II 

111TH CONGRESS 

2D SESSION S. 2955 

To amend the Internal Revenue Code of 1986 to provide a temporary payroll 

increase tax credit for certain employers. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 26, 2010 

Mr. FEINGOLD introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

a temporary payroll increase tax credit for certain employers. 

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

3 SECTION 1. AMENDMENT OF 1986 CODE; TABLE OF CON4 TENTS. 

5 (a) AMENDMENT OF 1986 CODE.—Except as other6 wise expressly provided, whenever in this Act an amend7 ment or repeal is expressed in terms of an amendment 

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

9 shall be considered to be made to a section or other provi10 sion of the Internal Revenue Code of 1986. 


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1 (b) TABLE OF CONTENTS.—The table of contents of 

2 this Act is as follows: 

Sec. 1. Amendment of 1986 Code; table of contents. 

TITLE I—EMPLOYER PAYROLL INCREASE CREDIT 

Sec. 101. Employer payroll increase credit. 

TITLE II—TAX HAVEN ABUSE 

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

Sec. 201. Establishing presumptions for entities and transactions involving offshore secrecy jurisdictions. 

Sec. 202. Authorizing special measures against foreign jurisdictions, financial 

institutions, and others that impede United States tax enforcement. 

Sec. 203. Treatment of foreign corporations managed and controlled in the 

United States as domestic corporations. 

Sec. 204. Allowing more time for investigations involving offshore secrecy jurisdictions. 

Sec. 205. Reporting United States beneficial owners of foreign owned financial 

accounts. 

Sec. 206. Preventing misuse of foreign trusts for tax evasion. 

Sec. 207. Limitation on legal opinion protection from penalties with respect to 

transactions involving offshore secrecy jurisdictions. 

Sec. 208. Closing the offshore dividend tax loophole. 

Sec. 209. Reporting of activities with respect to passive foreign investment companies. 

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

Sec. 211. Penalty for failing to disclose offshore holdings. 

Sec. 212. Deadline for anti-money laundering rule for hedge funds and private 

equity funds. 

Sec. 213. Anti-money laundering requirements for formation agents. 

Sec. 214. Strengthening summons in cases involving offshore secrecy jurisdictions. 

Sec. 215. Improving enforcement of foreign financial account reporting. 

Subtitle C—Combating Tax Shelter Promoters 

Sec. 221. Penalty for promoting abusive tax shelters. 

Sec. 222. Penalty for aiding and abetting the understatement of tax liability. 

Sec. 223. Tax planning inventions not patentable. 

Sec. 224. Prohibited fee arrangement. 

Sec. 225. Preventing tax shelter activities by financial institutions. 

Sec. 226. Information sharing for enforcement purposes. 

Sec. 227. Disclosure of information to Congress. 

Sec. 228. Tax opinion standards for tax practitioners. 

Sec. 229. Denial of deduction for certain fines, penalties, and other amounts. 

Subtitle D—Requiring Economic Substance 

Sec. 231. Clarification of economic substance doctrine. 


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Sec. 232. Penalty for understatements attributable to transactions lacking economic substance, etc. 

Sec. 233. Denial of deduction for interest on underpayments attributable to 

noneconomic substance transactions. 

1 TITLE I—EMPLOYER PAYROLL 

2 INCREASE CREDIT 

3 SEC. 101. EMPLOYER PAYROLL INCREASE CREDIT. 

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 is amended by adding at the end 

6 the following new section: 

7 ‘‘SEC. 45R. EMPLOYER PAYROLL INCREASE CREDIT. 

8 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

9 the amount of the employer payroll increase credit deter10 mined under this section with respect to any employer is— 

11 ‘‘(1) in the case of a taxable year beginning in 

12 2010, 15 percent of the qualified payroll increase of 

13 such employer for such taxable year, and 

14 ‘‘(2) in the case of a taxable year beginning in 

15 2011, 10 percent of the greater of— 

16 ‘‘(A) the qualified payroll increase of such 

17 employer for such taxable year, or 

18 ‘‘(B) the qualified payroll increase of such 

19 employer for the taxable year preceding such 

20 year. 

21 ‘‘(b) QUALIFIED PAYROLL INCREASE.—For purposes 

22 of this section— 


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1 ‘‘(1) IN GENERAL.—The term ‘qualified payroll 

2 increase’ with respect to any taxable year means the 

3 amount, if any, by which the employer’s qualified 

4 payroll for such taxable year exceeds the qualified 

5 payroll of the year preceding such taxable year. 

6 ‘‘(2) QUALIFIED PAYROLL.—The term ‘quali7 fied payroll’ means the amount of all wages (within 

8 the meaning of section 3121(a), without regard to 

9 paragraph (1) thereof) paid or incurred by an em10 ployer to the employees of such employer, except 

11 that— 

12 ‘‘(A) only wages with respect to employees 

13 in the United States shall be taken into ac14 count, and 

15 ‘‘(B) with respect to each such employee, 

16 such wages shall be taken into account only to 

17 the extent that such wages do not exceed the 

18 contribution and benefit base as determined 

19 under section 230 of the Social Security Act. 

20 ‘‘(c) SPECIAL RULES.—For purposes of this sec21 tion— 

22 ‘‘(1) EMPLOYMENT MUST BE TRADE OR BUSI23 NESS EMPLOYMENT.—Wages paid or incurred to any 

24 employee by an employer shall be taken into account 

25 under subsection (b)(2) for any taxable year only if 


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1 more than 50 percent of such wages paid or in2 curred during such year are for services performed 

3 in a trade or business of the employer. 

4 ‘‘(2) MAINTENANCE OF BASE EMPLOYMENT RE5 QUIREMENT.— 

6 ‘‘(A) IN GENERAL.—No credit under this 

7 section shall be allowed to any employer for any 

8 taxable year if the total number of employees of 

9 such employer during any quarter of such tax10 able year is less than the total number of such 

11 employees during the applicable base quarter. 

12 ‘‘(B) APPLICABLE BASE QUARTER.—For 

13 purposes of this paragraph, the applicable base 

14 quarter with respect to any quarter is— 

15 ‘‘(i) in the case of the 4th quarter of 

16 the employer’s taxable year beginning in 

17 2010, the 4th quarter of the employer’s 

18 taxable year beginning in 2008, and 

19 ‘‘(ii) in the case of any other quarter 

20 of any taxable year, such quarter of the 

21 taxable year preceding such taxable year. 

22 ‘‘(3) CONTROLLED GROUPS.— 

23 ‘‘(A) IN GENERAL.—All employers treated 

24 as a single employer under section (a) or (b) of 


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1 section 52 shall be treated as a single employer 

2 for purposes of this section. 

3 ‘‘(B) ALLOCATION OF CREDITS.—The 

4 credit (if any) determined under this section 

5 with respect to each such employer shall be its 

6 proportionate share of the qualified payroll in7 crease giving rise to such credit. 

8 ‘‘(4) CERTAIN OTHER RULES MADE APPLICA9 BLE.—Rules similar to the rules of subsections 

10 (i)(1) and (k) of section 51 and subsections (d) and 

11 (e) of section 52 shall apply. 

12 ‘‘(d) COORDINATION WITH OTHER CREDITS.—In the 

13 case of any taxable year, the amount of the wages taken 

14 into account in determining the credit under this section 

15 shall be reduced, but not below zero, by the amount of 

16 any wages taken into account in determining a credit 

17 under section 41(a), section 45A(a), section 51(a), section 

18 1396(a), or subsection (a), (b), or (c) of section 1400R 

19 for such taxable year.’’. 

20 (b) CREDIT TO BE PART OF GENERAL BUSINESS

21 CREDIT.—Section 38(b) is amended by striking ‘‘plus’’ at 

22 the end of paragraph (34), by striking the period at the 

23 end of paragraph (35) and inserting ‘‘, plus’’, and by add24 ing at the end the following new paragraph: 


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1 ‘‘(36) the employer payroll increase credit de2 termined under section 45R.’’. 

3 (c) CONFORMING AMENDMENTS.— 

4 (1) Subsection (c) of section 196 is amended by 

5 striking ‘‘and’’ at the end of paragraph (12), by 

6 striking the period at the end of paragraph (13) and 

7 inserting ‘‘, and’’, and by adding at the end the fol8 lowing new paragraph: 

9 ‘‘(14) the employer payroll increase credit de10 termined under section 45R.’’. 

11 (2) Section 280C is amended by inserting 

12 ‘‘45R(a),’’ after ‘‘45P(a)’’. 

13 (d) CLERICAL AMENDMENT.—The table of sections 

14 for subpart D of part IV of subchapter A of chapter 1 

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

‘‘Sec. 45R. Employer payroll increase credit.’’. 

16 (e) INVESTIGATION AND REPORT ON ENFORCEMENT

17 ACTIONS.—Not later than 6 months after the date of the 

18 enactment of this Act, and quarterly thereafter, the Com19 missioner of Internal Revenue shall submit a report to the 

20 Committee on Finance of the Senate and the Committee 

21 on Ways and Means of the House of Representatives on 

22 the enforcement measures taken to prevent and penalize 

23 fraud related to the employer payroll increase credit under 

24 section 45R of the Internal Revenue Code of 1986, includ25 ing such information as— 


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1 (1) general statistics related to the use of the 

2 credit, 

3 (2) cases of fraud, and 

4 (3) the status of investigatory and prosecutorial 

5 actions related to such cases. 

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

7 this section shall apply to taxable years beginning after 

8 December 31, 2009. 

9 TITLE II—TAX HAVEN ABUSE 

10 Subtitle A—Deterring the Use of 

11 Tax Havens for Tax Evasion 

12 SEC. 201. ESTABLISHING PRESUMPTIONS FOR ENTITIES 

13 AND TRANSACTIONS INVOLVING OFFSHORE 

14 SECRECY JURISDICTIONS. 

15 (a) PRESUMPTIONS FOR INTERNAL REVENUE CODE

16 OF 1986.— 

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

18 inserting after subchapter E the following new sub19 chapter: 

20 ‘‘Subchapter F—Presumptions for Certain 

21 Legal Proceedings 

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


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

2 TRANSACTIONS INVOLVING OFFSHORE SE3 CRECY JURISDICTIONS. 

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

5 civil judicial or administrative proceeding to determine or 

6 collect tax, there shall be a rebuttable presumption that 

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

8 regularly traded on an established securities market) who 

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

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

11 money or property or the use thereof from an entity, in12 cluding a trust, corporation, limited liability company, 

13 partnership, or foundation (other than an entity with 

14 shares regularly traded on an established securities mar15 ket), formed, domiciled, or operating in an offshore se16 crecy jurisdiction, exercised control over such entity. The 

17 presumption of control created by this subsection shall not 

18 be applied to prevent the Secretary from determining or 

19 arguing the absence of control. 

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

21 United States civil judicial or administrative proceeding 

22 to determine or collect tax, there shall be a rebuttable pre23 sumption that any amount or thing of value received by 

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

25 regularly traded on an established securities market) di26 rectly or indirectly from an account or entity (other than 


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1 an entity with shares regularly traded on an established 

2 securities market) in an offshore secrecy jurisdiction, con3 stitutes income of such person taxable in the year of re4 ceipt, and any amount or thing of value paid or trans5 ferred by or on behalf of a United States person (other 

6 than an entity with shares regularly traded on an estab7 lished securities market) directly or indirectly to an ac8 count or entity (other than an entity with shares regularly 

9 traded on an established securities market) in any such 

10 jurisdiction represents previously unreported income of 

11 such person taxable in the year of the transfer. 

12 ‘‘(c) REBUTTING THE PRESUMPTIONS.—The pre13 sumptions established in this section may be rebutted only 

14 by clear and convincing evidence, including detailed docu15 mentary, testimonial, and transactional evidence, estab16 lishing that— 

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

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

19 the time in question, and 

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

21 of value did not represent income related to such 

22 United States person. 

23 Any court having jurisdiction of a civil proceeding in which 

24 control of such an offshore entity or the income character 

25 of such receipts or amounts transferred is an issue shall 


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1 prohibit the introduction by the taxpayer of any foreign 

2 based document that is not authenticated in open court 

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

4 other evidence supplied by a person outside the jurisdic5 tion of a United States court, unless such person appears 

6 before the court.’’. 

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

8 amended by inserting after the item relating to sub9 chapter E the following new item: 

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

10 (b) DEFINITION OF OFFSHORE SECRECY JURISDIC11 TION.—Section 7701(a) is amended by adding at the end 

12 the following new paragraph: 

13 ‘‘(51) OFFSHORE SECRECY JURISDICTION.— 

14 ‘‘(A) IN GENERAL.—The term ‘offshore se15 crecy jurisdiction’ means any foreign jurisdic16 tion which is listed by the Secretary as an off17 shore secrecy jurisdiction for purposes of this 

18 title. 

19 ‘‘(B) DETERMINATION OF JURISDICTIONS

20 ON LIST.—A jurisdiction shall be listed under 

21 paragraph (A) if the Secretary determines that 

22 such jurisdiction has corporate, business, bank, 

23 or tax secrecy rules and practices which, in the 

24 judgment of the Secretary, unreasonably re25 strict the ability of the United States to obtain 


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1 information relevant to the enforcement of this 

2 title, unless the Secretary also determines that 

3 such country has effective information exchange 

4 practices. 

5 ‘‘(C) SECRECY OR CONFIDENTIALITY

6 RULES AND PRACTICES.—For purposes of sub7 paragraph (B), corporate, business, bank, or 

8 tax secrecy or confidentiality rules and practices 

9 include both formal laws and regulations and 

10 informal government or business practices hav11 ing the effect of inhibiting access of law en12 forcement and tax administration authorities to 

13 beneficial ownership and other financial infor14 mation. 

15 ‘‘(D) INEFFECTIVE INFORMATION EX16 CHANGE PRACTICES.—For purposes of subpara17 graph (B), a jurisdiction shall be deemed to 

18 have ineffective information exchange practices 

19 unless the Secretary determines, on an annual 

20 basis, that— 

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

22 treaty or other information exchange 

23 agreement with the United States that 

24 provides for the prompt, obligatory, and 

25 automatic exchange of such information as 


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1 is forseeably relevant for carrying out the 

2 provisions of the treaty or agreement or 

3 the administration or enforcement of this 

4 title, 

5 ‘‘(ii) during the 12-month period pre6 ceding the annual determination, the ex7 change of information between the United 

8 States and such jurisdiction was in prac9 tice adequate to prevent evasion or avoid10 ance of United States income tax by 

11 United States persons and to enable the 

12 United States effectively to enforce this 

13 title, and 

14 ‘‘(iii) during the 12-month period pre15 ceding the annual determination, such ju16 risdiction was not identified by an inter17 governmental group or organization of 

18 which the United States is a member as 

19 uncooperative with international tax en20 forcement or information exchange and the 

21 United States concurs in such identifica22 tion. 

23 ‘‘(E) INITIAL LIST OF OFFSHORE SECRECY

24 JURISDICTIONS.—For purposes of this para25 graph, each of the following foreign jurisdicVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 tions, which have been previously and publicly 

2 identified by the Internal Revenue Service as 

3 secrecy jurisdictions in Federal court pro4 ceedings, shall be deemed listed by the Sec5 retary as an offshore secrecy jurisdiction unless 

6 delisted by the Secretary under subparagraph 

7 (F)(ii): 

8 ‘‘(i) Anguilla. 

9 ‘‘(ii) Antigua and Barbuda. 

10 ‘‘(iii) Aruba. 

11 ‘‘(iv) Bahamas. 

12 ‘‘(v) Barbados. 

13 ‘‘(vi) Belize. 

14 ‘‘(vii) Bermuda. 

15 ‘‘(viii) British Virgin Islands. 

16 ‘‘(ix) Cayman Islands. 

17 ‘‘(x) Cook Islands. 

18 ‘‘(xi) Costa Rica. 

19 ‘‘(xii) Cyprus. 

20 ‘‘(xiii) Dominica. 

21 ‘‘(xiv) Gibraltar. 

22 ‘‘(xv) Grenada. 

23 ‘‘(xvi) Guernsey/Sark/Alderney. 

24 ‘‘(xvii) Hong Kong. 

25 ‘‘(xviii) Isle of Man. 


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1 ‘‘(xix) Jersey. 

2 ‘‘(xx) Latvia. 

3 ‘‘(xxi) Liechtenstein. 

4 ‘‘(xxii) Luxembourg. 

5 ‘‘(xxiii) Malta. 

6 ‘‘(xxiv) Nauru. 

7 ‘‘(xxv) Netherlands Antilles. 

8 ‘‘(xxvi) Panama. 

9 ‘‘(xxvii) Samoa. 

10 ‘‘(xxviii) St. Kitts and Nevis. 

11 ‘‘(xxix) St. Lucia. 

12 ‘‘(xxx) St. Vincent and the Grena13 dines. 

14 ‘‘(xxxi) Singapore. 

15 ‘‘(xxxii) Switzerland. 

16 ‘‘(xxxiii) Turks and Caicos. 

17 ‘‘(xxxiv) Vanuatu. 

18 ‘‘(F) MODIFICATIONS TO LIST.—The Sec19 retary— 

20 ‘‘(i) shall add to the list under para21 graph (A) jurisdictions which meet the re22 quirements of paragraph (B), and 

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

24 those jurisdictions which do not meet the 

25 requirements of paragraph (B).’’. 


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

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

4 the following 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 formed, domiciled, or operating in an offshore se20 crecy jurisdiction (as defined in section 7701(a)(51) 

21 of the Internal Revenue Code of 1986), exercised 

22 control over such entity. The presumption of control 

23 created by this paragraph shall not be applied to 

24 prevent the Commission from determining or argu25 ing 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), formed, domiciled, or operating 

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

10 are beneficially owned by any United States person 

11 (other than an entity with shares regularly traded on 

12 an established securities market) who directly or in13 directly exercised control over such entity. The pre14 sumption of beneficial ownership created by this 

15 paragraph shall not be applied to prevent the Com16 mission from determining or arguing the absence of 

17 beneficial ownership.’’. 

18 (d) PRESUMPTION FOR REPORTING PURPOSES RE19 LATING TO FOREIGN FINANCIAL ACCOUNTS.—Section 

20 5314 of title 31, United States Code, is amended by add21 ing at the end the following: 

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

23 this section, there shall be a rebuttable presumption that 

24 any account with a financial institution formed, domiciled, 

25 or operating in an offshore secrecy jurisdiction (as defined 


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1 in 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 (e) REGULATORY AUTHORITY AND EFFECTIVE

6 DATE.— 

7 (1) REGULATORY AUTHORITY.—Not later than 

8 180 days after the date of the enactment of this Act, 

9 the Secretary of the Treasury and the Chairman of 

10 the Securities and Exchange Commission shall each 

11 adopt regulations or other guidance necessary to im12 plement the amendments made by this section. The 

13 Secretary and the Chairman may by regulation or 

14 guidance provide that the presumption of control 

15 shall not extend to particular classes of transactions, 

16 such as corporate reorganizations or transactions 

17 below a specified dollar threshold, if either deter18 mines that applying such amendments to such trans19 actions is not necessary to carry out the purposes of 

20 such amendments. 

21 (2) EFFECTIVE DATE.—The amendments made 

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

23 enactment of this Act. 


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1 SEC. 202. AUTHORIZING SPECIAL MEASURES AGAINST FOR2 EIGN JURISDICTIONS, FINANCIAL INSTITU3 TIONS, AND OTHERS THAT IMPEDE UNITED 

4 STATES TAX ENFORCEMENT. 

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

6 amended— 

7 (1) by striking the section heading and insert8 ing the following: 

9 ‘‘§ 5318A. Special measures for jurisdictions, financial 

10 institutions, or international transactions 

11 that are of primary money laundering 

12 concern or impede United States tax en13 forcement’’; 

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

15 heading and inserting the following: 

16 ‘‘(a) SPECIAL MEASURES TO COUNTER MONEY

17 LAUNDERING AND EFFORTS TO IMPEDE UNITED STATES

18 TAX ENFORCEMENT.—’’; 

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

20 heading and inserting the following: 

21 ‘‘(c) CONSULTATIONS AND INFORMATION TO BE

22 CONSIDERED IN FINDING JURISDICTIONS, INSTITUTIONS, 

23 TYPES OF ACCOUNTS, OR TRANSACTIONS TO BE OF PRI24 MARY MONEY LAUNDERING CONCERN OR TO BE IMPED25 ING UNITED STATES TAX ENFORCEMENT.—’’; 


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1 (4) in subsection (a)(1), by inserting ‘‘or is im2 peding United States tax enforcement’’ after ‘‘pri3 mary money laundering concern’’; 

4 (5) in subsection (a)(4)— 

5 (A) in subparagraph (A)— 

6 (i) by inserting ‘‘in matters involving 

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

8 and 

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

10 (B) by redesignating subparagraph (B) as 

11 subparagraph (C); and 

12 (C) by inserting after subparagraph (A) 

13 the following: 

14 ‘‘(B) in matters involving United States 

15 tax enforcement, shall consult with the Commis16 sioner of the Internal Revenue Service, the Sec17 retary of State, the Attorney General of the 

18 United States, and in the sole discretion of the 

19 Secretary, such other agencies and interested 

20 parties as the Secretary may find to be appro21 priate; and’’; 

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

23 (4) of subsection (b), by inserting ‘‘or to be imped24 ing United States tax enforcement’’ after ‘‘primary 

25 money laundering concern’’ each place it appears; 


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

2 and inserting the following: 

3 ‘‘(5) PROHIBITIONS OR CONDITIONS ON OPEN4 ING OR MAINTAINING CERTAIN CORRESPONDENT OR

5 PAYABLE-THROUGH ACCOUNTS OR AUTHORIZING

6 CERTAIN PAYMENT CARDS.—If the Secretary finds a 

7 jurisdiction outside of the United States, 1 or more 

8 financial institutions operating outside of the United 

9 States, or 1 or more classes of transactions within 

10 or involving a jurisdiction outside of the United 

11 States to be of primary money laundering concern or 

12 to be impeding United States tax enforcement, the 

13 Secretary, in consultation with the Secretary of 

14 State, the Attorney General of the United States, 

15 and the Chairman of the Board of Governors of the 

16 Federal Reserve System, may prohibit, or impose 

17 conditions upon— 

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

19 United States of a correspondent account or 

20 payable-through account; or 

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

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

23 debit card, or similar credit or debit financial 

24 instrument by any domestic financial institu25 tion, financial agency, or credit card company 


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1 or association, for or on behalf of a foreign 

2 banking institution, if such correspondent ac3 count, payable-through account, credit card, 

4 charge card, debit card, or similar credit or 

5 debit financial instrument, involves any such ju6 risdiction or institution, or if any such trans7 action may be conducted through such cor8 respondent account, payable-through account, 

9 credit card, charge card, debit card, or similar 

10 credit or debit financial instrument.’’; 

11 (8) in subsection (c)(1), by inserting ‘‘or is im12 peding United States tax enforcement’’ after ‘‘pri13 mary money laundering concern’’; 

14 (9) in subsection (c)(2)(A)— 

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

16 or special regulatory advantages’’ and inserting 

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

18 or regulatory advantages’’; 

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

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

21 international tax enforcement, and counter22 money’’; 

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

24 secrecy’’ and inserting ‘‘banking, tax, or se25 crecy’’; and 


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1 (D) in clause (vi), by inserting ‘‘, tax trea2 ty, or tax information exchange agreement’’ 

3 after ‘‘treaty’’; 

4 (10) in subsection (c)(2)(B)— 

5 (A) in clause (i), by inserting ‘‘or tax eva6 sion’’ after ‘‘money laundering’’; and 

7 (B) in clause (iii), by inserting ‘‘, tax eva8 sion,’’ after ‘‘money laundering’’; and 

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

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

11 Committee on Finance of the Senate and the Com12 mittee on Ways and Means of the House of Rep13 resentatives of any such action involving United 

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

15 SEC. 203. TREATMENT OF FOREIGN CORPORATIONS MAN16 AGED AND CONTROLLED IN THE UNITED 

17 STATES AS DOMESTIC CORPORATIONS. 

18 (a) IN GENERAL.—Section 7701 (relating to defini19 tions) is amended by redesignating subsection (o) as sub20 section (p) and by inserting after subsection (n) the fol21 lowing new subsection: 

22 ‘‘(o) CERTAIN CORPORATIONS MANAGED AND CON23 TROLLED IN THE UNITED STATES TREATED AS DOMES24 TIC FOR INCOME TAX.— 


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

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

3 paragraph (2), if— 

4 ‘‘(A) the corporation would not otherwise 

5 be treated as a domestic corporation for pur6 poses of this title, but 

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

8 corporation occurs, directly or indirectly, pri9 marily within the United States, 

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

11 provision of this title relating to chapter 1), the cor12 poration shall be treated as a domestic corporation. 

13 ‘‘(2) CORPORATION DESCRIBED.— 

14 ‘‘(A) IN GENERAL.—A corporation is de15 scribed in this paragraph if— 

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

17 regularly traded on an established securi18 ties market, or 

19 ‘‘(ii) the aggregate gross assets of 

20 such corporation (or any predecessor there21 of), including assets under management 

22 for investors, whether held directly or indi23 rectly, at any time during the taxable year 

24 or any preceding taxable year is 

25 $50,000,000 or more. 


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1 ‘‘(B) GENERAL EXCEPTION.—A corpora2 tion shall not be treated as described in this 

3 paragraph if— 

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

5 corporation described in this paragraph in 

6 a preceding taxable year, 

7 ‘‘(ii) such corporation— 

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

9 established securities market, and 

10 ‘‘(II) has, and is reasonably ex11 pected to continue to have, aggregate 

12 gross assets (including assets under 

13 management for investors, whether 

14 held directly or indirectly) of less than 

15 $50,000,000, and 

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

17 such corporation under this subparagraph. 

18 ‘‘(C) EXCEPTION FROM GROSS ASSETS

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

20 a corporation which is a controlled foreign cor21 poration (as defined in section 957) and which 

22 is a member of an affiliated group (as defined 

23 section 1504, but determined without regard to 

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

25 which— 


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1 ‘‘(i) is a domestic corporation (deter2 mined without regard to this subsection), 

3 and 

4 ‘‘(ii) has substantial assets (other 

5 than cash and cash equivalents and other 

6 than stock of foreign subsidiaries) held for 

7 use in the active conduct of a trade or 

8 business in the United States. 

9 ‘‘(3) MANAGEMENT AND CONTROL.— 

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

11 prescribe regulations for purposes of deter12 mining cases in which the management and 

13 control of a corporation is to be treated as oc14 curring primarily within the United States. 

15 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

16 MANAGEMENT.—Such regulations shall provide 

17 that— 

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

19 corporation shall be treated as occurring 

20 primarily within the United States if sub21 stantially all of the executive officers and 

22 senior management of the corporation who 

23 exercise day-to-day responsibility for mak24 ing decisions involving strategic, financial, 

25 and operational policies of the corporation 


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1 are located primarily within the United 

2 States, and 

3 ‘‘(ii) individuals who are not executive 

4 officers and senior management of the cor5 poration (including individuals who are of6 ficers or employees of other corporations in 

7 the same chain of corporations as the cor8 poration) shall be treated as executive offi9 cers and senior management if such indi10 viduals exercise the day-to-day responsibil11 ities of the corporation described in clause 

12 (i). 

13 ‘‘(C) CORPORATIONS PRIMARILY HOLDING

14 INVESTMENT ASSETS.—Such regulations shall 

15 also provide that the management and control 

16 of a corporation shall be treated as occurring 

17 primarily within the United States if— 

18 ‘‘(i) the assets of such corporation (di19 rectly or indirectly) consist primarily of as20 sets being managed on behalf of investors, 

21 and 

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

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

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

25 this section shall apply to taxable years beginning on or 


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1 after the date which is 2 years after the date of the enact2 ment of this Act. 

3 SEC. 204. ALLOWING MORE TIME FOR INVESTIGATIONS IN4 VOLVING OFFSHORE SECRECY JURISDIC5 TIONS. 

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

7 adding at the end the following new paragraph: 

8 ‘‘(11) RETURNS INVOLVING OFFSHORE SE9 CRECY JURISDICTIONS.—In the case of a return for 

10 a year in which the taxpayer directly or indirectly 

11 formed, owned, transferred assets to, was a bene12 ficiary of, had a beneficial interest in, or received 

13 money or property or the use thereof from a finan14 cial account or an entity (other than an entity with 

15 shares regularly traded on an established securities 

16 market), including a trust, corporation, limited li17 ability company, partnership, or foundation formed, 

18 located, domiciled or operating in an offshore secrecy 

19 jurisdiction, the tax may be assessed, or a pro20 ceeding in court for the collection of such tax may 

21 be begun without assessment, at any time within 6 

22 years after the return was filed.’’. 

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

24 this section shall apply to— 


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

2 of this Act, and 

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

4 period specified in section 6501 of the Internal Rev5 enue Code of 1986 (determined without regard to 

6 the amendments made by subsection (a)) for assess7 ment of such taxes has not expired as of such date. 

8 SEC. 205. REPORTING UNITED STATES BENEFICIAL OWN9 ERS OF FOREIGN OWNED FINANCIAL AC10 COUNTS. 

11 (a) IN GENERAL.—Subpart B of part III of sub12 chapter A of chapter 61 is amended by inserting after sec13 tion 6045B the following new sections: 

14 ‘‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENE15 FICIAL OWNERS OF FOREIGN OWNED FINAN16 CIAL ACCOUNTS. 

17 ‘‘(a) REQUIREMENT OF RETURN.—If— 

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

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

20 or payment of any amount constituting gross income 

21 from sources within the United States of any foreign 

22 entity, including a trust, corporation, limited liability 

23 company, partnership, or foundation (other than an 

24 entity with shares regularly traded on an established 

25 securities market), and 


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1 ‘‘(2) such withholding agent determines for pur2 poses of titles 14, 18, or 31 of the United States 

3 Code that a United States person has any beneficial 

4 interest in the foreign entity or in the account in 

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

6 to as ‘United States beneficial owner’), 

7 then the withholding agent shall make a return according 

8 to the forms or regulations prescribed by the Secretary. 

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

10 subsection (a), the information required to be included on 

11 the return shall include— 

12 ‘‘(1) the name, address, and, if known, the tax13 payer identification number of the United States 

14 beneficial owner, 

15 ‘‘(2) the known facts pertaining to the relation16 ship of such United States beneficial owner to the 

17 foreign entity and the account, 

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

19 within the United States (including gross proceeds 

20 from brokerage transactions), and 

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

22 may by forms or regulations provide. 

23 ‘‘(c) STATEMENTS TO BE FURNISHED TO BENE24 FICIAL OWNERS WITH RESPECT TO WHOM INFORMATION

25 IS REQUIRED TO BE REPORTED.—A withholding agent 


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1 required to make a return under subsection (a) shall fur2 nish to each United States beneficial owner whose name 

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

4 showing— 

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

6 of the information contact of the person required to 

7 make such return, and 

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

9 such return with respect to such United States bene10 ficial owner. 

11 The written statement required under the preceding sen12 tence shall be furnished to the United States beneficial 

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

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

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

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

17 States beneficial owner, such written statement may be 

18 mailed to the address of the foreign entity. 

19 ‘‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS RE20 GARDING ESTABLISHMENT OF ACCOUNTS 

21 AND CREATION OF ENTITIES IN OFFSHORE 

22 SECRECY JURISDICTIONS. 

23 ‘‘(a) REQUIREMENT OF RETURN.—Any financial in24 stitution directly or indirectly— 


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1 ‘‘(1) opening a bank, brokerage, or other finan2 cial account, or 

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

4 trust, corporation, limited liability company, partner5 ship, or foundation (other than an entity with shares 

6 regularly traded on an established securities mar7 ket), 

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

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

10 make a return according to the forms or regulations pre11 scribed by the Secretary. 

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

13 subsection (a), the information required to be included on 

14 the return shall include— 

15 ‘‘(1) the name, address, and taxpayer identifica16 tion number of such United States person, 

17 ‘‘(2) the name and address of the financial in18 stitution at which a financial account is opened, the 

19 type of account, the account number, the name 

20 under which the account was opened, and the 

21 amount of the initial deposit, 

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

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

24 address of any company formation agent or other 


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1 professional employed to form or acquire the entity, 

2 and 

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

4 may by forms or regulations provide. 

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

6 STATES PERSONS WITH RESPECT TO WHOM INFORMA7 TION IS REQUIRED TO BE REPORTED.—A financial insti8 tution required to make a return under subsection (a) 

9 shall furnish to each United States person whose name 

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

11 showing— 

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

13 of the information contact of the person required to 

14 make such return, and 

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

16 such return with respect to such United States per17 son. 

18 The written statement required under the preceding sen19 tence shall be furnished to such United States person on 

20 or before January 31 of the year following the calendar 

21 year for which the return under subsection (a) was re22 quired to be made. 

23 ‘‘(d) EXEMPTION.—The Secretary may by regula24 tions exempt any class of United States persons or any 

25 class of accounts or entities from the requirements of this 


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1 section if the Secretary determines that applying this sec2 tion to such persons, accounts, or entities is not necessary 

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

4 (b) PENALTIES.— 

5 (1) RETURNS.—Section 6724(d)(1)(B), as 

6 amended by the Energy Improvement and Extension 

7 Act of 2008, is amended by redesignating clauses (v) 

8 through (xxiii) as clauses (vii) through (xxv), respec9 tively, and by inserting after clause (iv) the following 

10 new clauses: 

11 ‘‘(v) section 6045C(a) (relating to re12 turns regarding United States beneficial 

13 owners of foreign owned financial ac14 counts), 

15 ‘‘(vi) section 6045D(a) (relating to re16 turns by financial institutions regarding 

17 establishment of accounts and creation of 

18 entities in offshore secrecy jurisdictions),’’. 

19 (2) PAYEE STATEMENTS.—Section 6724(d)(2), 

20 as amended by such Act, is amended by redesig21 nating subparagraphs (K) through (FF) as subpara22 graphs (M) through (HH), respectively, and by in23 serting after subparagraph (J) the following new 

24 subparagraphs: 


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

2 regarding United States beneficial owners of 

3 foreign owned financial accounts), 

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

5 by financial institutions regarding establish6 ment of accounts and creation of entities in off7 shore secrecy jurisdictions),’’. 

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

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

10 is amended by inserting after the item relating to section 

11 6045B the following new items: 

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

owned financial accounts. 

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

12 (d) ADDITIONAL PENALTIES.— 

13 (1) ADDITIONAL PENALTIES ON BANKS.—Sec14 tion 5239(b)(1) of the Revised Statutes (12 U.S.C. 

15 93(b)(1)) is amended by inserting ‘‘or any of the 

16 provisions of section 6045D of the Internal Revenue 

17 Code of 1986,’’ after ‘‘any regulation issued pursu18 ant to,’’. 

19 (2) ADDITIONAL PENALTIES ON SECURITIES

20 FIRMS.—Section 21(d)(3)(A) of the Securities Ex21 change Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is 

22 amended by inserting ‘‘any of the provisions of secVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00035 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 tion 6045D of the Internal Revenue Code of 1986,’’ 

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

3 (e) REGULATORY AUTHORITY AND EFFECTIVE

4 DATE.— 

5 (1) REGULATORY AUTHORITY.—Not later than 

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

7 the Secretary of the Treasury shall adopt regula8 tions, forms, or other guidance necessary to imple9 ment this section. 

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

11 Internal Revenue Code of 1986 (as added by this 

12 section) and the amendment made by subsection 

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

14 into foreign owned accounts after December 31 of 

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

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

17 amendment made by subsection (d)(2) shall take ef18 fect with respect to accounts opened or entities 

19 formed or acquired after December 31 of the year 

20 of the date of the enactment of this Act. 

21 SEC. 206. PREVENTING MISUSE OF FOREIGN TRUSTS FOR 

22 TAX EVASION. 

23 (a) ATTRIBUTION OF TRUST PROTECTOR POWERS

24 TO GRANTORS.—Section 672 is amended by redesignating 


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1 subsection (f) as subsection (g) and by inserting after sub2 section (e) the following new subsection: 

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

4 OR INTEREST OF TRUST PROTECTOR OR ENFORCER.— 

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

6 as holding any power or interest held by any trust pro7 tector or trust enforcer or similar person appointed to ad8 vise, influence, oversee, or veto the actions of the trustee.’’. 

9 (b) TREATMENT OF UNITED STATES RECIPIENTS OF

10 FOREIGN TRUST ASSETS AS TRUST BENEFICIARIES.— 

11 Section 679 is amended by redesignating subsections (c) 

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

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

14 ‘‘(c) CERTAIN UNITED STATES PERSONS TREATED

15 AS BENEFICIARIES.—Any United States person receiving 

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

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

18 trust regardless of whether such person is a named bene19 ficiary, except to the extent that such person paid fair 

20 market value for the benefit received.’’. 

21 (c) TREATMENT OF FOREIGN TRUST TRANSFERS OF

22 REAL ESTATE, ARTWORK, OR JEWELRY CONSISTENTLY

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

24 amended by striking ‘‘or marketable securities’’ and in25 serting ‘‘or other property, including real estate, marketVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00037 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 able securities, artwork, jewelry, and other personal prop2 erty,’’. 

3 (d) TREATMENT OF TRUSTS WITH FUTURE OR CON4 TINGENT UNITED STATES BENEFICIARIES.—Section 

5 679(a)(1) is amended— 

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

7 after ‘‘such year’’, and 

8 (2) by inserting ‘‘(including a contingent bene9 ficiary)’’ after ‘‘beneficiary’’. 

10 SEC. 207. LIMITATION ON LEGAL OPINION PROTECTION 

11 FROM PENALTIES WITH RESPECT TO TRANS12 ACTIONS INVOLVING OFFSHORE SECRECY 

13 JURISDICTIONS. 

14 (a) IN GENERAL.—Section 6664 is amended by add15 ing at the end the following new subsection: 

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

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

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

19 reasonable cause for any portion of an underpayment, or 

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

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

22 part of which involves an entity or financial account in 

23 an offshore secrecy jurisdiction.’’. 

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

25 Treasury may by regulation or guidance provide that subVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00038 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 section (e) of section 6664 of the Internal Revenue Code 

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

3 legal opinions that express a confidence level that substan4 tially exceeds the ‘‘more likely than not’’ confidence level; 

5 or that such subsection does not apply to classes of trans6 actions, such as corporate reorganizations, where the Sec7 retary determines that applying such subsection to such 

8 transactions is not necessary to carry out the purposes of 

9 such subsection. 

10 SEC. 208. CLOSING THE OFFSHORE DIVIDEND TAX LOOP11 HOLE. 

12 (a) IN GENERAL.—Section 871 is amended by redes13 ignating subsection (l) as subsection (m) and by inserting 

14 after subsection (k) the following new subsection: 

15 ‘‘(l) TREATMENT OF DIVIDEND EQUIVALENTS AND

16 SUBSTITUTE DIVIDEND PAYMENTS.— 

17 ‘‘(1) IN GENERAL.—For purposes of this sec18 tion and section 881— 

19 ‘‘(A) the term ‘dividend’ shall include divi20 dend equivalents and substitute dividends, 

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

22 the stock of one or more domestic corporations 

23 shall be treated as sourced within the United 

24 States, and 


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1 ‘‘(C) a substitute dividend payment shall 

2 be sourced in the same manner as a dividend 

3 distribution with respect to the transferred se4 curity to which the substitute dividend relates. 

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

6 this subsection— 

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

8 equivalent’ includes any payment that is made 

9 pursuant to a notional principal contract and is 

10 contingent upon, or is referenced to, the pay11 ment of a dividend on stock or the payment of 

12 a dividend on property that is substantially 

13 similar or related to stock (determined in a 

14 manner similar to the manner under section 

15 246(c)(4)(C)). 

16 ‘‘(B) NOTIONAL PRINCIPAL CONTRACT.— 

17 For purposes of subparagraph (A), the term 

18 ‘notional principal contract’ means a financial 

19 instrument that provides for the payment of 

20 amounts by 1 party to another at specified in21 tervals calculated by reference to a specified 

22 index upon a notional principal amount in ex23 change for specified consideration or a promise 

24 to pay similar amounts. 


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

2 this subsection— 

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

4 dividend’ means a payment, made to the trans5 feror of a security in a securities lending trans6 action or a sale-repurchase transaction, of an 

7 amount equivalent to a dividend distribution 

8 which the owner of the transferred security is 

9 entitled to receive during the term of the trans10 action. 

11 ‘‘(B) SECURITIES LENDING TRANS12 ACTION.—For purposes of subparagraph (A), 

13 the term ‘securities lending transaction’ means 

14 a transfer of 1 or more securities that is de15 scribed in section 1058(a) or a substantially 

16 similar transaction. 

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

18 For purposes of subparagraph (A), the term 

19 ‘sale-repurchase transaction’ means an agree20 ment under which a person transfers a security 

21 in exchange for cash and simultaneously agrees 

22 to receive substantially identical securities from 

23 the transferee in the future in exchange for 

24 cash. 


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

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

3 tax convention shall be construed to include dividend 

4 equivalents and substitute dividends in accordance 

5 with this section. 

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

7 the case of any dividend equivalent or substitute div8 idend that is subject to withholding under this sec9 tion or section 881, the Secretary may by regulation 

10 reduce such withholding, but only to the extent that 

11 the taxpayer can establish that the dividend for 

12 which the payment to be withheld upon is a dividend 

13 equivalent or a substitute dividend that was pre14 viously withheld upon under this section or under 

15 section 881.’’. 

16 (b) REGULATIONS.— 

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

18 after the date of the enactment of this Act, the Sec19 retary of the Treasury (or the Secretary’s designee) 

20 shall issue proposed regulations relating to section 

21 871(l) of the Internal Revenue Code of 1986 (as 

22 added by this section). 

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

24 after the date of the enactment of this Act, the SecVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00042 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 retary of the Treasury (or the Secretary’s designee) 

2 shall issue final regulations relating to such section. 

3 (3) MATTERS INCLUDED.—The regulations 

4 issued pursuant to this subsection shall require the 

5 imposition of withholding— 

6 (A) in cases where dividend equivalent pay7 ments under notional principal contracts are 

8 netted with other payments under the same in9 strument, 

10 (B) in cases where fees and other pay11 ments are netted to disguise the characteriza12 tion of a payment as a substitute dividend, and 

13 (C) in cases where option or forward con14 tracts (or similar arrangements) achieve the 

15 same or substantially similar economic results 

16 as the notional principal contracts covered 

17 under section 871(l) of such Code. 

18 (c) QUALIFIED INTERMEDIARIES.—The Secretary of 

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

20 that any qualified intermediary withholding agreement 

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

22 of the enactment of this Act with a foreign financial insti23 tution or foreign branch of a United States financial insti24 tution conforms with the amendments made by this secVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00043 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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1 tion to ensure appropriate withholding related to dividend 

2 equivalents and substitute dividends. 

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

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

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

6 this Act. 

7 (e) RULE OF CONSTRUCTION.—Nothing in this sec8 tion or the amendments made by this section shall be con9 strued to limit the authority of the Commissioner of the 

10 Internal Revenue Service to collect taxes, interest, and 

11 penalties on dividend equivalent or substitute dividend 

12 payments (as defined in section 871(l) of the Internal Rev13 enue Code of 1986) made prior to the date of the enact14 ment of this Act in connection with swap agreements, 

15 stock loan transactions, or other financial transactions in16 volving nonresident aliens or foreign corporations. 

17 SEC. 209. REPORTING OF ACTIVITIES WITH RESPECT TO 

18 PASSIVE FOREIGN INVESTMENT COMPANIES. 

19 (a) IN GENERAL.—Section 1298 is amended by re20 designating subsection (f) as subsection (g) and by insert21 ing after subsection (e) the following new subsection: 

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

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

24 transfers assets to, is a beneficiary of, has a beneficial in25 terest in, or receives money or property or the use thereof 


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1 from, a passive foreign investment company shall file a 

2 report containing such information as the Secretary may 

3 require.’’. 

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

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

6 inserting ‘‘and (d)’’. 

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

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

9 this Act. 

10 Subtitle B—Other Measures to 

11 Combat Tax Haven and Tax 

12 Shelter Abuses 

13 SEC. 211. PENALTY FOR FAILING TO DISCLOSE OFFSHORE 

14 HOLDINGS. 

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

16 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 

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

18 the following: 

19 ‘‘(iv) FOURTH TIER.—Notwithstanding 

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

21 penalty for each such violation shall not exceed 

22 $1,000,000 for any person if the violation de23 scribed in subparagraph (A) involved a knowing 

24 failure to disclose any holding or transaction in25 volving equity or debt instruments of an issuer 


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1 and known by such person to involve a foreign 

2 entity, including any trust, corporation, limited 

3 liability company, partnership, or foundation 

4 that is directly or indirectly controlled by such 

5 person, and which would have been otherwise 

6 subject to disclosure by such person under this 

7 title.’’. 

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

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

10 amended by adding at the end the following: 

11 ‘‘(D) FOURTH TIER.—Notwithstanding 

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

13 penalty for each such violation shall not exceed 

14 $1,000,000 for any person, if the violation de15 scribed in paragraph (1) involved a knowing 

16 failure to disclose any holding or transaction in17 volving equity or debt instruments of an issuer 

18 and known by such person to involve a foreign 

19 entity, including any trust, corporation, limited 

20 liability company, partnership, or foundation, 

21 directly or indirectly controlled by such person, 

22 and which would have been otherwise subject to 

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

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

25 9(d)(2) of the Investment Company Act of 1940 (15 


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•S 2955 IS

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

2 following: 

3 ‘‘(D) FOURTH TIER.—Notwithstanding 

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

5 penalty for each such violation shall not exceed 

6 $1,000,000 for any person, if the violation de7 scribed in paragraph (1) involved a knowing 

8 failure to disclose any holding or transaction in9 volving equity or debt instruments of an issuer 

10 and known by such person to involve a foreign 

11 entity, including any trust, corporation, limited 

12 liability company, partnership, or foundation, 

13 directly or indirectly controlled by such person, 

14 and which would have been otherwise subject to 

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

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

17 203(i)(2) of the Investment Advisers Act of 1940 (15 

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

19 following: 

20 ‘‘(D) FOURTH TIER.—Notwithstanding 

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

22 penalty for each such violation shall not exceed 

23 $1,000,000 for any person, if the violation de24 scribed in paragraph (1) involved a knowing 

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1 volving equity or debt instruments of an issuer 

2 and known by such person to involve a foreign 

3 entity, including any trust, corporation, limited 

4 liability company, partnership, or foundation, 

5 directly or indirectly controlled by such person, 

6 and which would have been otherwise subject to 

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

8 SEC. 212. DEADLINE FOR ANTI-MONEY LAUNDERING RULE 

9 FOR HEDGE FUNDS AND PRIVATE EQUITY 

10 FUNDS. 

11 (a) IN GENERAL.— 

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

13 after the date of the enactment of this Act, the Sec14 retary of the Treasury, in consultation with the 

15 Chairman of the Securities and Exchange Commis16 sion and the Chairman of the Commodity Futures 

17 Trading Commission, shall publish a proposed rule 

18 in the Federal Register requiring unregistered in19 vestment companies, including hedge funds or pri20 vate equity funds, to establish anti-money laundering 

21 programs and submit suspicious activity reports 

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

23 31, United States Code. 

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

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1 retary of the Treasury shall publish a final rule in 

2 the Federal Register on the matter described in 

3 paragraph (1). 

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

5 section— 

6 (1) shall require, at a minimum, that to safe7 guard against terrorist financing and money laun8 dering, all unregistered investment companies 

9 shall— 

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

11 procedures, and controls that are reasonably de12 signed to ascertain the identity of any foreign 

13 person (including the nominal and beneficial 

14 owner or beneficiary of a foreign corporation, 

15 partnership, trust, or other foreign entity) plan16 ning to supply or supplying funds to be invested 

17 with the advice or assistance of that unregis18 tered investment company; and 

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

20 title 31, United States Code; and 

21 (2) may incorporate aspects of the proposed 

22 rule for unregistered investment companies pub23 lished in the Federal Register on September 26, 

24 2002 (67 Fed. Reg. 60617) (relating to anti-money 

25 laundering programs). 


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1 (c) DEFINITIONS.—In this section— 

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

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

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

5 80a–2); and 

6 (2) the term ‘‘unregistered investment com7 pany’’ means an issuer that would be an investment 

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

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

10 Act of 1940 (15 U.S.C. 80a–3(c)). 

11 SEC. 213. ANTI-MONEY LAUNDERING REQUIREMENTS FOR 

12 FORMATION AGENTS. 

13 (a) ANTI-MONEY LAUNDERING OBLIGATIONS FOR

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

15 United States Code, is amended, by— 

16 (1) by striking ‘‘or’’ at the end of subparagraph 

17 (Y); 

18 (2) by redesignating subparagraph (Z) as sub19 paragraph (AA); and 

20 (3) by inserting after subparagraph (Y) the fol21 lowing: 

22 ‘‘(Z) persons involved in forming new cor23 porations, limited liability companies, partner24 ships, trusts, or other legal entities; or’’. 


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1 (b) DEADLINE FOR ANTI-MONEY LAUNDERING

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

3 after the date of the enactment of this Act, after con4 sulting with the Attorney General of the United States, 

5 the Commissioner of the Internal Revenue Service, and 

6 the Chairman of the Securities and Exchange Commis7 sion, the Secretary of the Treasury shall publish a pro8 posed rule in the Federal Register requiring persons de9 scribed in section 5312(a)(2)(Z) of title 31, United States 

10 Code, as added by this section, to establish anti-money 

11 laundering programs under subsection (h) of section 5318 

12 of that title. The Secretary shall publish such rule in final 

13 form in the Federal Register not later than 180 days after 

14 the date of the enactment of this Act. 

15 SEC. 214. STRENGTHENING SUMMONS IN CASES INVOLVING 

16 OFFSHORE SECRECY JURISDICTIONS. 

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

18 amended to read as follows: 

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

20 JOHN DOE SUMMONS.— 

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

22 in subsection (c)(1) which does not identify the per23 son with respect to whose liability the summons is 

24 issued may be served only after a court proceeding 

25 in which the Secretary establishes that— 


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1 ‘‘(A) the summons relates to the investiga2 tion of a particular person or ascertainable 

3 group or class of persons, 

4 ‘‘(B) there is a reasonable basis for believ5 ing that such person or group or class of per6 sons may fail or may have failed to comply with 

7 any provision of any internal revenue law, and 

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

9 from the examination of the records or testi10 mony (and the identity of the person or persons 

11 with respect to whose liability the summons is 

12 issued) is not readily available from other 

13 sources. 

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

15 apply to any summons which specifies that it is lim16 ited to information regarding a United States cor17 respondent account (as defined in section 

18 5318A(e)(1)(B) of title 31, United States Code) or 

19 a United States payable-through account (as defined 

20 in section 5318A(e)(1)(C) of such title) of a finan21 cial institution in an offshore secrecy jurisdiction. 

22 ‘‘(3) PRESUMPTION IN CASES INVOLVING OFF23 SHORE SECRECY JURISDICTIONS.—For purposes of 

24 this section, in any case in which the particular per25 son or ascertainable group or class of persons have 


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1 financial accounts in or transactions related to off2 shore secrecy jurisdictions, there shall be a presump3 tion that there is a reasonable basis for believing 

4 that such person or group or class of persons may 

5 fail or may have failed to comply with provisions of 

6 internal revenue law. 

7 ‘‘(4) PROJECT JOHN DOE SUMMONSES.— 

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

9 requirements of paragraph (1), the Secretary 

10 may issue a summons described in paragraph 

11 (1) if the summons— 

12 ‘‘(i) relates to a project which is ap13 proved under subparagraph (B), 

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

15 member of the group or class established 

16 under subparagraph (B)(i), and 

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

18 date on which such project was approved 

19 under subparagraph (B). 

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

21 may only be approved under this subparagraph 

22 after a court proceeding in which the Secretary 

23 establishes that— 

24 ‘‘(i) any summons issues with respect 

25 to the project will be issued to a member 


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1 of an ascertainable group or class of per2 sons, and 

3 ‘‘(ii) any summons issued with respect 

4 to such project will meet the requirements 

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

6 paragraph (1). 

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

8 the Secretary, the court may extend the time 

9 for issuing such summonses under subpara10 graph (A)(i) for additional 3-year periods, but 

11 only if the court continues to exercise oversight 

12 of such project under subparagraph (D). 

13 ‘‘(D) ONGOING COURT OVERSIGHT.—Dur14 ing any period in which the Secretary is author15 ized to issue summonses in relation to a project 

16 approved under subparagraph (B) (including 

17 during any extension under subparagraph (C)), 

18 the Secretary shall report annually to the court 

19 on the use of such authority, provide copies of 

20 all summonses with such report, and comply 

21 with the court’s direction with respect to the 

22 issuance of any John Doe summons under such 

23 project.’’. 

24 (b) JURISDICTION OF COURT.— 


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

2 7609(h) is amended by inserting after the first sen3 tence the following new sentence: ‘‘Any United 

4 States district court in which a member of the group 

5 or class to which a summons may be issued resides 

6 or is found shall have jurisdiction to hear and deter7 mine the approval of a project under subsection 

8 (f)(4)(B).’’. 

9 (2) CONFORMING AMENDMENT.—The first sen10 tence of section 7609(h)(1) is amended by striking 

11 ‘‘(f)’’ and inserting ‘‘(f)(1)’’. 

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

13 this section shall apply to summonses issued after the date 

14 of the enactment of this Act. 

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

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

17 the Comptroller General of the United States shall issue 

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

19 the Internal Revenue Code of 1986, as added by this sec20 tion. 

21 SEC. 215. IMPROVING ENFORCEMENT OF FOREIGN FINAN22 CIAL ACCOUNT REPORTING. 

23 (a) CLARIFYING THE CONNECTION OF FOREIGN FI24 NANCIAL ACCOUNT REPORTING TO TAX ADMINISTRA25 TION.—Paragraph (4) of section 6103(b) (relating to tax 


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1 administration) is amended by adding at the end the fol2 lowing new sentence: 

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

4 United States Code, and sections 5321 and 5322 of 

5 such title (as such sections pertain to such section 

6 5314), shall be considered to be an internal revenue 

7 law.’’. 

8 (b) SIMPLIFYING THE CALCULATION OF FOREIGN

9 FINANCIAL ACCOUNT REPORTING PENALTIES.—Section 

10 5321(a)(5)(D)(ii) of title 31, United States Code, is 

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

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

13 in the account during the reporting period to which the 

14 violation relates’’. 

15 (c) CLARIFYING THE USE OF SUSPICIOUS ACTIVITY

16 REPORTS UNDER THE BANK SECRECY ACT FOR CIVIL

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

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

19 criminal enforcement divisions of the Internal Revenue 

20 Service,’’ after ‘‘including’’. 


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1 Subtitle C—Combating Tax Shelter 

2 Promoters 

3 SEC. 221. PENALTY FOR PROMOTING ABUSIVE TAX SHEL4 TERS. 

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

7 shelters, etc.) is amended— 

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

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

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

11 through the period in the first sentence of subsection 

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

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

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

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

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

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

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

24 amount determined under paragraph (1) shall be 

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

2 which income was derived by the person or persons 

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

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

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

7 such activity, all such persons shall be jointly and 

8 severally liable for the penalty under such sub9 section. 

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

11 any penalty imposed under this section or the payment 

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

13 penalty shall not be considered an ordinary and necessary 

14 expense in carrying on a trade or business for purposes 

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

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

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

18 amended by striking the last sentence. 

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

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

21 enactment of this Act. 

22 SEC. 222. PENALTY FOR AIDING AND ABETTING THE UN23 DERSTATEMENT OF TAX LIABILITY. 

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


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

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

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

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

6 and 

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

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

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

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

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

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

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

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

19 or advice provided by the person or persons subject 

20 to such penalty. 

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

22 amount determined under paragraph (1) shall be 

23 calculated with respect to each instance of aid, as24 sistance, procurement, or advice described in sub25 section (a), each instance in which income was deVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00059 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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

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

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

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

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

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

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

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

13 any penalty imposed under this section or the payment 

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

15 penalty shall not be considered an ordinary and necessary 

16 expense in carrying on a trade or business for purposes 

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

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

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

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

21 enactment of this Act. 

22 SEC. 223. TAX PLANNING INVENTIONS NOT PATENTABLE. 

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

24 States Code, is amended— 


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

2 PATENTABLE INVENTIONS.—Whoever’’, and 

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

4 ‘‘(b) TAX PLANNING INVENTIONS.— 

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

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

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

9 (1)— 

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

11 means a plan, strategy, technique, scheme, 

12 process, or system that is designed to reduce, 

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

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

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

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

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

23 section 7701 of the Internal Revenue Code of 

24 1986), 


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

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

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

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

8 several States, the District of Columbia, and 

9 any commonwealth, territory, or possession of 

10 the United States.’’. 

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

12 section— 

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

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

16 application for a reissue patent that is— 

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

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

21 the application as of that date, and 

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

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


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

3 SEC. 224. PROHIBITED FEE ARRANGEMENT. 

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

5 Act, is amended— 

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

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

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

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

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

11 (f).’’, and 

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

14 ‘‘(f) PROHIBITED FEE ARRANGEMENT.— 

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

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

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

21 ‘‘(A) tax savings or benefits, or 

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

23 other taxable income, 


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

3 (b). 

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

5 carry out the purposes of this subsection and may 

6 provide exceptions for fee arrangements that are in 

7 the public interest.’’. 

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

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

10 collections made after the date of the enactment of this 

11 Act. 

12 SEC. 225. PREVENTING TAX SHELTER ACTIVITIES BY FI13 NANCIAL INSTITUTIONS. 

14 (a) EXAMINATIONS.— 

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

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

19 to detect potential violations of section 6700 or 6701 

20 of the Internal Revenue Code of 1986, by depository 

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

23 (2) IMPLEMENTATION.—Each of the Federal 

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


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

2 institutions, brokers, dealers, or investment advisers 

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

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

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

8 any case in which an examination conducted under this 

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

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

13 Revenue Service, in accordance with applicable provisions 

14 of law. 

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

16 agencies and the Commission shall submit a joint written 

17 report to Congress in 2011 and 2014 on their progress 

18 in preventing violations of sections 6700 and 6701 of the 

19 Internal Revenue Code of 1986, by depository institutions, 

20 brokers, dealers, and investment advisers, as appropriate. 

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

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

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

25 78c); 


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

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

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

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

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

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

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

10 of the Treasury. 

11 SEC. 226. INFORMATION SHARING FOR ENFORCEMENT 

12 PURPOSES. 

13 (a) PROMOTION OF PROHIBITED TAX SHELTERS OR

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

15 disclosure to certain Federal officers and employees for 

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

17 at the end the following new paragraph: 

18 ‘‘(7) DISCLOSURE OF RETURNS AND RETURN

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

21 SCHEMES.— 

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

23 by the Secretary of a written request which 

24 meets the requirements of subparagraph (B) 

25 from the head of the United States Securities 


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1 and Exchange Commission, an appropriate 

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

4 the Public Company Accounting Oversight 

5 Board, a return or return information shall be 

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

8 in an investigation, examination, or proceeding 

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

11 issuer, or public accounting firm, or associated 

12 person, in connection with a potential or actual 

13 violation of section 6700 (promotion of abusive 

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

16 to promoting or facilitating inappropriate tax 

17 avoidance or tax evasion. Such disclosure shall 

18 be solely for use by such officers and employees 

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

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

23 joint investigation, examination, or proceeding 

24 with the Securities Exchange Commission, FedVerDate Nov 24 2008 02:29 Jan 27, 2010 Jkt 089200 PO 00000 Frm 00067 Fmt 6652 Sfmt 6201 E:\BILLS\S2955.IS S2955

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

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

4 the requirements of this subparagraph if it sets 

5 forth— 

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

7 examination, or proceeding, 

8 ‘‘(ii) the statutory authority under 

9 which such investigation, examination, or 

10 proceeding is being conducted, 

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

13 firm to which such return information re14 lates, 

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

16 which such return information relates, and 

17 ‘‘(v) the specific reason or reasons 

18 why such disclosure is, or may be, relevant 

19 to such investigation, examination or pro20 ceeding. 

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

22 purposes of this paragraph, the term ‘financial 

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

25 company, broker, dealer, investment company, 


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1 investment advisor, or other entity subject to 

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

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

7 officers or employees for administration of Federal laws 

8 not relating to tax administration) is amended by adding 

9 at the end the following new paragraph: 

10 ‘‘(9) DISCLOSURE OF RETURNS AND RETURN

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

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

14 by the Secretary of a written request which 

15 meets the requirements of subparagraph (B) 

16 from the head of the United States Securities 

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

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

22 examination, or proceeding by such requester to 

23 evaluate the accuracy of a financial statement 

24 or report, or to determine whether to require a 

25 restatement, penalize, or deter conduct by an 


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

3 with a potential or actual violation of auditing 

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

6 statements or reports. Such disclosure shall be 

7 solely for use by such officers and employees in 

8 such investigation, examination, or proceeding. 

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

10 the requirements of this subparagraph if it sets 

11 forth— 

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

13 examination, or proceeding, 

14 ‘‘(ii) the statutory authority under 

15 which such investigation, examination, or 

16 proceeding is being conducted, 

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

18 investment company, or public accounting 

19 firm to which such return information re20 lates, 

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

22 which such return information relates, and 

23 ‘‘(v) the specific reason or reasons 

24 why such disclosure is, or may be, relevant 


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

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

4 this section shall apply to disclosures and to information 

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

7 SEC. 227. DISCLOSURE OF INFORMATION TO CONGRESS. 

8 (a) DISCLOSURE BY TAX RETURN PREPARER.— 

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

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

11 read as follows: 

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

13 documents, if clearly identified: 

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

15 or local court of record. 

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

17 or State grand jury. 

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

20 performance of its duties by— 

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

23 subcommittee thereof, or 

24 ‘‘(II) any State agency, body, or 

25 commission charged under the laws of 


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1 the State or a political subdivision of 

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

5 (2) EFFECTIVE DATE.—The amendment made 

6 by this subsection shall apply to disclosures made 

7 after the date of the enactment of this Act pursuant 

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

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

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

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

12 follows: 

13 ‘‘(2) INSPECTION BY CONGRESS.— 

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

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

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

19 exemption from taxation under section 501 

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

22 status, or supporting information provided by 

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


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1 evaluating, determining, explaining, or relating 

2 to the tax exempt status of such organization 

3 (other than returns, unless such returns are 

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

7 other party relating to the tax exempt status of 

8 such organization. 

9 ‘‘(B) ADDITIONAL INFORMATION.—Section 

10 6103(f) shall apply with respect to— 

11 ‘‘(i) the application for exemption of 

12 any organization described in subsection 

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

14 from taxation under section 501(a) for any 

15 taxable year and any application referred 

16 to in subparagraph (B) of subsection 

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

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

19 the possession of the Secretary and which 

20 relate to such application, 

21 as if such papers constituted returns.’’. 

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

23 this section shall apply to disclosures and to information 

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


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1 SEC. 228. TAX OPINION STANDARDS FOR TAX PRACTI2 TIONERS. 

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

4 amended to read as follows: 

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

6 standards applicable to the rendering of written advice 

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

8 arrangement, or other transaction which has a potential 

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

11 ‘‘(1) Independence of the practitioner issuing 

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

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

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

19 would impair auditor independence. 

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

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

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

26 practitioner for the written advice. 


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1 ‘‘(7) Preventing practitioners and firms from 

2 aiding or abetting the understatement of tax liability 

3 by clients. 

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

6 SEC. 229. DENIAL OF DEDUCTION FOR CERTAIN FINES, 

7 PENALTIES, AND OTHER AMOUNTS. 

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

10 as follows: 

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

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

14 allowed under this chapter for any amount paid or 

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

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

18 of any law or the investigation or inquiry by such 

19 government or entity into the potential violation of 

20 any law. 

21 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

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

23 any amount which— 

24 ‘‘(A) the taxpayer establishes constitutes 

25 restitution (including remediation of property) 


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1 for damage or harm caused by or which may be 

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

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

5 court order or settlement agreement. 

6 Identification pursuant to subparagraph (B) alone 

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

9 amount paid or incurred as reimbursement to the 

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

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

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

16 suit in which no government or entity described in 

17 paragraph (4) is a party. 

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

20 paragraph if it is— 

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

23 sanctions) in connection with a qualified board 

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

25 or 


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

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

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

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

8 as taxes due.’’. 

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

10 this section shall apply to amounts paid or incurred on 

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

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

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

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

17 Subtitle D—Requiring Economic 

18 Substance 

19 SEC. 231. CLARIFICATION OF ECONOMIC SUBSTANCE DOC20 TRINE. 

21 (a) IN GENERAL.—Section 7701, as amended by sec22 tion 203, is amended by redesignating subsection (p) as 

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

24 following new subsection: 


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1 ‘‘(p) CLARIFICATION OF ECONOMIC SUBSTANCE

2 DOCTRINE; ETC.— 

3 ‘‘(1) GENERAL RULES.— 

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

5 a court determines that the economic substance 

6 doctrine is relevant for purposes of this title to 

7 a transaction (or series of transactions), such 

8 transaction (or series of transactions) shall have 

9 economic substance only if the requirements of 

10 this paragraph are met. 

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

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

14 economic substance only if— 

15 ‘‘(I) the transaction changes in a 

16 meaningful way (apart from Federal 

17 tax effects) the taxpayer’s economic 

18 position, and 

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

20 taxpayer has a substantial purpose 

21 (other than a Federal tax purpose) for 

22 entering into such transaction. 

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

25 transaction shall not be treated as having 


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1 economic substance solely by reason of 

2 having a potential for profit unless the 

3 present value of the reasonably expected 

4 pre-Federal tax profit from the transaction 

5 is substantial in relation to the present 

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

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

12 Secretary, foreign taxes. 

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

15 PURPOSE.—For purposes of clause 

16 (i)(II)— 

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

19 taken into account in determining 

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

22 purpose) if the origin of such financial 

23 accounting benefit is a reduction of 

24 Federal tax, and 


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1 ‘‘(II) the taxpayer shall not be 

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

5 the only such purpose is the reduction 

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

8 Federal taxes substantially equal to, 

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

11 between the laws imposing the taxes. 

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

13 purposes of this subsection— 

14 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

15 The term ‘economic substance doctrine’ means 

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

19 not have economic substance or lacks a business 

20 purpose. 

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

23 individual, this subsection shall apply only to 

24 transactions entered into in connection with a 


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1 trade or business or an activity engaged in for 

2 the production of income. 

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

5 provisions of this subsection shall not be construed 

6 as altering or supplanting any other rule of law or 

7 provision of this title, and the requirements of this 

8 subsection shall be construed as being in addition to 

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

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

14 from the application of this subsection.’’. 

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

16 this section shall apply to transactions entered into after 

17 the date of the enactment of this Act. 

18 SEC. 232. PENALTY FOR UNDERSTATEMENTS ATTRIB19 UTABLE TO TRANSACTIONS LACKING ECO20 NOMIC SUBSTANCE, ETC. 

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

22 amended by inserting after section 6662A the following 

23 new section: 


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

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

5 noneconomic substance transaction understatement for 

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

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

9 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

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

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

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

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

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

19 substance transaction understatement’ means any 

20 amount which would be an understatement under 

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

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

24 to which section 6662A would apply without regard 

25 to this paragraph. 


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

4 economic substance (within the meaning of section 

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

6 claimed benefit. 

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

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

10 the Internal Revenue Service may assert a penalty 

11 imposed under this section or may compromise all or 

12 any portion of such penalty. The Chief Counsel may 

13 delegate the authority under this paragraph only to 

14 an individual holding the position of chief of a 

15 branch within the Office of the Chief Counsel for the 

16 Internal Revenue Service. 

17 ‘‘(2) SPECIFIC REQUIREMENTS.— 

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

19 Counsel for the Internal Revenue Service (or 

20 the Chief Counsel’s delegate under paragraph 

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

22 this section unless, before the assertion of the 

23 penalty, the taxpayer is provided— 

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

25 penalty, and 


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

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

5 reasonable period of time after such notice. 

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

8 penalty imposed by this section in an amount 

9 greater than the amount which bears the same 

10 ratio to the amount of the penalty determined 

11 without regard to the compromise as— 

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

14 transaction understatement to which the 

15 penalty relates, bears to 

16 ‘‘(ii) the amount of the noneconomic 

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

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

22 ‘‘(A) DETERMINATION OF RELEVANCE BY

23 CHIEF COUNSEL.—The Chief Counsel for the 

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


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1 compromise, or collect a penalty imposed by 

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

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

6 this title to the transaction if the Chief Counsel 

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

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

10 a final order of a court that determines that the 

11 economic substance doctrine was not relevant 

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

14 this section with respect to the transaction (or 

15 series of transactions) shall be rescinded. 

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

18 to a compromise under paragraph (1). 

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

23 ‘‘(f) CROSS REFERENCES.— 


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

3 rules, see section 6662A(e). 

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

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

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

9 (1) The second sentence of section 

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

11 regard to items with respect to which a penalty is 

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

13 end. 

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

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

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

20 (B) in paragraph (2)(A)— 

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

22 ‘‘6663’’ in the text, and 

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

24 heading and inserting ‘‘AND ECONOMIC

25 SUBSTANCE PENALTIES’’, 


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1 (C) in paragraph (2)(B)— 

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

3 after ‘‘This section’’, and 

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

5 heading and inserting ‘‘AND ECONOMIC

6 SUBSTANCE PENALTIES’’, 

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

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

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

12 paragraph: 

13 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

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

17 term by section 6662B(c).’’. 

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

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

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


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

2 section 6662B with respect to any noneconomic 

3 substance transaction, or 

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

5 section 6662(h) with respect to any transaction 

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

7 have been subject to penalty under section 

8 6662A at a rate prescribed under section 

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

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

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

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

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

economic substance, etc.’’. 

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

15 this section shall apply to transactions entered into after 

16 the date of the enactment of this Act. 

17 SEC. 233. DENIAL OF DEDUCTION FOR INTEREST ON UN18 DERPAYMENTS ATTRIBUTABLE TO NON19 ECONOMIC SUBSTANCE TRANSACTIONS. 

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

22 transactions) is amended— 

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


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

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

3 with respect to which the requirement of section 

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

5 ‘‘(2) any noneconomic substance transaction 

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

7 and 

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

10 after ‘‘TRANSACTIONS’’. 

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

12 this section shall apply to transactions after the date of 

13 the enactment of this Act in taxable years ending after 

14 such date. 

Æ 


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