17 a distribution to which subparagraph (A) ap18 plies, the basis of the distributed property in 

19 the hands of the distributee partner shall be the 

20 fair market value of such property. 

21 ‘‘(D) SPECIAL RULES WITH RESPECT TO

22 MERGERS, DIVISIONS, AND TECHNICAL TERMI23 NATIONS.—In the case of a taxpayer which sat24 isfies requirements similar to the requirements 

25 of subparagraphs (A) and (B) of paragraph (3), 

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1 this paragraph and paragraph (1)(A)(ii) shall 

2 not apply to the distribution of a partnership 

3 interest if such distribution is in connection 

4 with a contribution (or deemed contribution) of 

5 any property of the partnership to which sec6 tion 721 applies pursuant to a transaction de7 scribed in paragraph (1)(B) or (2) of section 

8 708(b). 

9 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER10 EST.—For purposes of this section— 

11 ‘‘(1) IN GENERAL.—The term ‘investment serv12 ices partnership interest’ means any interest in an 

13 investment partnership acquired or held by any per14 son in connection with the conduct of a trade or 

15 business described in paragraph (2) by such person 

16 (or any person related to such person). An interest 

17 in an investment partnership held by any person— 

18 ‘‘(A) shall not be treated as an investment 

19 services partnership interest for any period be20 fore the first date on which it is so held in con21 nection with such a trade or business, 

22 ‘‘(B) shall not cease to be an investment 

23 services partnership interest merely because 

24 such person holds such interest other than in 

25 connection with such a trade or business, and 

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1 ‘‘(C) shall be treated as an investment 

2 services partnership interest if acquired from a 

3 related person in whose hands such interest was 

4 an investment services partnership interest. 

5 ‘‘(2) BUSINESSES TO WHICH THIS SECTION AP6 PLIES.—A trade or business is described in this 

7 paragraph if such trade or business primarily in8 volves the performance of any of the following serv9 ices with respect to assets held (directly or indi10 rectly) by the investment partnership referred to in 

11 paragraph (1): 

12 ‘‘(A) Advising as to the advisability of in13 vesting in, purchasing, or selling any specified 

14 asset. 

15 ‘‘(B) Managing, acquiring, or disposing of 

16 any specified asset. 

17 ‘‘(C) Arranging financing with respect to 

18 acquiring specified assets. 

19 ‘‘(D) Any activity in support of any service 

20 described in subparagraphs (A) through (C). 

21 ‘‘(3) INVESTMENT PARTNERSHIP.— 

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

23 partnership’ means any partnership if, at the 

24 end of any calendar quarter ending after the 

25 date of enactment of this section— 

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1 ‘‘(i) substantially all of the assets of 

2 the partnership are specified assets (deter3 mined without regard to any section 197 

4 intangible within the meaning of section 

5 197(d)), and 

6 ‘‘(ii) more than half of the capital of 

7 the partnership is attributable to qualified 

8 capital interests which (in the hands of the 

9 owners of such interests) constitute prop10 erty not held in connection with a trade or 

11 business. 

12 ‘‘(B) SPECIAL RULES FOR DETERMINING

13 IF PROPERTY NOT HELD IN CONNECTION WITH

14 TRADE OR BUSINESS.—Except as otherwise 

15 provided by the Secretary, for purposes of de16 termining whether any interest in a partnership 

17 constitutes property not held in connection with 

18 a trade or business under subparagraph 

19 (A)(ii)— 

20 ‘‘(i) any election under subsection (e) 

21 or (f) of section 475 shall be disregarded, 

22 and 

23 ‘‘(ii) paragraph (5)(B) shall not apply. 

24 ‘‘(C) ANTIABUSE RULES.—The Secretary 

25 may issue regulations or other guidance which 

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1 prevent the avoidance of the purposes of sub2 paragraph (A), including regulations or other 

3 guidance which treat convertible and contingent 

4 debt (and other debt having the attributes of 

5 equity) as a capital interest in the partnership. 

6 ‘‘(D) CONTROLLED GROUPS OF ENTI7 TIES.— 

8 ‘‘(i) IN GENERAL.—In the case of a 

9 controlled group of entities, if an interest 

10 in the partnership received in exchange for 

11 a contribution to the capital of the part12 nership by any member of such controlled 

13 group would (in the hands of such mem14 ber) constitute property held in connection 

15 with a trade or business, then any interest 

16 in such partnership held by any member of 

17 such group shall be treated for purposes of 

18 subparagraph (A) as constituting (in the 

19 hands of such member) property held in 

20 connection with a trade or business. 

21 ‘‘(ii) CONTROLLED GROUP OF ENTI22 TIES.—For purposes of clause (i), the term 

23 ‘controlled group of entities’ means a con24 trolled group of corporations as defined in 

25 section 1563(a)(1), applied without regard 

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1 to subsections (a)(4) and (b)(2) of section 

2 1563. A partnership or any other entity 

3 (other than a corporation) shall be treated 

4 as a member of a controlled group of enti5 ties if such entity is controlled (within the 

6 meaning of section 954(d)(3)) by members 

7 of such group (including any entity treated 

8 as a member of such group by reason of 

9 this sentence). 

10 ‘‘(E) SPECIAL RULE FOR CORPORA11 TIONS.—For purposes of this paragraph, in the 

12 case of a corporation, the determination of 

13 whether property is held in connection with a 

14 trade or business shall be determined as if the 

15 taxpayer were an individual. 

16 ‘‘(4) SPECIFIED ASSET.—The term ‘specified 

17 asset’ means securities (as defined in section 

18 475(c)(2) without regard to the last sentence there19 of), real estate held for rental or investment, inter20 ests in partnerships, commodities (as defined in sec21 tion 475(e)(2)), cash or cash equivalents, or options 

22 or derivative contracts with respect to any of the 

23 foregoing. 

24 ‘‘(5) RELATED PERSONS.— 

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1 ‘‘(A) IN GENERAL.—A person shall be 

2 treated as related to another person if the rela3 tionship between such persons is described in 

4 section 267(b) or 707(b). 

5 ‘‘(B) ATTRIBUTION OF PARTNER SERV6 ICES.—Any service described in paragraph (2) 

7 which is provided by a partner of a partnership 

8 shall be treated as also provided by such part9 nership. 

10 ‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTER11 ESTS.— 

12 ‘‘(1) IN GENERAL.—In the case of any portion 

13 of an investment services partnership interest which 

14 is a qualified capital interest, all items of gain and 

15 loss (and any dividends) which are allocated to such 

16 qualified capital interest shall not be taken into ac17 count under subsection (a) if— 

18 ‘‘(A) allocations of items are made by the 

19 partnership to such qualified capital interest in 

20 the same manner as such allocations are made 

21 to other qualified capital interests held by part22 ners who do not provide any services described 

23 in subsection (c)(2) and who are not related to 

24 the partner holding the qualified capital inter25 est, and 

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1 ‘‘(B) the allocations made to such other in2 terests are significant compared to the alloca3 tions made to such qualified capital interest. 

4 ‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO

5 ALLOCATION REQUIREMENTS.—To the extent pro6 vided by the Secretary in regulations or other guid7 ance— 

8 ‘‘(A) ALLOCATIONS TO PORTION OF QUALI9 FIED CAPITAL INTEREST.—Paragraph (1) may 

10 be applied separately with respect to a portion 

11 of a qualified capital interest. 

12 ‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS

13 TO NONSERVICE PROVIDERS.—In any case in 

14 which the requirements of paragraph (1)(B) are 

15 not satisfied, items of gain and loss (and any 

16 dividends) shall not be taken into account under 

17 subsection (a) to the extent that such items are 

18 properly allocable under such regulations or 

19 other guidance to qualified capital interests. 

20 ‘‘(C) ALLOCATIONS TO SERVICE PRO21 VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH

22 ARE LESS THAN OTHER ALLOCATIONS.—Alloca23 tions shall not be treated as failing to meet the 

24 requirement of paragraph (1)(A) merely be25 cause the allocations to the qualified capital inmstockstill on DSK4VPTVN1PROD with BILLS

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1 terest represent a lower return than the alloca2 tions made to the other qualified capital inter3 ests referred to in such paragraph. 

4 ‘‘(3) SPECIAL RULE FOR CHANGES IN SERVICES

5 AND CAPITAL CONTRIBUTIONS.—In the case of an 

6 interest in a partnership which was not an invest7 ment services partnership interest and which, by 

8 reason of a change in the services with respect to as9 sets held (directly or indirectly) by the partnership 

10 or by reason of a change in the capital contributions 

11 to such partnership, becomes an investment services 

12 partnership interest, the qualified capital interest of 

13 the holder of such partnership interest immediately 

14 after such change shall not, for purposes of this sub15 section, be less than the fair market value of such 

16 interest (determined immediately before such 

17 change). 

18 ‘‘(4) SPECIAL RULE FOR TIERED PARTNER19 SHIPS.—Except as otherwise provided by the Sec20 retary, in the case of tiered partnerships, all items 

21 which are allocated in a manner which meets the re22 quirements of paragraph (1) to qualified capital in23 terests in a lower-tier partnership shall retain such 

24 character to the extent allocated on the basis of 

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1 qualified capital interests in any upper-tier partner2 ship. 

3 ‘‘(5) EXCEPTION FOR NO-SELF-CHARGED

4 CARRY AND MANAGEMENT FEE PROVISIONS.—Ex5 cept as otherwise provided by the Secretary, an in6 terest shall not fail to be treated as satisfying the 

7 requirement of paragraph (1)(A) merely because the 

8 allocations made by the partnership to such interest 

9 do not reflect the cost of services described in sub10 section (c)(2) which are provided (directly or indi11 rectly) to the partnership by the holder of such in12 terest (or a related person). 

13 ‘‘(6) SPECIAL RULE FOR DISPOSITIONS.—In the 

14 case of any investment services partnership interest 

15 any portion of which is a qualified capital interest, 

16 subsection (b) shall not apply to so much of any 

17 gain or loss as bears the same proportion to the en18 tire amount of such gain or loss as— 

19 ‘‘(A) the distributive share of gain or loss 

20 that would have been allocated to the qualified 

21 capital interest (consistent with the require22 ments of paragraph (1)) if the partnership had 

23 sold all of its assets at fair market value imme24 diately before the disposition, bears to 

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1 ‘‘(B) the distributive share of gain or loss 

2 that would have been so allocated to the invest3 ment services partnership interest of which such 

4 qualified capital interest is a part. 

5 ‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur6 poses of this section— 

7 ‘‘(A) IN GENERAL.—The term ‘qualified 

8 capital interest’ means so much of a partner’s 

9 interest in the capital of the partnership as is 

10 attributable to— 

11 ‘‘(i) the fair market value of any 

12 money or other property contributed to the 

13 partnership in exchange for such interest 

14 (determined without regard to section 

15 752(a)), 

16 ‘‘(ii) any amounts which have been in17 cluded in gross income under section 83 

18 with respect to the transfer of such inter19 est, and 

20 ‘‘(iii) the excess (if any) of— 

21 ‘‘(I) any items of income and 

22 gain taken into account under section 

23 702 with respect to such interest, over 

24 ‘‘(II) any items of deduction and 

25 loss so taken into account. 

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1 ‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL

2 INTEREST.— 

3 ‘‘(i) DISTRIBUTIONS AND LOSSES.— 

4 The qualified capital interest shall be re5 duced by distributions from the partner6 ship with respect to such interest and by 

7 the excess (if any) of the amount described 

8 in subparagraph (A)(iii)(II) over the 

9 amount described in subparagraph 

10 (A)(iii)(I). 

11 ‘‘(ii) SPECIAL RULE FOR CONTRIBU12 TIONS OF PROPERTY.—In the case of any 

13 contribution of property described in sub14 paragraph (A)(i) with respect to which the 

15 fair market value of such property is not 

16 equal to the adjusted basis of such prop17 erty immediately before such contribution, 

18 proper adjustments shall be made to the 

19 qualified capital interest to take into ac20 count such difference consistent with such 

21 regulations or other guidance as the Sec22 retary may provide. 

23 ‘‘(C) TECHNICAL TERMINATIONS, ETC., 

24 DISREGARDED.—No increase or decrease in the 

25 qualified capital interest of any partner shall remstockstill on DSK4VPTVN1PROD with BILLS

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1 sult from a termination, merger, consolidation, 

2 or division described in section 708, or any 

3 similar transaction. 

4 ‘‘(8) TREATMENT OF CERTAIN LOANS.— 

5 ‘‘(A) PROCEEDS OF PARTNERSHIP LOANS

6 NOT TREATED AS QUALIFIED CAPITAL INTER7 EST OF SERVICE PROVIDING PARTNERS.—For 

8 purposes of this subsection, an investment serv9 ices partnership interest shall not be treated as 

10 a qualified capital interest to the extent that 

11 such interest is acquired in connection with the 

12 proceeds of any loan or other advance made or 

13 guaranteed, directly or indirectly, by any other 

14 partner or the partnership (or any person re15 lated to any such other partner or the partner16 ship). The preceding sentence shall not apply to 

17 the extent the loan or other advance is repaid 

18 before the date of the enactment of this section 

19 unless such repayment is made with the pro20 ceeds of a loan or other advance described in 

21 the preceding sentence. 

22 ‘‘(B) REDUCTION IN ALLOCATIONS TO

23 QUALIFIED CAPITAL INTERESTS FOR LOANS

24 FROM NONSERVICE-PROVIDING PARTNERS TO

25 THE PARTNERSHIP.—For purposes of this submstockstill on DSK4VPTVN1PROD with BILLS

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1 section, any loan or other advance to the part2 nership made or guaranteed, directly or indi3 rectly, by a partner not providing services de4 scribed in subsection (c)(2) to the partnership 

5 (or any person related to such partner) shall be 

6 taken into account in determining the qualified 

7 capital interests of the partners in the partner8 ship. 

9 ‘‘(e) OTHER INCOME AND GAIN IN CONNECTION

10 WITH INVESTMENT MANAGEMENT SERVICES.— 

11 ‘‘(1) IN GENERAL.—If— 

12 ‘‘(A) a person performs (directly or indi13 rectly) investment management services for any 

14 investment entity, 

15 ‘‘(B) such person holds (directly or indi16 rectly) a disqualified interest with respect to 

17 such entity, and 

18 ‘‘(C) the value of such interest (or pay19 ments thereunder) is substantially related to 

20 the amount of income or gain (whether or not 

21 realized) from the assets with respect to which 

22 the investment management services are per23 formed, 

24 any income or gain with respect to such interest 

25 shall be treated as ordinary income. Rules similar to 

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1 the rules of subsections (a)(5) and (d) shall apply 

2 for purposes of this subsection. 

3 ‘‘(2) DEFINITIONS.—For purposes of this sub4 section— 

5 ‘‘(A) DISQUALIFIED INTEREST.— 

6 ‘‘(i) IN GENERAL.—The term ‘dis7 qualified interest’ means, with respect to 

8 any investment entity— 

9 ‘‘(I) any interest in such entity 

10 other than indebtedness, 

11 ‘‘(II) convertible or contingent 

12 debt of such entity, 

13 ‘‘(III) any option or other right 

14 to acquire property described in sub15 clause (I) or (II), and 

16 ‘‘(IV) any derivative instrument 

17 entered into (directly or indirectly) 

18 with such entity or any investor in 

19 such entity. 

20 ‘‘(ii) EXCEPTIONS.—Such term shall 

21 not include— 

22 ‘‘(I) a partnership interest, 

23 ‘‘(II) except as provided by the 

24 Secretary, any interest in a taxable 

25 corporation, and 

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1 ‘‘(III) except as provided by the 

2 Secretary, stock in an S corporation. 

3 ‘‘(B) TAXABLE CORPORATION.—The term 

4 ‘taxable corporation’ means— 

5 ‘‘(i) a domestic C corporation, or 

6 ‘‘(ii) a foreign corporation substan7 tially all of the income of which is— 

8 ‘‘(I) effectively connected with 

9 the conduct of a trade or business in 

10 the United States, or 

11 ‘‘(II) subject to a comprehensive 

12 foreign income tax (as defined in sec13 tion 457A(d)(2)). 

14 ‘‘(C) INVESTMENT MANAGEMENT SERV15 ICES.—The term ‘investment management serv16 ices’ means a substantial quantity of any of the 

17 services described in subsection (c)(2). 

18 ‘‘(D) INVESTMENT ENTITY.—The term ‘in19 vestment entity’ means any entity which, if it 

20 were a partnership, would be an investment 

21 partnership. 

22 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

23 such regulations or other guidance as is necessary or ap24 propriate to carry out the purposes of this section, includ25 ing regulations or other guidance to— 

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1 ‘‘(1) provide modifications to the application of 

2 this section (including treating related persons as 

3 not related to one another) to the extent such modi4 fication is consistent with the purposes of this sec5 tion, 

6 ‘‘(2) prevent the avoidance of the purposes of 

7 this section, and 

8 ‘‘(3) coordinate this section with the other pro9 visions of this title. 

10 ‘‘(g) CROSS-REFERENCE.—For 40 percent penalty 

11 on certain underpayments due to the avoidance of this sec12 tion, see section 6662.’’. 

13 (b) APPLICATION OF SECTION 751 TO INDIRECT DIS14 POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN15 TERESTS.— 

16 (1) IN GENERAL.—Subsection (a) of section 

17 751 is amended by striking ‘‘or’’ at the end of para18 graph (1), by inserting ‘‘or’’ at the end of paragraph 

19 (2), and by inserting after paragraph (2) the fol20 lowing new paragraph: 

21 ‘‘(3) investment services partnership interests 

22 held by the partnership,’’. 

23 (2) CERTAIN DISTRIBUTIONS TREATED AS

24 SALES OR EXCHANGES.—Subparagraph (A) of sec25 tion 751(b)(1) is amended by striking ‘‘or’’ at the 

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1 end of clause (i), by inserting ‘‘or’’ at the end of 

2 clause (ii), and by inserting after clause (ii) the fol3 lowing new clause: 

4 ‘‘(iii) investment services partnership 

5 interests held by the partnership,’’. 

6 (3) APPLICATION OF SPECIAL RULES IN THE

7 CASE OF TIERED PARTNERSHIPS.—Subsection (f) of 

8 section 751 is amended— 

9 (A) by striking ‘‘or’’ at the end of para10 graph (1), by inserting ‘‘or’’ at the end of para11 graph (2), and by inserting after paragraph (2) 

12 the following new paragraph: 

13 ‘‘(3) an investment services partnership interest 

14 held by the partnership,’’, and 

15 (B) by striking ‘‘partner.’’ and inserting 

16 ‘‘partner (other than a partnership in which it 

17 holds an investment services partnership inter18 est).’’. 

19 (4) INVESTMENT SERVICES PARTNERSHIP IN20 TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 

21 751 is amended by adding at the end the following 

22 new subsection: 

23 ‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER24 ESTS.—For purposes of this section— 

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1 ‘‘(1) IN GENERAL.—The term ‘investment serv2 ices partnership interest’ has the meaning given 

3 such term by section 710(c). 

4 ‘‘(2) ADJUSTMENTS FOR QUALIFIED CAPITAL

5 INTERESTS.—The amount to which subsection (a) 

6 applies by reason of paragraph (3) thereof shall not 

7 include so much of such amount as is attributable 

8 to any portion of the investment services partnership 

9 interest which is a qualified capital interest (deter10 mined under rules similar to the rules of section 

11 710(d)). 

12 ‘‘(3) EXCEPTION FOR PUBLICLY TRADED PART13 NERSHIPS.—In the case of an exchange of an inter14 est in a publicly traded partnership (as defined in 

15 section 7704) to which subsection (a) applies— 

16 ‘‘(A) this section shall be applied without 

17 regard to subsections (a)(3), (b)(1)(A)(iii), and 

18 (f)(3), and 

19 ‘‘(B) such partnership shall be treated as 

20 owning its proportionate share of the property 

21 of any other partnership in which it is a part22 ner. 

23 ‘‘(4) RECOGNITION OF GAINS.—Any gain with 

24 respect to which subsection (a) applies by reason of 

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1 paragraph (3) thereof shall be recognized notwith2 standing any other provision of this title. 

3 ‘‘(5) COORDINATION WITH INVENTORY

4 ITEMS.—An investment services partnership interest 

5 held by the partnership shall not be treated as an 

6 inventory item of the partnership. 

7 ‘‘(6) PREVENTION OF DOUBLE COUNTING.— 

8 Under regulations or other guidance prescribed by 

9 the Secretary, subsection (a)(3) shall not apply with 

10 respect to any amount to which section 710 applies. 

11 ‘‘(7) VALUATION METHODS.—The Secretary 

12 shall prescribe regulations or other guidance which 

13 provide the acceptable methods for valuing invest14 ment services partnership interests for purposes of 

15 this section.’’. 

16 (c) TREATMENT FOR PURPOSES OF SECTION

17 7704.—Subsection (d) of section 7704 is amended by add18 ing at the end the following new paragraph: 

19 ‘‘(6) INCOME FROM CERTAIN CARRIED INTER20 ESTS NOT QUALIFIED.— 

21 ‘‘(A) IN GENERAL.—Specified carried in22 terest income shall not be treated as qualifying 

23 income. 

24 ‘‘(B) SPECIFIED CARRIED INTEREST IN25 COME.—For purposes of this paragraph— 

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1 ‘‘(i) IN GENERAL.—The term ‘speci2 fied carried interest income’ means— 

3 ‘‘(I) any item of income or gain 

4 allocated to an investment services 

5 partnership interest (as defined in 

6 section 710(c)) held by the partner7 ship, 

8 ‘‘(II) any gain on the disposition 

9 of an investment services partnership 

10 interest (as so defined) or a partner11 ship interest to which (in the hands of 

12 the partnership) section 751 applies, 

13 and 

14 ‘‘(III) any income or gain taken 

15 into account by the partnership under 

16 subsection (b)(4) or (e) of section 

17 710. 

18 ‘‘(ii) EXCEPTION FOR QUALIFIED CAP19 ITAL INTERESTS.—A rule similar to the 

20 rule of section 710(d) shall apply for pur21 poses of clause (i). 

22 ‘‘(C) COORDINATION WITH OTHER PROVI23 SIONS.—Subparagraph (A) shall not apply to 

24 any item described in paragraph (1)(E) (or so 

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1 much of paragraph (1)(F) as relates to para2 graph (1)(E)). 

3 ‘‘(D) SPECIAL RULES FOR CERTAIN PART4 NERSHIPS.— 

5 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

6 BY REAL ESTATE INVESTMENT TRUSTS.— 

7 Subparagraph (A) shall not apply in the 

8 case of a partnership which meets each of 

9 the following requirements: 

10 ‘‘(I) Such partnership is treated 

11 as publicly traded under this section 

12 solely by reason of interests in such 

13 partnership being convertible into in14 terests in a real estate investment 

15 trust which is publicly traded. 

16 ‘‘(II) Fifty percent or more of 

17 the capital and profits interests of 

18 such partnership are owned, directly 

19 or indirectly, at all times during the 

20 taxable year by such real estate in21 vestment trust (determined with the 

22 application of section 267(c)). 

23 ‘‘(III) Such partnership meets 

24 the requirements of paragraphs (2), 

25 (3), and (4) of section 856(c). 

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1 ‘‘(ii) CERTAIN PARTNERSHIPS OWN2 ING OTHER PUBLICLY TRADED PARTNER3 SHIPS.—Subparagraph (A) shall not apply 

4 in the case of a partnership which meets 

5 each of the following requirements: 

6 ‘‘(I) Substantially all of the as7 sets of such partnership consist of in8 terests in one or more publicly traded 

9 partnerships (determined without re10 gard to subsection (b)(2)). 

11 ‘‘(II) Substantially all of the in12 come of such partnership is ordinary 

13 income or section 1231 gain (as de14 fined in section 1231(a)(3)). 

15 ‘‘(E) TRANSITIONAL RULE.—Subpara16 graph (A) shall not apply to any taxable year 

17 of the partnership beginning before the date 

18 which is 10 years after the date of the enact19 ment of this paragraph.’’. 

20 (d) IMPOSITION OF PENALTY ON UNDERPAY21 MENTS.— 

22 (1) IN GENERAL.—Subsection (b) of section 

23 6662 is amended by inserting after paragraph (7) 

24 the following new paragraph: 

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1 ‘‘(8) The application of section 710(e) or the 

2 regulations or other guidance prescribed under sec3 tion 710(f) to prevent the avoidance of the purposes 

4 of section 710.’’. 

5 (2) AMOUNT OF PENALTY.— 

6 (A) IN GENERAL.—Section 6662 is amend7 ed by adding at the end the following new sub8 section: 

9 ‘‘(k) INCREASE IN PENALTY IN CASE OF PROPERTY

10 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV11 ICES.—In the case of any portion of an underpayment to 

12 which this section applies by reason of subsection (b)(8), 

13 subsection (a) shall be applied with respect to such portion 

14 by substituting ‘40 percent’ for ‘20 percent’.’’. 

15 (B) CONFORMING AMENDMENT.—Subpara16 graph (B) of section 6662A(e)(2) is amended 

17 by striking ‘‘or (i)’’ and inserting ‘‘, (i), or (k)’’. 

18 (3) SPECIAL RULES FOR APPLICATION OF REA19 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec20 tion 6664 is amended— 

21 (A) by redesignating paragraphs (3) and 

22 (4) as paragraphs (4) and (5), respectively; 

23 (B) by striking ‘‘paragraph (3)’’ in para24 graph (5)(A), as so redesignated, and inserting 

25 ‘‘paragraph (4)’’; and 

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1 (C) by inserting after paragraph (2) the 

2 following new paragraph: 

3 ‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT4 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV5 ICES.— 

6 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

7 not apply to any portion of an underpayment to 

8 which section 6662 applies by reason of sub9 section (b)(8) unless— 

10 ‘‘(i) the relevant facts affecting the 

11 tax treatment of the item are adequately 

12 disclosed, 

13 ‘‘(ii) there is or was substantial au14 thority for such treatment, and 

15 ‘‘(iii) the taxpayer reasonably believed 

16 that such treatment was more likely than 

17 not the proper treatment. 

18 ‘‘(B) RULES RELATING TO REASONABLE

19 BELIEF.—Rules similar to the rules of sub20 section (d)(3) shall apply for purposes of sub21 paragraph (A)(iii).’’. 

22 (e) INCOME AND LOSS FROM INVESTMENT SERVICES

23 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE24 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

25 (1) INTERNAL REVENUE CODE.— 

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1 (A) IN GENERAL.—Section 1402(a) is 

2 amended by striking ‘‘and’’ at the end of para3 graph (16), by striking the period at the end of 

4 paragraph (17) and inserting ‘‘; and’’, and by 

5 inserting after paragraph (17) the following 

6 new paragraph: 

7 ‘‘(18) notwithstanding the preceding provisions 

8 of this subsection, in the case of any individual en9 gaged in the trade or business of providing services 

10 described in section 710(c)(2) with respect to any 

11 entity, investment services partnership income or 

12 loss (as defined in subsection (m)) of such individual 

13 with respect to such entity shall be taken into ac14 count in determining the net earnings from self-em15 ployment of such individual.’’. 

16 (B) INVESTMENT SERVICES PARTNERSHIP

17 INCOME OR LOSS.—Section 1402 is amended by 

18 adding at the end the following new subsection: 

19 ‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME

20 OR LOSS.—For purposes of subsection (a)— 

21 ‘‘(1) IN GENERAL.—The term ‘investment serv22 ices partnership income or loss’ means, with respect 

23 to any investment services partnership interest (as 

24 defined in section 710(c)) or disqualified interest (as 

25 defined in section 710(e)), the net of— 

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1 ‘‘(A) the amounts treated as ordinary in2 come or ordinary loss under subsections (b) and 

3 (e) of section 710 with respect to such interest, 

4 ‘‘(B) all items of income, gain, loss, and 

5 deduction allocated to such interest, and 

6 ‘‘(C) the amounts treated as realized from 

7 the sale or exchange of property other than a 

8 capital asset under section 751 with respect to 

9 such interest. 

10 ‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN11 TERESTS.—A rule similar to the rule of section 

12 710(d) shall apply for purposes of applying para13 graph (1)(B).’’. 

14 (2) SOCIAL SECURITY ACT.—Section 211(a) of 

15 the Social Security Act is amended by striking 

16 ‘‘and’’ at the end of paragraph (15), by striking the 

17 period at the end of paragraph (16) and inserting ‘‘; 

18 and’’, and by inserting after paragraph (16) the fol19 lowing new paragraph: 

20 ‘‘(17) Notwithstanding the preceding provisions 

21 of this subsection, in the case of any individual en22 gaged in the trade or business of providing services 

23 described in section 710(c)(2) of the Internal Rev24 enue Code of 1986 with respect to any entity, invest25 ment services partnership income or loss (as defined 

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1 in section 1402(m) of such Code) shall be taken into 

2 account in determining the net earnings from self3 employment of such individual.’’. 

4 (f) CONFORMING AMENDMENTS.— 

5 (1) Subsection (d) of section 731 is amended by 

6 inserting ‘‘section 710(b)(4) (relating to distribu7 tions of partnership property),’’ after ‘‘to the extent 

8 otherwise provided by’’. 

9 (2) Section 741 is amended by inserting ‘‘or 

10 section 710 (relating to special rules for partners 

11 providing investment management services to part12 nerships)’’ before the period at the end. 

13 (3) The table of sections for part I of sub14 chapter K of chapter 1 is amended by adding at the 

15 end the following new item: 

‘‘Sec. 710. Special rules for partners providing investment management services 

to partnerships.’’. 

16 (g) EFFECTIVE DATE.— 

17 (1) IN GENERAL.—Except as otherwise pro18 vided in this subsection, the amendments made by 

19 this section shall apply to taxable years ending after 

20 the date of the enactment of this Act. 

21 (2) PARTNERSHIP TAXABLE YEARS WHICH IN22 CLUDE EFFECTIVE DATE.—In applying section 

23 710(a) of the Internal Revenue Code of 1986 (as 

24 added by this section) in the case of any partnership 

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1 taxable year which includes the date of the enact2 ment of this Act, the amount of the net capital gain 

3 referred to in such section shall be treated as being 

4 the lesser of the net capital gain for the entire part5 nership taxable year or the net capital gain deter6 mined by only taking into account items attributable 

7 to the portion of the partnership taxable year which 

8 is after such date. 

9 (3) DISPOSITIONS OF PARTNERSHIP INTER10 ESTS.— 

11 (A) IN GENERAL.—Section 710(b) of such 

12 Code (as added by this section) shall apply to 

13 dispositions and distributions after the date of 

14 the enactment of this Act. 

15 (B) INDIRECT DISPOSITIONS.—The amend16 ments made by subsection (b) shall apply to 

17 transactions after the date of the enactment of 

18 this Act. 

19 (4) OTHER INCOME AND GAIN IN CONNECTION

20 WITH INVESTMENT MANAGEMENT SERVICES.—Sec21 tion 710(e) of such Code (as added by this section) 

22 shall take effect on the date of the enactment of this 

23 Act. 

Æ 

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