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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 2955 Introduced in Senate (IS)]

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.

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

SECTION 1. AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

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

               TITLE I--EMPLOYER PAYROLL INCREASE CREDIT

SEC. 101. EMPLOYER PAYROLL INCREASE CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new section:

``SEC. 45R. EMPLOYER PAYROLL INCREASE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the amount of the 
employer payroll increase credit determined under this section with 
respect to any employer is--
            ``(1) in the case of a taxable year beginning in 2010, 15 
        percent of the qualified payroll increase of such employer for 
        such taxable year, and
            ``(2) in the case of a taxable year beginning in 2011, 10 
        percent of the greater of--
                    ``(A) the qualified payroll increase of such 
                employer for such taxable year, or
                    ``(B) the qualified payroll increase of such 
                employer for the taxable year preceding such year.
    ``(b) Qualified Payroll Increase.--For purposes of this section--
            ``(1) In general.--The term `qualified payroll increase' 
        with respect to any taxable year means the amount, if any, by 
        which the employer's qualified payroll for such taxable year 
        exceeds the qualified payroll of the year preceding such 
        taxable year.
            ``(2) Qualified payroll.--The term `qualified payroll' 
        means the amount of all wages (within the meaning of section 
        3121(a), without regard to paragraph (1) thereof) paid or 
        incurred by an employer to the employees of such employer, 
        except that--
                    ``(A) only wages with respect to employees in the 
                United States shall be taken into account, and
                    ``(B) with respect to each such employee, such 
                wages shall be taken into account only to the extent 
                that such wages do not exceed the contribution and 
                benefit base as determined under section 230 of the 
                Social Security Act.
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Employment must be trade or business employment.--
        Wages paid or incurred to any employee by an employer shall be 
        taken into account under subsection (b)(2) for any taxable year 
        only if more than 50 percent of such wages paid or incurred 
        during such year are for services performed in a trade or 
        business of the employer.
            ``(2) Maintenance of base employment requirement.--
                    ``(A) In general.--No credit under this section 
                shall be allowed to any employer for any taxable year 
                if the total number of employees of such employer 
                during any quarter of such taxable year is less than 
                the total number of such employees during the 
                applicable base quarter.
                    ``(B) Applicable base quarter.--For purposes of 
                this paragraph, the applicable base quarter with 
                respect to any quarter is--
                            ``(i) in the case of the 4th quarter of the 
                        employer's taxable year beginning in 2010, the 
                        4th quarter of the employer's taxable year 
                        beginning in 2008, and
                            ``(ii) in the case of any other quarter of 
                        any taxable year, such quarter of the taxable 
                        year preceding such taxable year.
            ``(3) Controlled groups.--
                    ``(A) In general.--All employers treated as a 
                single employer under section (a) or (b) of section 52 
                shall be treated as a single employer for purposes of 
                this section.
                    ``(B) Allocation of credits.--The credit (if any) 
                determined under this section with respect to each such 
                employer shall be its proportionate share of the 
                qualified payroll increase giving rise to such credit.
            ``(4) Certain other rules made applicable.--Rules similar 
        to the rules of subsections (i)(1) and (k) of section 51 and 
        subsections (d) and (e) of section 52 shall apply.
    ``(d) Coordination With Other Credits.--In the case of any taxable 
year, the amount of the wages taken into account in determining the 
credit under this section shall be reduced, but not below zero, by the 
amount of any wages taken into account in determining a credit under 
section 41(a), section 45A(a), section 51(a), section 1396(a), or 
subsection (a), (b), or (c) of section 1400R for such taxable year.''.
    (b) Credit To Be Part of General Business Credit.--Section 38(b) is 
amended by striking ``plus'' at the end of paragraph (34), by striking 
the period at the end of paragraph (35) and inserting ``, plus'', and 
by adding at the end the following new paragraph:
            ``(36) the employer payroll increase credit determined 
        under section 45R.''.
    (c) Conforming Amendments.--
            (1) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (12), by striking the period at 
        the end of paragraph (13) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(14) the employer payroll increase credit determined 
        under section 45R.''.
            (2) Section 280C is amended by inserting ``45R(a),'' after 
        ``45P(a)''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45R. Employer payroll increase credit.''.
    (e) Investigation and Report on Enforcement Actions.--Not later 
than 6 months after the date of the enactment of this Act, and 
quarterly thereafter, the Commissioner of Internal Revenue shall submit 
a report to the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives on the enforcement 
measures taken to prevent and penalize fraud related to the employer 
payroll increase credit under section 45R of the Internal Revenue Code 
of 1986, including such information as--
            (1) general statistics related to the use of the credit,
            (2) cases of fraud, and
            (3) the status of investigatory and prosecutorial actions 
        related to such cases.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

                       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.

    (a) Presumptions for Internal Revenue Code of 1986.--
            (1) In general.--Chapter 76 is amended by inserting after 
        subchapter E the following new subchapter:

       ``Subchapter F--Presumptions for Certain Legal Proceedings

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

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

    ``(a) Control.--For purposes of any United States civil judicial or 
administrative proceeding to determine or collect tax, there shall be a 
rebuttable presumption that a United States person (other than an 
entity with shares regularly traded on an established securities 
market) who directly or indirectly formed, transferred assets to, was a 
beneficiary of, had a beneficial interest in, or received money or 
property or the use thereof from an entity, including a trust, 
corporation, limited liability company, partnership, or foundation 
(other than an entity with shares regularly traded on an established 
securities market), formed, domiciled, or operating in an offshore 
secrecy jurisdiction, exercised control over such entity. The 
presumption of control created by this subsection shall not be applied 
to prevent the Secretary from determining or arguing the absence of 
control.
    ``(b) Transfers of Income.--For purposes of any United States civil 
judicial or administrative proceeding to determine or collect tax, 
there shall be a rebuttable presumption that any amount or thing of 
value received by a United States person (other than an entity with 
shares regularly traded on an established securities market) directly 
or indirectly from an account or entity (other than an entity with 
shares regularly traded on an established securities market) in an 
offshore secrecy jurisdiction, constitutes income of such person 
taxable in the year of receipt, and any amount or thing of value paid 
or transferred by or on behalf of a United States person (other than an 
entity with shares regularly traded on an established securities 
market) directly or indirectly to an account or entity (other than an 
entity with shares regularly traded on an established securities 
market) in any such jurisdiction represents previously unreported 
income of such person taxable in the year of the transfer.
    ``(c) Rebutting the Presumptions.--The presumptions established in 
this section may be rebutted only by clear and convincing evidence, 
including detailed documentary, testimonial, and transactional 
evidence, establishing that--
            ``(1) in subsection (a), such taxpayer exercised no 
        control, directly or indirectly, over such entity at the time 
        in question, and
            ``(2) in subsection (b), such amounts or things of value 
        did not represent income related to such United States person.
Any court having jurisdiction of a civil proceeding in which control of 
such an offshore entity or the income character of such receipts or 
amounts transferred is an issue shall prohibit the introduction by the 
taxpayer of any foreign based document that is not authenticated in 
open court by a person with knowledge of such document, or any other 
evidence supplied by a person outside the jurisdiction of a United 
States court, unless such person appears before the court.''.
            (2) The table of subchapters for chapter 76 is amended by 
        inserting after the item relating to subchapter E the following 
        new item:

     ``subchapter f--presumptions for certain legal proceedings''.

    (b) Definition of Offshore Secrecy Jurisdiction.--Section 7701(a) 
is amended by adding at the end the following new paragraph:
            ``(51) Offshore secrecy jurisdiction.--
                    ``(A) In general.--The term `offshore secrecy 
                jurisdiction' means any foreign jurisdiction which is 
                listed by the Secretary as an offshore secrecy 
                jurisdiction for purposes of this title.
                    ``(B) Determination of jurisdictions on list.--A 
                jurisdiction shall be listed under paragraph (A) if the 
                Secretary determines that such jurisdiction has 
                corporate, business, bank, or tax secrecy rules and 
                practices which, in the judgment of the Secretary, 
                unreasonably restrict the ability of the United States 
                to obtain information relevant to the enforcement of 
                this title, unless the Secretary also determines that 
                such country has effective information exchange 
                practices.
                    ``(C) Secrecy or confidentiality rules and 
                practices.--For purposes of subparagraph (B), 
                corporate, business, bank, or tax secrecy or 
                confidentiality rules and practices include both formal 
                laws and regulations and informal government or 
                business practices having the effect of inhibiting 
                access of law enforcement and tax administration 
                authorities to beneficial ownership and other financial 
                information.
                    ``(D) Ineffective information exchange practices.--
                For purposes of subparagraph (B), a jurisdiction shall 
                be deemed to have ineffective information exchange 
                practices unless the Secretary determines, on an annual 
                basis, that--
                            ``(i) such jurisdiction has in effect a 
                        treaty or other information exchange agreement 
                        with the United States that provides for the 
                        prompt, obligatory, and automatic exchange of 
                        such information as is forseeably relevant for 
                        carrying out the provisions of the treaty or 
                        agreement or the administration or enforcement 
                        of this title,
                            ``(ii) during the 12-month period preceding 
                        the annual determination, the exchange of 
                        information between the United States and such 
                        jurisdiction was in practice adequate to 
                        prevent evasion or avoidance of United States 
                        income tax by United States persons and to 
                        enable the United States effectively to enforce 
                        this title, and
                            ``(iii) during the 12-month period 
                        preceding the annual determination, such 
                        jurisdiction was not identified by an 
                        intergovernmental group or organization of 
                        which the United States is a member as 
                        uncooperative with international tax 
                        enforcement or information exchange and the 
                        United States concurs in such identification.
                    ``(E) Initial list of offshore secrecy 
                jurisdictions.--For purposes of this paragraph, each of 
                the following foreign jurisdictions, which have been 
                previously and publicly identified by the Internal 
                Revenue Service as secrecy jurisdictions in Federal 
                court proceedings, shall be deemed listed by the 
                Secretary as an offshore secrecy jurisdiction unless 
                delisted by the Secretary under subparagraph (F)(ii):
                            ``(i) Anguilla.
                            ``(ii) Antigua and Barbuda.
                            ``(iii) Aruba.
                            ``(iv) Bahamas.
                            ``(v) Barbados.
                            ``(vi) Belize.
                            ``(vii) Bermuda.
                            ``(viii) British Virgin Islands.
                            ``(ix) Cayman Islands.
                            ``(x) Cook Islands.
                            ``(xi) Costa Rica.
                            ``(xii) Cyprus.
                            ``(xiii) Dominica.
                            ``(xiv) Gibraltar.
                            ``(xv) Grenada.
                            ``(xvi) Guernsey/Sark/Alderney.
                            ``(xvii) Hong Kong.
                            ``(xviii) Isle of Man.
                            ``(xix) Jersey.
                            ``(xx) Latvia.
                            ``(xxi) Liechtenstein.
                            ``(xxii) Luxembourg.
                            ``(xxiii) Malta.
                            ``(xxiv) Nauru.
                            ``(xxv) Netherlands Antilles.
                            ``(xxvi) Panama.
                            ``(xxvii) Samoa.
                            ``(xxviii) St. Kitts and Nevis.
                            ``(xxix) St. Lucia.
                            ``(xxx) St. Vincent and the Grenadines.
                            ``(xxxi) Singapore.
                            ``(xxxii) Switzerland.
                            ``(xxxiii) Turks and Caicos.
                            ``(xxxiv) Vanuatu.
                    ``(F) Modifications to list.--The Secretary--
                            ``(i) shall add to the list under paragraph 
                        (A) jurisdictions which meet the requirements 
                        of paragraph (B), and
                            ``(ii) may remove from such list only those 
                        jurisdictions which do not meet the 
                        requirements of paragraph (B).''.
    (c) Presumptions for Securities Law Purposes.--Section 21 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at 
the end the following the following new subsection:
    ``(j) Presumptions Pertaining to Control and Beneficial 
Ownership.--
            ``(1) Control.--For purposes of any civil judicial or 
        administrative proceeding under this title, there shall be a 
        rebuttable presumption that a United States person (other than 
        an entity with shares regularly traded on an established 
        securities market) who directly or indirectly formed, 
        transferred assets to, was a beneficiary of, had a beneficial 
        interest in, or received money or property or the use thereof 
        from an entity, including a trust, corporation, limited 
        liability company, partnership, or foundation (other than an 
        entity with shares regularly traded on an established 
        securities market), formed, domiciled, or operating in an 
        offshore secrecy jurisdiction (as defined in section 
        7701(a)(51) of the Internal Revenue Code of 1986), exercised 
        control over such entity. The presumption of control created by 
        this paragraph shall not be applied to prevent the Commission 
        from determining or arguing the absence of control.
            ``(2) Beneficial ownership.--For purposes of any civil 
        judicial or administrative proceeding under this title, there 
        shall be a rebuttable presumption that securities that are 
        nominally owned by an entity, including a trust, corporation, 
        limited liability company, partnership, or foundation (other 
        than an entity with shares regularly traded on an established 
        securities market), formed, domiciled, or operating in an 
        offshore secrecy jurisdiction (as so defined), are beneficially 
        owned by any United States person (other than an entity with 
        shares regularly traded on an established securities market) 
        who directly or indirectly exercised control over such entity. 
        The presumption of beneficial ownership created by this 
        paragraph shall not be applied to prevent the Commission from 
        determining or arguing the absence of beneficial ownership.''.
    (d) Presumption for Reporting Purposes Relating to Foreign 
Financial Accounts.--Section 5314 of title 31, United States Code, is 
amended by adding at the end the following:
    ``(d) Rebuttable Presumption.--For purposes of this section, there 
shall be a rebuttable presumption that any account with a financial 
institution formed, domiciled, or operating in an offshore secrecy 
jurisdiction (as defined in section 7701(a)(51) of the Internal Revenue 
Code of 1986) contains funds in an amount that is at least sufficient 
to require a report prescribed by regulations under this section.''.
    (e) Regulatory Authority and Effective Date.--
            (1) Regulatory authority.--Not later than 180 days after 
        the date of the enactment of this Act, the Secretary of the 
        Treasury and the Chairman of the Securities and Exchange 
        Commission shall each adopt regulations or other guidance 
        necessary to implement the amendments made by this section. The 
        Secretary and the Chairman may by regulation or guidance 
        provide that the presumption of control shall not extend to 
        particular classes of transactions, such as corporate 
        reorganizations or transactions below a specified dollar 
        threshold, if either determines that applying such amendments 
        to such transactions is not necessary to carry out the purposes 
        of such amendments.
            (2) Effective date.--The amendments made by this section 
        shall take effect on the date of the enactment of this Act.

SEC. 202. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS, 
              FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED 
              STATES TAX ENFORCEMENT.

    Section 5318A of title 31, United States Code, is amended--
            (1) by striking the section heading and inserting the 
        following:
``Sec. 5318A. Special measures for jurisdictions, financial 
              institutions, or international transactions that are of 
              primary money laundering concern or impede United States 
              tax enforcement'';
            (2) in subsection (a), by striking the subsection heading 
        and inserting the following:
    ``(a) Special Measures To Counter Money Laundering and Efforts To 
Impede United States Tax Enforcement.--'';
            (3) in subsection (c), by striking the subsection heading 
        and inserting the following:
    ``(c) Consultations and Information To Be Considered in Finding 
Jurisdictions, Institutions, Types of Accounts, or Transactions To Be 
of Primary Money Laundering Concern or To Be Impeding United States Tax 
Enforcement.--'';
            (4) in subsection (a)(1), by inserting ``or is impeding 
        United States tax enforcement'' after ``primary money 
        laundering concern'';
            (5) in subsection (a)(4)--
                    (A) in subparagraph (A)--
                            (i) by inserting ``in matters involving 
                        money laundering,'' before ``shall consult''; 
                        and
                            (ii) by striking ``and'' at the end;
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C); and
                    (C) by inserting after subparagraph (A) the 
                following:
                    ``(B) in matters involving United States tax 
                enforcement, shall consult with the Commissioner of the 
                Internal Revenue Service, the Secretary of State, the 
                Attorney General of the United States, and in the sole 
                discretion of the Secretary, such other agencies and 
                interested parties as the Secretary may find to be 
                appropriate; and'';
            (6) in each of paragraphs (1)(A), (2), (3), and (4) of 
        subsection (b), by inserting ``or to be impeding United States 
        tax enforcement'' after ``primary money laundering concern'' 
        each place it appears;
            (7) in subsection (b), by striking paragraph (5) and 
        inserting the following:
            ``(5) Prohibitions or conditions on opening or maintaining 
        certain correspondent or payable-through accounts or 
        authorizing certain payment cards.--If the Secretary finds a 
        jurisdiction outside of the United States, 1 or more financial 
        institutions operating outside of the United States, or 1 or 
        more classes of transactions within or involving a jurisdiction 
        outside of the United States to be of primary money laundering 
        concern or to be impeding United States tax enforcement, the 
        Secretary, in consultation with the Secretary of State, the 
        Attorney General of the United States, and the Chairman of the 
        Board of Governors of the Federal Reserve System, may prohibit, 
        or impose conditions upon--
                    ``(A) the opening or maintaining in the United 
                States of a correspondent account or payable-through 
                account; or
                    ``(B) the authorization, approval, or use in the 
                United States of a credit card, charge card, debit 
                card, or similar credit or debit financial instrument 
                by any domestic financial institution, financial 
                agency, or credit card company or association, for or 
                on behalf of a foreign banking institution, if such 
                correspondent account, payable-through account, credit 
                card, charge card, debit card, or similar credit or 
                debit financial instrument, involves any such 
                jurisdiction or institution, or if any such transaction 
                may be conducted through such correspondent account, 
                payable-through account, credit card, charge card, 
                debit card, or similar credit or debit financial 
                instrument.'';
            (8) in subsection (c)(1), by inserting ``or is impeding 
        United States tax enforcement'' after ``primary money 
        laundering concern'';
            (9) in subsection (c)(2)(A)--
                    (A) in clause (ii), by striking ``bank secrecy or 
                special regulatory advantages'' and inserting ``bank, 
                tax, corporate, trust, or financial secrecy or 
                regulatory advantages'';
                    (B) in clause (iii), by striking ``supervisory and 
                counter-money'' and inserting ``supervisory, 
                international tax enforcement, and counter-money'';
                    (C) in clause (v), by striking ``banking or 
                secrecy'' and inserting ``banking, tax, or secrecy''; 
                and
                    (D) in clause (vi), by inserting ``, tax treaty, or 
                tax information exchange agreement'' after ``treaty'';
            (10) in subsection (c)(2)(B)--
                    (A) in clause (i), by inserting ``or tax evasion'' 
                after ``money laundering''; and
                    (B) in clause (iii), by inserting ``, tax 
                evasion,'' after ``money laundering''; and
            (11) in subsection (d), by inserting ``involving money 
        laundering, and shall notify, in writing, the Committee on 
        Finance of the Senate and the Committee on Ways and Means of 
        the House of Representatives of any such action involving 
        United States tax enforcement'' after ``such action''.

SEC. 203. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN 
              THE UNITED STATES AS DOMESTIC CORPORATIONS.

    (a) In General.--Section 7701 (relating to definitions) is amended 
by redesignating subsection (o) as subsection (p) and by inserting 
after subsection (n) the following new subsection:
    ``(o) Certain Corporations Managed and Controlled in the United 
States Treated as Domestic for Income Tax.--
            ``(1) In general.--Notwithstanding subsection (a)(4), in 
        the case of a corporation described in paragraph (2), if--
                    ``(A) the corporation would not otherwise be 
                treated as a domestic corporation for purposes of this 
                title, but
                    ``(B) the management and control of the corporation 
                occurs, directly or indirectly, primarily within the 
                United States,
        then, solely for purposes of chapter 1 (and any other provision 
        of this title relating to chapter 1), the corporation shall be 
        treated as a domestic corporation.
            ``(2) Corporation described.--
                    ``(A) In general.--A corporation is described in 
                this paragraph if--
                            ``(i) the stock of such corporation is 
                        regularly traded on an established securities 
                        market, or
                            ``(ii) the aggregate gross assets of such 
                        corporation (or any predecessor thereof), 
                        including assets under management for 
                        investors, whether held directly or indirectly, 
                        at any time during the taxable year or any 
                        preceding taxable year is $50,000,000 or more.
                    ``(B) General exception.--A corporation shall not 
                be treated as described in this paragraph if--
                            ``(i) such corporation was treated as a 
                        corporation described in this paragraph in a 
                        preceding taxable year,
                            ``(ii) such corporation--
                                    ``(I) is not regularly traded on an 
                                established securities market, and
                                    ``(II) has, and is reasonably 
                                expected to continue to have, aggregate 
                                gross assets (including assets under 
                                management for investors, whether held 
                                directly or indirectly) of less than 
                                $50,000,000, and
                            ``(iii) the Secretary grants a waiver to 
                        such corporation under this subparagraph.
                    ``(C) Exception from gross assets test.--
                Subparagraph (A)(ii) shall not apply to a corporation 
                which is a controlled foreign corporation (as defined 
                in section 957) and which is a member of an affiliated 
                group (as defined section 1504, but determined without 
                regard to section 1504(b)(3)) the common parent of 
                which--
                            ``(i) is a domestic corporation (determined 
                        without regard to this subsection), and
                            ``(ii) has substantial assets (other than 
                        cash and cash equivalents and other than stock 
                        of foreign subsidiaries) held for use in the 
                        active conduct of a trade or business in the 
                        United States.
            ``(3) Management and control.--
                    ``(A) In general.--The Secretary shall prescribe 
                regulations for purposes of determining cases in which 
                the management and control of a corporation is to be 
                treated as occurring primarily within the United 
                States.
                    ``(B) Executive officers and senior management.--
                Such regulations shall provide that--
                            ``(i) the management and control of a 
                        corporation shall be treated as occurring 
                        primarily within the United States if 
                        substantially all of the executive officers and 
                        senior management of the corporation who 
                        exercise day-to-day responsibility for making 
                        decisions involving strategic, financial, and 
                        operational policies of the corporation are 
                        located primarily within the United States, and
                            ``(ii) individuals who are not executive 
                        officers and senior management of the 
                        corporation (including individuals who are 
                        officers or employees of other corporations in 
                        the same chain of corporations as the 
                        corporation) shall be treated as executive 
                        officers and senior management if such 
                        individuals exercise the day-to-day 
                        responsibilities of the corporation described 
                        in clause (i).
                    ``(C) Corporations primarily holding investment 
                assets.--Such regulations shall also provide that the 
                management and control of a corporation shall be 
                treated as occurring primarily within the United States 
                if--
                            ``(i) the assets of such corporation 
                        (directly or indirectly) consist primarily of 
                        assets being managed on behalf of investors, 
                        and
                            ``(ii) decisions about how to invest the 
                        assets are made in the United States.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after the date which is 2 years 
after the date of the enactment of this Act.

SEC. 204. ALLOWING MORE TIME FOR INVESTIGATIONS INVOLVING OFFSHORE 
              SECRECY JURISDICTIONS.

    (a) In General.--Section 6501(c) is amended by adding at the end 
the following new paragraph:
            ``(11) Returns involving offshore secrecy jurisdictions.--
        In the case of a return for a year in which the taxpayer 
        directly or indirectly formed, owned, transferred assets to, 
        was a beneficiary of, had a beneficial interest in, or received 
        money or property or the use thereof from a financial account 
        or an entity (other than an entity with shares regularly traded 
        on an established securities market), including a trust, 
        corporation, limited liability company, partnership, or 
        foundation formed, located, domiciled or operating in an 
        offshore secrecy jurisdiction, the tax may be assessed, or a 
        proceeding in court for the collection of such tax may be begun 
        without assessment, at any time within 6 years after the return 
        was filed.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to--
            (1) returns filed after the date of the enactment of this 
        Act, and
            (2) returns filed on or before such date if the period 
        specified in section 6501 of the Internal Revenue Code of 1986 
        (determined without regard to the amendments made by subsection 
        (a)) for assessment of such taxes has not expired as of such 
        date.

SEC. 205. REPORTING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED 
              FINANCIAL ACCOUNTS.

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

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

    ``(a) Requirement of Return.--If--
            ``(1) any withholding agent under sections 1441 and 1442 
        has the control, receipt, custody, disposal, or payment of any 
        amount constituting gross income from sources within the United 
        States of any foreign entity, including a trust, corporation, 
        limited liability company, partnership, or foundation (other 
        than an entity with shares regularly traded on an established 
        securities market), and
            ``(2) such withholding agent determines for purposes of 
        titles 14, 18, or 31 of the United States Code that a United 
        States person has any beneficial interest in the foreign entity 
        or in the account in such entity's name (hereafter in this 
        section referred to as `United States beneficial owner'),
then the withholding agent shall make a return according to the forms 
or regulations prescribed by the Secretary.
    ``(b) Required Information.--For purposes of subsection (a), the 
information required to be included on the return shall include--
            ``(1) the name, address, and, if known, the taxpayer 
        identification number of the United States beneficial owner,
            ``(2) the known facts pertaining to the relationship of 
        such United States beneficial owner to the foreign entity and 
        the account,
            ``(3) the gross amount of income from sources within the 
        United States (including gross proceeds from brokerage 
        transactions), and
            ``(4) such other information as the Secretary may by forms 
        or regulations provide.
    ``(c) Statements To Be Furnished to Beneficial Owners With Respect 
to Whom Information Is Required To Be Reported.--A withholding agent 
required to make a return under subsection (a) shall furnish to each 
United States beneficial owner whose name is required to be set forth 
in such return a statement showing--
            ``(1) the name, address, and telephone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to such United States beneficial owner.
The written statement required under the preceding sentence shall be 
furnished to the United States beneficial owner on or before January 31 
of the year following the calendar year for which the return under 
subsection (a) was required to be made. In the event the person filing 
such return does not have a current address for the United States 
beneficial owner, such written statement may be mailed to the address 
of the foreign entity.

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

    ``(a) Requirement of Return.--Any financial institution directly or 
indirectly--
            ``(1) opening a bank, brokerage, or other financial 
        account, or
            ``(2) forming or acquiring an entity, including a trust, 
        corporation, limited liability company, partnership, or 
        foundation (other than an entity with shares regularly traded 
        on an established securities market),
in an offshore secrecy jurisdiction at the direction of, on behalf of, 
or for the benefit of a United States person shall make a return 
according to the forms or regulations prescribed by the Secretary.
    ``(b) Required Information.--For purposes of subsection (a), the 
information required to be included on the return shall include--
            ``(1) the name, address, and taxpayer identification number 
        of such United States person,
            ``(2) the name and address of the financial institution at 
        which a financial account is opened, the type of account, the 
        account number, the name under which the account was opened, 
        and the amount of the initial deposit,
            ``(3) the name and address of an entity formed or acquired, 
        the type of entity, and the name and address of any company 
        formation agent or other professional employed to form or 
        acquire the entity, and
            ``(4) such other information as the Secretary may by forms 
        or regulations provide.
    ``(c) Statements To Be Furnished to United States Persons With 
Respect to Whom Information Is Required To Be Reported.--A financial 
institution required to make a return under subsection (a) shall 
furnish to each United States person whose name is required to be set 
forth in such return a statement showing--
            ``(1) the name, address, and telephone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to such United States person.
The written statement required under the preceding sentence shall be 
furnished to such United States person on or before January 31 of the 
year following the calendar year for which the return under subsection 
(a) was required to be made.
    ``(d) Exemption.--The Secretary may by regulations exempt any class 
of United States persons or any class of accounts or entities from the 
requirements of this section if the Secretary determines that applying 
this section to such persons, accounts, or entities is not necessary to 
carry out the purposes of this section.''.
    (b) Penalties.--
            (1) Returns.--Section 6724(d)(1)(B), as amended by the 
        Energy Improvement and Extension Act of 2008, is amended by 
        redesignating clauses (v) through (xxiii) as clauses (vii) 
        through (xxv), respectively, and by inserting after clause (iv) 
        the following new clauses:
                            ``(v) section 6045C(a) (relating to returns 
                        regarding United States beneficial owners of 
                        foreign owned financial accounts),
                            ``(vi) section 6045D(a) (relating to 
                        returns by financial institutions regarding 
                        establishment of accounts and creation of 
                        entities in offshore secrecy jurisdictions),''.
            (2) Payee statements.--Section 6724(d)(2), as amended by 
        such Act, is amended by redesignating subparagraphs (K) through 
        (FF) as subparagraphs (M) through (HH), respectively, and by 
        inserting after subparagraph (J) the following new 
        subparagraphs:
                    ``(K) section 6045C(c) (relating to returns 
                regarding United States beneficial owners of foreign 
                owned financial accounts),
                    ``(L) section 6045D(c) (relating to returns by 
                financial institutions regarding establishment of 
                accounts and creation of entities in offshore secrecy 
                jurisdictions),''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6045B the following new items:

``Sec. 6045C. Returns regarding United States beneficial owners of 
                            foreign owned financial accounts.
``Sec. 6045D. Returns by financial institutions regarding establishment 
                            of accounts and creation of entities in 
                            offshore secrecy jurisdictions.''.
    (d) Additional Penalties.--
            (1) Additional penalties on banks.--Section 5239(b)(1) of 
        the Revised Statutes (12 U.S.C. 93(b)(1)) is amended by 
        inserting ``or any of the provisions of section 6045D of the 
        Internal Revenue Code of 1986,'' after ``any regulation issued 
        pursuant to,''.
            (2) Additional penalties on securities firms.--Section 
        21(d)(3)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 
        78u(d)(3)(A)) is amended by inserting ``any of the provisions 
        of section 6045D of the Internal Revenue Code of 1986,'' after 
        ``the rules or regulations thereunder,''.
    (e) Regulatory Authority and Effective Date.--
            (1) Regulatory authority.--Not later than 180 days after 
        the date of the enactment of this Act, the Secretary of the 
        Treasury shall adopt regulations, forms, or other guidance 
        necessary to implement this section.
            (2) Effective date.--Section 6045C of the Internal Revenue 
        Code of 1986 (as added by this section) and the amendment made 
        by subsection (d)(1) shall take effect with respect to amounts 
        paid into foreign owned accounts after December 31 of the year 
        of the date of the enactment of this Act. Section 6045D of such 
        Code (as so added) and the amendment made by subsection (d)(2) 
        shall take effect with respect to accounts opened or entities 
        formed or acquired after December 31 of the year of the date of 
        the enactment of this Act.

SEC. 206. PREVENTING MISUSE OF FOREIGN TRUSTS FOR TAX EVASION.

    (a) Attribution of Trust Protector Powers to Grantors.--Section 672 
is amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Grantor Treated as Holding Any Power or Interest of Trust 
Protector or Enforcer.--For purposes of this subpart, a grantor shall 
be treated as holding any power or interest held by any trust protector 
or trust enforcer or similar person appointed to advise, influence, 
oversee, or veto the actions of the trustee.''.
    (b) Treatment of United States Recipients of Foreign Trust Assets 
as Trust Beneficiaries.--Section 679 is amended by redesignating 
subsections (c) and (d) as subsections (d) and (e), respectively, and 
by inserting after subsection (b) the following new subsection:
    ``(c) Certain United States Persons Treated as Beneficiaries.--Any 
United States person receiving from a foreign trust cash or other 
property, or receiving the use thereof, shall be treated as a 
beneficiary of such trust regardless of whether such person is a named 
beneficiary, except to the extent that such person paid fair market 
value for the benefit received.''.
    (c) Treatment of Foreign Trust Transfers of Real Estate, Artwork, 
or Jewelry Consistently With Transfers of Securities.--Section 
643(i)(1) is amended by striking ``or marketable securities'' and 
inserting ``or other property, including real estate, marketable 
securities, artwork, jewelry, and other personal property,''.
    (d) Treatment of Trusts With Future or Contingent United States 
Beneficiaries.--Section 679(a)(1) is amended--
            (1) by inserting ``or for any subsequent year'' after 
        ``such year'', and
            (2) by inserting ``(including a contingent beneficiary)'' 
        after ``beneficiary''.

SEC. 207. LIMITATION ON LEGAL OPINION PROTECTION FROM PENALTIES WITH 
              RESPECT TO TRANSACTIONS INVOLVING OFFSHORE SECRECY 
              JURISDICTIONS.

    (a) In General.--Section 6664 is amended by adding at the end the 
following new subsection:
    ``(e) Certain Opinions May Not Be Relied Upon.--For purposes of 
this part, an opinion of a tax advisor may not be relied upon to 
establish that there was reasonable cause for any portion of an 
underpayment, or that the taxpayer acted in good faith with respect to 
such portion, if such portion is attributable to a transaction any part 
of which involves an entity or financial account in an offshore secrecy 
jurisdiction.''.
    (b) Regulatory Authority.--The Secretary of the Treasury may by 
regulation or guidance provide that subsection (e) of section 6664 of 
the Internal Revenue Code of 1986, as added by subsection (a), does not 
apply to legal opinions that express a confidence level that 
substantially exceeds the ``more likely than not'' confidence level; or 
that such subsection does not apply to classes of transactions, such as 
corporate reorganizations, where the Secretary determines that applying 
such subsection to such transactions is not necessary to carry out the 
purposes of such subsection.

SEC. 208. CLOSING THE OFFSHORE DIVIDEND TAX LOOPHOLE.

    (a) In General.--Section 871 is amended by redesignating subsection 
(l) as subsection (m) and by inserting after subsection (k) the 
following new subsection:
    ``(l) Treatment of Dividend Equivalents and Substitute Dividend 
Payments.--
            ``(1) In general.--For purposes of this section and section 
        881--
                    ``(A) the term `dividend' shall include dividend 
                equivalents and substitute dividends,
                    ``(B) a dividend equivalent with respect to the 
                stock of one or more domestic corporations shall be 
                treated as sourced within the United States, and
                    ``(C) a substitute dividend payment shall be 
                sourced in the same manner as a dividend distribution 
                with respect to the transferred security to which the 
                substitute dividend relates.
            ``(2) Dividend equivalent.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `dividend equivalent' 
                includes any payment that is made pursuant to a 
                notional principal contract and is contingent upon, or 
                is referenced to, the payment of a dividend on stock or 
                the payment of a dividend on property that is 
                substantially similar or related to stock (determined 
                in a manner similar to the manner under section 
                246(c)(4)(C)).
                    ``(B) Notional principal contract.--For purposes of 
                subparagraph (A), the term `notional principal 
                contract' means a financial instrument that provides 
                for the payment of amounts by 1 party to another at 
                specified intervals calculated by reference to a 
                specified index upon a notional principal amount in 
                exchange for specified consideration or a promise to 
                pay similar amounts.
            ``(3) Substitute dividend.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `substitute dividend' 
                means a payment, made to the transferor of a security 
                in a securities lending transaction or a sale-
                repurchase transaction, of an amount equivalent to a 
                dividend distribution which the owner of the 
                transferred security is entitled to receive during the 
                term of the transaction.
                    ``(B) Securities lending transaction.--For purposes 
                of subparagraph (A), the term `securities lending 
                transaction' means a transfer of 1 or more securities 
                that is described in section 1058(a) or a substantially 
                similar transaction.
                    ``(C) Sale-repurchase transaction.--For purposes of 
                subparagraph (A), the term `sale-repurchase 
                transaction' means an agreement under which a person 
                transfers a security in exchange for cash and 
                simultaneously agrees to receive substantially 
                identical securities from the transferee in the future 
                in exchange for cash.
            ``(4) Coordination with tax treaties.--The meaning of the 
        term `dividend' in any income tax convention shall be construed 
        to include dividend equivalents and substitute dividends in 
        accordance with this section.
            ``(5) Prevention of over-withholding.--In the case of any 
        dividend equivalent or substitute dividend that is subject to 
        withholding under this section or section 881, the Secretary 
        may by regulation reduce such withholding, but only to the 
        extent that the taxpayer can establish that the dividend for 
        which the payment to be withheld upon is a dividend equivalent 
        or a substitute dividend that was previously withheld upon 
        under this section or under section 881.''.
    (b) Regulations.--
            (1) Proposed rule.--Not later than 90 days after the date 
        of the enactment of this Act, the Secretary of the Treasury (or 
        the Secretary's designee) shall issue proposed regulations 
        relating to section 871(l) of the Internal Revenue Code of 1986 
        (as added by this section).
            (2) Final rule.--Not later than 150 days after the date of 
        the enactment of this Act, the Secretary of the Treasury (or 
        the Secretary's designee) shall issue final regulations 
        relating to such section.
            (3) Matters included.--The regulations issued pursuant to 
        this subsection shall require the imposition of withholding--
                    (A) in cases where dividend equivalent payments 
                under notional principal contracts are netted with 
                other payments under the same instrument,
                    (B) in cases where fees and other payments are 
                netted to disguise the characterization of a payment as 
                a substitute dividend, and
                    (C) in cases where option or forward contracts (or 
                similar arrangements) achieve the same or substantially 
                similar economic results as the notional principal 
                contracts covered under section 871(l) of such Code.
    (c) Qualified Intermediaries.--The Secretary of the Treasury (or 
the Secretary's designee) shall ensure that any qualified intermediary 
withholding agreement that the United States enters into or renews 
after the date of the enactment of this Act with a foreign financial 
institution or foreign branch of a United States financial institution 
conforms with the amendments made by this section to ensure appropriate 
withholding related to dividend equivalents and substitute dividends.
    (d) Effective Date.--The amendments made by this section shall 
apply to payments made on or after the date that is 90 days after the 
date of the enactment of this Act.
    (e) Rule of Construction.--Nothing in this section or the 
amendments made by this section shall be construed to limit the 
authority of the Commissioner of the Internal Revenue Service to 
collect taxes, interest, and penalties on dividend equivalent or 
substitute dividend payments (as defined in section 871(l) of the 
Internal Revenue Code of 1986) made prior to the date of the enactment 
of this Act in connection with swap agreements, stock loan 
transactions, or other financial transactions involving nonresident 
aliens or foreign corporations.

SEC. 209. REPORTING OF ACTIVITIES WITH RESPECT TO PASSIVE FOREIGN 
              INVESTMENT COMPANIES.

    (a) In General.--Section 1298 is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection:
    ``(f) Reporting Requirement.--Each person who is a shareholder of, 
or who directly or indirectly forms, transfers assets to, is a 
beneficiary of, has a beneficial interest in, or receives money or 
property or the use thereof from, a passive foreign investment company 
shall file a report containing such information as the Secretary may 
require.''.
    (b) Conforming Amendment.--Subsection (e) of section 1291 is 
amended by striking ``, (d), and (f)'' and inserting ``and (d)''.
    (c) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

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

SEC. 211. PENALTY FOR FAILING TO DISCLOSE OFFSHORE HOLDINGS.

    (a) Securities Exchange Act of 1934.--Section 21(d)(3)(B) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by 
adding at the end the following:
                    ``(iv) Fourth tier.--Notwithstanding clauses (i), 
                (ii), and (iii), the amount of the penalty for each 
                such violation shall not exceed $1,000,000 for any 
                person if the violation described in subparagraph (A) 
                involved a knowing failure to disclose any holding or 
                transaction involving equity or debt instruments of an 
                issuer and known by such person to involve a foreign 
                entity, including any trust, corporation, limited 
                liability company, partnership, or foundation that is 
                directly or indirectly controlled by such person, and 
                which would have been otherwise subject to disclosure 
                by such person under this title.''.
    (b) Securities Act of 1933.--Section 20(d)(2) of the Securities Act 
of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the 
following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.
    (c) Investment Company Act of 1940.--Section 9(d)(2) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by 
adding at the end the following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.
    (d) Investment Advisers Act of 1940.--Section 203(i)(2) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by 
adding at the end the following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.

SEC. 212. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR HEDGE FUNDS AND 
              PRIVATE EQUITY FUNDS.

    (a) In General.--
            (1) Proposed rule.--Not later than 90 days after the date 
        of the enactment of this Act, the Secretary of the Treasury, in 
        consultation with the Chairman of the Securities and Exchange 
        Commission and the Chairman of the Commodity Futures Trading 
        Commission, shall publish a proposed rule in the Federal 
        Register requiring unregistered investment companies, including 
        hedge funds or private equity funds, to establish anti-money 
        laundering programs and submit suspicious activity reports 
        under subsections (g) and (h) of section 5318 of title 31, 
        United States Code.
            (2) Final rule.--Not later than 180 days after the date of 
        the enactment of this Act, the Secretary of the Treasury shall 
        publish a final rule in the Federal Register on the matter 
        described in paragraph (1).
    (b) Contents.--The final rule published under this section--
            (1) shall require, at a minimum, that to safeguard against 
        terrorist financing and money laundering, all unregistered 
        investment companies shall--
                    (A) use risk-based due diligence policies, 
                procedures, and controls that are reasonably designed 
                to ascertain the identity of any foreign person 
                (including the nominal and beneficial owner or 
                beneficiary of a foreign corporation, partnership, 
                trust, or other foreign entity) planning to supply or 
                supplying funds to be invested with the advice or 
                assistance of that unregistered investment company; and
                    (B) be subject to section 5318(k)(2) of title 31, 
                United States Code; and
            (2) may incorporate aspects of the proposed rule for 
        unregistered investment companies published in the Federal 
        Register on September 26, 2002 (67 Fed. Reg. 60617) (relating 
        to anti-money laundering programs).
    (c) Definitions.--In this section--
            (1) the terms ``investment company'' and ``issuer'' have 
        the same meanings as in section 2 of the Investment Company Act 
        of 1940 (15 U.S.C. 80a-2); and
            (2) the term ``unregistered investment company'' means an 
        issuer that would be an investment company, but for the 
        exclusion under paragraph (1) or (7) of section 3(c) of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-3(c)).

SEC. 213. ANTI-MONEY LAUNDERING REQUIREMENTS FOR FORMATION AGENTS.

    (a) Anti-Money Laundering Obligations for Formation Agents.--
Section 5312(a)(2) of title 31, United States Code, is amended, by--
            (1) by striking ``or'' at the end of subparagraph (Y);
            (2) by redesignating subparagraph (Z) as subparagraph (AA); 
        and
            (3) by inserting after subparagraph (Y) the following:
                    ``(Z) persons involved in forming new corporations, 
                limited liability companies, partnerships, trusts, or 
                other legal entities; or''.
    (b) Deadline for Anti-Money Laundering Rule for Formation Agents.--
Not later than 90 days after the date of the enactment of this Act, 
after consulting with the Attorney General of the United States, the 
Commissioner of the Internal Revenue Service, and the Chairman of the 
Securities and Exchange Commission, the Secretary of the Treasury shall 
publish a proposed rule in the Federal Register requiring persons 
described in section 5312(a)(2)(Z) of title 31, United States Code, as 
added by this section, to establish anti-money laundering programs 
under subsection (h) of section 5318 of that title. The Secretary shall 
publish such rule in final form in the Federal Register not later than 
180 days after the date of the enactment of this Act.

SEC. 214. STRENGTHENING SUMMONS IN CASES INVOLVING OFFSHORE SECRECY 
              JURISDICTIONS.

    (a) In General.--Subsection (f) of section 7609 is amended to read 
as follows:
    ``(f) Additional Requirement in the Case of a John Doe Summons.--
            ``(1) General rule.--Any summons described in subsection 
        (c)(1) which does not identify the person with respect to whose 
        liability the summons is issued may be served only after a 
        court proceeding in which the Secretary establishes that--
                    ``(A) the summons relates to the investigation of a 
                particular person or ascertainable group or class of 
                persons,
                    ``(B) there is a reasonable basis for believing 
                that such person or group or class of persons may fail 
                or may have failed to comply with any provision of any 
                internal revenue law, and
                    ``(C) the information sought to be obtained from 
                the examination of the records or testimony (and the 
                identity of the person or persons with respect to whose 
                liability the summons is issued) is not readily 
                available from other sources.
            ``(2) Exception.--Paragraph (1) shall not apply to any 
        summons which specifies that it is limited to information 
        regarding a United States correspondent account (as defined in 
        section 5318A(e)(1)(B) of title 31, United States Code) or a 
        United States payable-through account (as defined in section 
        5318A(e)(1)(C) of such title) of a financial institution in an 
        offshore secrecy jurisdiction.
            ``(3) Presumption in cases involving offshore secrecy 
        jurisdictions.--For purposes of this section, in any case in 
        which the particular person or ascertainable group or class of 
        persons have financial accounts in or transactions related to 
        offshore secrecy jurisdictions, there shall be a presumption 
        that there is a reasonable basis for believing that such person 
        or group or class of persons may fail or may have failed to 
        comply with provisions of internal revenue law.
            ``(4) Project john doe summonses.--
                    ``(A) In general.--Notwithstanding the requirements 
                of paragraph (1), the Secretary may issue a summons 
                described in paragraph (1) if the summons--
                            ``(i) relates to a project which is 
                        approved under subparagraph (B),
                            ``(ii) is issued to a person who is a 
                        member of the group or class established under 
                        subparagraph (B)(i), and
                            ``(iii) is issued within 3 years of the 
                        date on which such project was approved under 
                        subparagraph (B).
                    ``(B) Approval of projects.--A project may only be 
                approved under this subparagraph after a court 
                proceeding in which the Secretary establishes that--
                            ``(i) any summons issues with respect to 
                        the project will be issued to a member of an 
                        ascertainable group or class of persons, and
                            ``(ii) any summons issued with respect to 
                        such project will meet the requirements of 
                        subparagraphs (A), (B), and (C) of paragraph 
                        (1).
                    ``(C) Extension.--Upon application of the 
                Secretary, the court may extend the time for issuing 
                such summonses under subparagraph (A)(i) for additional 
                3-year periods, but only if the court continues to 
                exercise oversight of such project under subparagraph 
                (D).
                    ``(D) Ongoing court oversight.--During any period 
                in which the Secretary is authorized to issue summonses 
                in relation to a project approved under subparagraph 
                (B) (including during any extension under subparagraph 
                (C)), the Secretary shall report annually to the court 
                on the use of such authority, provide copies of all 
                summonses with such report, and comply with the court's 
                direction with respect to the issuance of any John Doe 
                summons under such project.''.
    (b) Jurisdiction of Court.--
            (1) In general.--Paragraph (1) of section 7609(h) is 
        amended by inserting after the first sentence the following new 
        sentence: ``Any United States district court in which a member 
        of the group or class to which a summons may be issued resides 
        or is found shall have jurisdiction to hear and determine the 
        approval of a project under subsection (f)(4)(B).''.
            (2) Conforming amendment.--The first sentence of section 
        7609(h)(1) is amended by striking ``(f)'' and inserting 
        ``(f)(1)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to summonses issued after the date of the enactment of this Act.
    (d) GAO Report.--Not later than the date which is 5 years after the 
date of the enactment of this Act, the Comptroller General of the 
United States shall issue a report on the implementation of section 
7609(f)(4) of the Internal Revenue Code of 1986, as added by this 
section.

SEC. 215. IMPROVING ENFORCEMENT OF FOREIGN FINANCIAL ACCOUNT REPORTING.

    (a) Clarifying the Connection of Foreign Financial Account 
Reporting to Tax Administration.--Paragraph (4) of section 6103(b) 
(relating to tax administration) is amended by adding at the end the 
following new sentence:
        ``For purposes of clause (i), section 5314 of title 31, United 
        States Code, and sections 5321 and 5322 of such title (as such 
        sections pertain to such section 5314), shall be considered to 
        be an internal revenue law.''.
    (b) Simplifying the Calculation of Foreign Financial Account 
Reporting Penalties.--Section 5321(a)(5)(D)(ii) of title 31, United 
States Code, is amended by striking ``the balance in the account at the 
time of the violation'' and inserting ``the highest balance in the 
account during the reporting period to which the violation relates''.
    (c) Clarifying the Use of Suspicious Activity Reports Under the 
Bank Secrecy Act for Civil Tax Law Enforcement.--Section 5319 of title 
31, United States Code, is amended by inserting ``the civil and 
criminal enforcement divisions of the Internal Revenue Service,'' after 
``including''.

              Subtitle C--Combating Tax Shelter Promoters

SEC. 221. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

    (a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 
(relating to promoting abusive tax shelters, etc.) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (d) and (e), respectively,
            (2) by striking ``a penalty'' and all that follows through 
        the period in the first sentence of subsection (a) and 
        inserting ``a penalty determined under subsection (b).'', and
            (3) by inserting after subsection (a) the following new 
        subsections:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 150 percent of the gross 
        income derived (or to be derived) from such activity by the 
        person or persons subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of an activity described in subsection (a), 
        each instance in which income was derived by the person or 
        persons subject to such penalty, and each person who 
        participated in such an activity.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to such activity, all 
        such persons shall be jointly and severally liable for the 
        penalty under such subsection.
    ``(c) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (b) Conforming Amendment.--Section 6700(a) is amended by striking 
the last sentence.
    (c) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 222. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

    (a) In General.--Section 6701(a) (relating to imposition of 
penalty) is amended--
            (1) by inserting ``the tax liability or'' after ``respect 
        to,'' in paragraph (1),
            (2) by inserting ``aid, assistance, procurement, or advice 
        with respect to such'' before ``portion'' both places it 
        appears in paragraphs (2) and (3), and
            (3) by inserting ``instance of aid, assistance, 
        procurement, or advice or each such'' before ``document'' in 
        the matter following paragraph (3).
    (b) Amount of Penalty.--Subsection (b) of section 6701 (relating to 
penalties for aiding and abetting understatement of tax liability) is 
amended to read as follows:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 150 percent of the gross 
        income derived (or to be derived) from such aid, assistance, 
        procurement, or advice provided by the person or persons 
        subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of aid, assistance, procurement, or advice 
        described in subsection (a), each instance in which income was 
        derived by the person or persons subject to such penalty, and 
        each person who made such an understatement of the liability 
        for tax.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to providing such aid, 
        assistance, procurement, or advice, all such persons shall be 
        jointly and severally liable for the penalty under such 
        subsection.''.
    (c) Penalty Not Deductible.--Section 6701 is amended by adding at 
the end the following new subsection:
    ``(g) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 223. TAX PLANNING INVENTIONS NOT PATENTABLE.

    (a) In General.--Section 101 of title 35, United States Code, is 
amended--
            (1) by striking ``Whoever'' and inserting ``(a)  Patentable 
        Inventions.--Whoever'', and
            (2) by adding at the end the following:
    ``(b) Tax Planning Inventions.--
            ``(1) Unpatentable subject matter.--A patent may not be 
        obtained for a tax planning invention.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) the term `tax planning invention' means a 
                plan, strategy, technique, scheme, process, or system 
                that is designed to reduce, minimize, determine, avoid, 
                or defer, or has, when implemented, the effect of 
                reducing, minimizing, determining, avoiding, or 
                deferring, a taxpayer's tax liability or is designed to 
                facilitate compliance with tax laws, but does not 
                include tax preparation software and other tools or 
                systems used solely to prepare tax or information 
                returns,
                    ``(B) the term `taxpayer' means an individual, 
                entity, or other person (as defined in section 7701 of 
                the Internal Revenue Code of 1986),
                    ``(C) the terms `tax', `tax laws', `tax liability', 
                and `taxation' refer to any Federal, State, county, 
                city, municipality, foreign, or other governmental 
                levy, assessment, or imposition, whether measured by 
                income, value, or otherwise, and
                    ``(D) the term `State' means each of the several 
                States, the District of Columbia, and any commonwealth, 
                territory, or possession of the United States.''.
    (b) Applicability.--The amendments made by this section--
            (1) shall take effect on the date of the enactment of this 
        Act,
            (2) shall apply to any application for patent or 
        application for a reissue patent that is--
                    (A) filed on or after the date of the enactment of 
                this Act, or
                    (B) filed before that date if a patent or reissue 
                patent has not been issued pursuant to the application 
                as of that date, and
            (3) shall not be construed as validating any patent issued 
        before the date of the enactment of this Act for an invention 
        described in section 101(b) of title 35, United States Code, as 
        added by this section.

SEC. 224. PROHIBITED FEE ARRANGEMENT.

    (a) In General.--Section 6701, as amended by this Act, is amended--
            (1) by redesignating subsections (f) and (g) as subsections 
        (g) and (h), respectively,
            (2) by striking ``subsection (a).'' in paragraphs (2) and 
        (3) of subsection (g) (as redesignated by paragraph (1)) and 
        inserting ``subsection (a) or (f).'', and
            (3) by inserting after subsection (e) the following new 
        subsection:
    ``(f) Prohibited Fee Arrangement.--
            ``(1) In general.--Any person who makes an agreement for, 
        charges, or collects a fee which is for services provided in 
        connection with the internal revenue laws, and the amount of 
        which is calculated according to, or is dependent upon, a 
        projected or actual amount of--
                    ``(A) tax savings or benefits, or
                    ``(B) losses which can be used to offset other 
                taxable income,
        shall pay a penalty with respect to each such fee activity in 
        the amount determined under subsection (b).
            ``(2) Rules.--The Secretary may issue rules to carry out 
        the purposes of this subsection and may provide exceptions for 
        fee arrangements that are in the public interest.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to fee agreements, charges, and collections made after the date 
of the enactment of this Act.

SEC. 225. PREVENTING TAX SHELTER ACTIVITIES BY FINANCIAL INSTITUTIONS.

    (a) Examinations.--
            (1) Development of examination techniques.--Each of the 
        Federal banking agencies and the Commission shall, in 
        consultation with the Internal Revenue Service, develop 
        examination techniques to detect potential violations of 
        section 6700 or 6701 of the Internal Revenue Code of 1986, by 
        depository institutions, brokers, dealers, and investment 
        advisers, as appropriate.
            (2) Implementation.--Each of the Federal banking agencies 
        and the Commission shall implement the examination techniques 
        developed under paragraph (1) with respect to each of the 
        depository institutions, brokers, dealers, or investment 
        advisers subject to their enforcement authority. Such 
        examination shall, to the extent possible, be combined with any 
        examination by such agency otherwise required or authorized by 
        Federal law.
    (b) Report to Internal Revenue Service.--In any case in which an 
examination conducted under this section with respect to a financial 
institution or other entity reveals a potential violation, such agency 
shall promptly notify the Internal Revenue Service of such potential 
violation for investigation and enforcement by the Internal Revenue 
Service, in accordance with applicable provisions of law.
    (c) Report to Congress.--The Federal banking agencies and the 
Commission shall submit a joint written report to Congress in 2011 and 
2014 on their progress in preventing violations of sections 6700 and 
6701 of the Internal Revenue Code of 1986, by depository institutions, 
brokers, dealers, and investment advisers, as appropriate.
    (d) Definitions.--For purposes of this section--
            (1) the terms ``broker'', ``dealer'', and ``investment 
        adviser'' have the same meanings as in section 3 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c);
            (2) the term ``Commission'' means the Securities and 
        Exchange Commission;
            (3) the term ``depository institution'' has the same 
        meaning as in section 3(c) of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813(c));
            (4) the term ``Federal banking agencies'' has the same 
        meaning as in section 3(q) of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813(q)); and
            (5) the term ``Secretary'' means the Secretary of the 
        Treasury.

SEC. 226. INFORMATION SHARING FOR ENFORCEMENT PURPOSES.

    (a) Promotion of Prohibited Tax Shelters or Tax Avoidance 
Schemes.--Section 6103(h) (relating to disclosure to certain Federal 
officers and employees for purposes of tax administration, etc.) is 
amended by adding at the end the following new paragraph:
            ``(7) Disclosure of returns and return information related 
        to promotion of prohibited tax shelters or tax avoidance 
        schemes.--
                    ``(A) Written request.--Upon receipt by the 
                Secretary of a written request which meets the 
                requirements of subparagraph (B) from the head of the 
                United States Securities and Exchange Commission, an 
                appropriate Federal banking agency as defined under 
                section 1813(q) of title 12, United States Code, or the 
                Public Company Accounting Oversight Board, a return or 
                return information shall be disclosed to such 
                requestor's officers and employees who are personally 
                and directly engaged in an investigation, examination, 
                or proceeding by such requestor to evaluate, determine, 
                penalize, or deter conduct by a financial institution, 
                issuer, or public accounting firm, or associated 
                person, in connection with a potential or actual 
                violation of section 6700 (promotion of abusive tax 
                shelters), 6701 (aiding and abetting understatement of 
                tax liability), or activities related to promoting or 
                facilitating inappropriate tax avoidance or tax 
                evasion. Such disclosure shall be solely for use by 
                such officers and employees in such investigation, 
                examination, or proceeding. In the discretion of the 
                Secretary, such disclosure may take the form of the 
                participation of Internal Revenue Service employees in 
                a joint investigation, examination, or proceeding with 
                the Securities Exchange Commission, Federal banking 
                agency, or Public Company Accounting Oversight Board.
                    ``(B) Requirements.--A request meets the 
                requirements of this subparagraph if it sets forth--
                            ``(i) the nature of the investigation, 
                        examination, or proceeding,
                            ``(ii) the statutory authority under which 
                        such investigation, examination, or proceeding 
                        is being conducted,
                            ``(iii) the name or names of the financial 
                        institution, issuer, or public accounting firm 
                        to which such return information relates,
                            ``(iv) the taxable period or periods to 
                        which such return information relates, and
                            ``(v) the specific reason or reasons why 
                        such disclosure is, or may be, relevant to such 
                        investigation, examination or proceeding.
                    ``(C) Financial institution.--For the purposes of 
                this paragraph, the term `financial institution' means 
                a depository institution, foreign bank, insured 
                institution, industrial loan company, broker, dealer, 
                investment company, investment advisor, or other entity 
                subject to regulation or oversight by the United States 
                Securities and Exchange Commission or an appropriate 
                Federal banking agency.''.
    (b) Financial and Accounting Fraud Investigations.--Section 6103(i) 
(relating to disclosure to Federal officers or employees for 
administration of Federal laws not relating to tax administration) is 
amended by adding at the end the following new paragraph:
            ``(9) Disclosure of returns and return information for use 
        in financial and accounting fraud investigations.--
                    ``(A) Written request.--Upon receipt by the 
                Secretary of a written request which meets the 
                requirements of subparagraph (B) from the head of the 
                United States Securities and Exchange Commission or the 
                Public Company Accounting Oversight Board, a return or 
                return information shall be disclosed to such 
                requestor's officers and employees who are personally 
                and directly engaged in an investigation, examination, 
                or proceeding by such requester to evaluate the 
                accuracy of a financial statement or report, or to 
                determine whether to require a restatement, penalize, 
                or deter conduct by an issuer, investment company, or 
                public accounting firm, or associated person, in 
                connection with a potential or actual violation of 
                auditing standards or prohibitions against false or 
                misleading statements or omissions in financial 
                statements or reports. Such disclosure shall be solely 
                for use by such officers and employees in such 
                investigation, examination, or proceeding.
                    ``(B) Requirements.--A request meets the 
                requirements of this subparagraph if it sets forth--
                            ``(i) the nature of the investigation, 
                        examination, or proceeding,
                            ``(ii) the statutory authority under which 
                        such investigation, examination, or proceeding 
                        is being conducted,
                            ``(iii) the name or names of the issuer, 
                        investment company, or public accounting firm 
                        to which such return information relates,
                            ``(iv) the taxable period or periods to 
                        which such return information relates, and
                            ``(v) the specific reason or reasons why 
                        such disclosure is, or may be, relevant to such 
                        investigation, examination or proceeding.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to disclosures and to information and document requests made 
after the date of the enactment of this Act.

SEC. 227. DISCLOSURE OF INFORMATION TO CONGRESS.

    (a) Disclosure by Tax Return Preparer.--
            (1) In general.--Subparagraph (B) of section 7216(b)(1) 
        (relating to disclosures) is amended to read as follows:
                    ``(B) pursuant to any 1 of the following documents, 
                if clearly identified:
                            ``(i) The order of any Federal, State, or 
                        local court of record.
                            ``(ii) A subpoena issued by a Federal or 
                        State grand jury.
                            ``(iii) An administrative order, summons, 
                        or subpoena which is issued in the performance 
                        of its duties by--
                                    ``(I) any Federal agency, including 
                                Congress or any committee or 
                                subcommittee thereof, or
                                    ``(II) any State agency, body, or 
                                commission charged under the laws of 
                                the State or a political subdivision of 
                                the State with the licensing, 
                                registration, or regulation of tax 
                                return preparers.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to disclosures made after the date of the enactment 
        of this Act pursuant to any document in effect on or after such 
        date.
    (b) Disclosure by Secretary.--Paragraph (2) of section 6104(a) 
(relating to inspection of applications for tax exemption or notice of 
status) is amended to read as follows:
            ``(2) Inspection by congress.--
                    ``(A) In general.--Upon receipt of a written 
                request from a committee or subcommittee of Congress, 
                copies of documents related to a determination by the 
                Secretary to grant, deny, revoke, or restore an 
                organization's exemption from taxation under section 
                501 shall be provided to such committee or 
                subcommittee, including any application, notice of 
                status, or supporting information provided by such 
                organization to the Internal Revenue Service; any 
                letter, analysis, or other document produced by or for 
                the Internal Revenue Service evaluating, determining, 
                explaining, or relating to the tax exempt status of 
                such organization (other than returns, unless such 
                returns are available to the public under this section 
                or section 6103 or 6110); and any communication between 
                the Internal Revenue Service and any other party 
                relating to the tax exempt status of such organization.
                    ``(B) Additional information.--Section 6103(f) 
                shall apply with respect to--
                            ``(i) the application for exemption of any 
                        organization described in subsection (c) or (d) 
                        of section 501 which is exempt from taxation 
                        under section 501(a) for any taxable year and 
                        any application referred to in subparagraph (B) 
                        of subsection (a)(1) of this section, and
                            ``(ii) any other papers which are in the 
                        possession of the Secretary and which relate to 
                        such application,
                as if such papers constituted returns.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to disclosures and to information and document requests made 
after the date of the enactment of this Act.

SEC. 228. TAX OPINION STANDARDS FOR TAX PRACTITIONERS.

    Section 330(d) of title 31, United States Code, is amended to read 
as follows:
    ``(d) The Secretary of the Treasury shall impose standards 
applicable to the rendering of written advice with respect to any 
listed transaction or any entity, plan, arrangement, or other 
transaction which has a potential for tax avoidance or evasion. Such 
standards shall address, but not be limited to, the following issues:
            ``(1) Independence of the practitioner issuing such written 
        advice from persons promoting, marketing, or recommending the 
        subject of the advice.
            ``(2) Collaboration among practitioners, or between a 
        practitioner and other party, which could result in such 
        collaborating parties having a joint financial interest in the 
        subject of the advice.
            ``(3) Avoidance of conflicts of interest which would impair 
        auditor independence.
            ``(4) For written advice issued by a firm, standards for 
        reviewing the advice and ensuring the consensus support of the 
        firm for positions taken.
            ``(5) Reliance on reasonable factual representations by the 
        taxpayer and other parties.
            ``(6) Appropriateness of the fees charged by the 
        practitioner for the written advice.
            ``(7) Preventing practitioners and firms from aiding or 
        abetting the understatement of tax liability by clients.
            ``(8) Banning the promotion of potentially abusive or 
        illegal tax shelters.''.

SEC. 229. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation to 
        the violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which--
                    ``(A) the taxpayer establishes constitutes 
                restitution (including remediation of property) for 
                damage or harm caused by or which may be caused by the 
                violation of any law or the potential violation of any 
                law, and
                    ``(B) is identified as restitution in the court 
                order or settlement agreement.
        Identification pursuant to subparagraph (B) alone shall not 
        satisfy the requirement under subparagraph (A). This paragraph 
        shall not apply to any amount paid or incurred as reimbursement 
        to the government or entity for the costs of any investigation 
        or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred on or after the date of the enactment of 
this Act, except that such amendment shall not apply to amounts paid or 
incurred under any binding order or agreement entered into before such 
date. Such exception shall not apply to an order or agreement requiring 
court approval unless the approval was obtained before such date.

                Subtitle D--Requiring Economic Substance

SEC. 231. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701, as amended by section 203, is 
amended by redesignating subsection (p) as subsection (q) and by 
inserting after subsection (o) the following new subsection:
    ``(p) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) subject to clause (iii), the 
                                taxpayer has a substantial purpose 
                                (other than a Federal tax purpose) for 
                                entering into such transaction.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance solely 
                        by reason of having a potential for profit 
                        unless the present value of the reasonably 
                        expected pre-Federal tax profit from the 
                        transaction is substantial in relation to the 
                        present value of the expected net Federal tax 
                        benefits that would be allowed if the 
                        transaction were respected. In determining pre-
                        Federal tax profit, there shall be taken into 
                        account fees and other transaction expenses and 
                        to the extent provided by the Secretary, 
                        foreign taxes.
                            ``(iii) Special rules for determining 
                        whether non-federal tax purpose.--For purposes 
                        of clause (i)(II)--
                                    ``(I) a purpose of achieving a 
                                financial accounting benefit shall not 
                                be taken into account in determining 
                                whether a transaction has a substantial 
                                purpose (other than a Federal tax 
                                purpose) if the origin of such 
                                financial accounting benefit is a 
                                reduction of Federal tax, and
                                    ``(II) the taxpayer shall not be 
                                treated as having a substantial purpose 
                                (other than a Federal tax purpose) with 
                                respect to a transaction if the only 
                                such purpose is the reduction of non-
                                Federal taxes and the transaction will 
                                result in a reduction of Federal taxes 
                                substantially equal to, or greater 
                                than, the reduction in non-Federal 
                                taxes because of similarities between 
                                the laws imposing the taxes.
            ``(2) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
            ``(3) Other provisions not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law or provision of this title, 
        and the requirements of this subsection shall be construed as 
        being in addition to any such other rule of law or provision of 
        this title.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 232. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

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

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 30 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `30 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if 
        there is a lack of economic substance (within the meaning of 
        section 7701(p)(1)(B)) for the transaction giving rise to the 
        claimed benefit.
    ``(d) Rules Applicable to Assertion, Compromise, and Collection of 
Penalty.--
            ``(1) In general.--Only the Chief Counsel for the Internal 
        Revenue Service may assert a penalty imposed under this section 
        or may compromise all or any portion of such penalty. The Chief 
        Counsel may delegate the authority under this paragraph only to 
        an individual holding the position of chief of a branch within 
        the Office of the Chief Counsel for the Internal Revenue 
        Service.
            ``(2) Specific requirements.--
                    ``(A) Assertion of penalty.--The Chief Counsel for 
                the Internal Revenue Service (or the Chief Counsel's 
                delegate under paragraph (1)) shall not assert a 
                penalty imposed under this section unless, before the 
                assertion of the penalty, the taxpayer is provided--
                            ``(i) a notice of intent to assert the 
                        penalty, and
                            ``(ii) an opportunity to provide to the 
                        Commissioner (or the Chief Counsel's delegate 
                        under paragraph (1)) a written response to the 
                        proposed penalty within a reasonable period of 
                        time after such notice.
                    ``(B) Compromise of penalty.--A compromise shall 
                not result in a reduction in the penalty imposed by 
                this section in an amount greater than the amount which 
                bears the same ratio to the amount of the penalty 
                determined without regard to the compromise as--
                            ``(i) the reduction under the compromise in 
                        the noneconomic substance transaction 
                        understatement to which the penalty relates, 
                        bears to
                            ``(ii) the amount of the noneconomic 
                        substance transaction understatement determined 
                        without regard to the compromise.
            ``(3) Rules relating to relevancy requirement.--
                    ``(A) Determination of relevance by chief 
                counsel.--The Chief Counsel for the Internal Revenue 
                Service (or the Chief Counsel's delegate under 
                paragraph (1)) may assert, compromise, or collect a 
                penalty imposed by this section with respect to a 
                noneconomic substance transaction even if there has not 
                been a court determination that the economic substance 
                doctrine was relevant for purposes of this title to the 
                transaction if the Chief Counsel (or delegate) 
                determines that either was so relevant.
                    ``(B) Final order of court.--If there is a final 
                order of a court that determines that the economic 
                substance doctrine was not relevant for purposes of 
                this title to a transaction (or series of 
                transactions), any penalty imposed under this section 
                with respect to the transaction (or series of 
                transactions) shall be rescinded.
            ``(4) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply to a compromise under 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--
            ``(1) For coordination of penalty with understatements 
        under section 6662 and other special rules, see section 
        6662A(e).
            ``(2) For reporting of penalty imposed under this section 
        to the Securities and Exchange Commission, see section 
        6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A)--
                            (i) by inserting ``6662B or'' before 
                        ``6663'' in the text, and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (C) in paragraph (2)(B)--
                            (i) by inserting ``and section 6662B'' 
                        after ``This section'', and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (D) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (E) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(B)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or to penalty under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 233. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) (relating to interest on unpaid 
taxes attributable to nondisclosed reportable transactions) is 
amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``and noneconomic substance transactions'' 
        in the heading thereof after ``transactions''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.
                                 <all>
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