H. R. 4520—143
that does not receive funds from the National
Institutes of Health; or
(II) Federally-qualified health centers that
intend to develop a partnership or other arrange-
ment with a comprehensive Sickle Cell Disease
treatment center that does not receive funds from
the National Institutes of Health.
(2) ADDITIONAL REQUIREMENTS.—An eligible entity awarded
a grant under this subsection shall use funds made available
under the grant to carry out, in addition to the activities
described in paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of edu-
cation, treatment, and continuity of care for individuals
with Sickle Cell Disease under—
(i) the entity’s collaborative agreement with a
community-based Sickle Cell Disease organization or
a nonprofit entity that works with individuals who
have Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn screening pro-
gram for the State in which the entity is located;
and
(iii) the maternal and child health program under
title V of the Social Security Act (42 U.S.C. 701 et
seq.) for the State in which the entity is located.
(B) To train nursing and other health staff who provide
care for individuals with Sickle Cell Disease.
(C) To enter into a partnership with adult or pediatric
hematologists in the region and other regional experts in
Sickle Cell Disease at tertiary and academic health centers
and State and county health offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State chil-
dren’s health insurance program, and other health pro-
grams for the prevention and treatment of Sickle Cell
Disease.
(3) NATIONAL COORDINATING CENTER.—
(A) ESTABLISHMENT.—The Administrator shall enter
into a contract with an entity to serve as the National
Coordinating Center for the demonstration program con-
ducted under this subsection.
(B) ACTIVITIES DESCRIBED.—The National Coordinating
Center shall—
(i) collect, coordinate, monitor, and distribute data,
best practices, and findings regarding the activities
funded under grants made to eligible entities under
the demonstration program;
(ii) develop a model protocol for eligible entities
with respect to the prevention and treatment of Sickle
Cell Disease;
(iii) develop educational materials regarding the
prevention and treatment of Sickle Cell Disease; and
(iv) prepare and submit to Congress a final report
that includes recommendations regarding the effective-
ness of the demonstration program conducted under
this subsection and such direct outcome measures as—
(I) the number and type of health care
resources utilized (such as emergency room visits,
H. R. 4520—144
hospital visits, length of stay, and physician visits
for individuals with Sickle Cell Disease); and
(II) the number of individuals that were tested
and subsequently received genetic counseling for
the sickle cell trait.
(4) APPLICATION.—An eligible entity desiring a grant under
this subsection shall submit an application to the Administrator
at such time, in such manner, and containing such information
as the Administrator may require.
(5) DEFINITIONS.—In this subsection:
(A) ADMINISTRATOR.—The term ‘‘Administrator’’ means
the Administrator of the Health Resources and Services
Administration.
(B) ELIGIBLE ENTITY.—The term ‘‘eligible entity’’ means
a Federally-qualified health center, a nonprofit hospital
or clinic, or a university health center that provides pri-
mary health care, that—
(i) has a collaborative agreement with a commu-
nity-based Sickle Cell Disease organization or a non-
profit entity with experience in working with individ-
uals who have Sickle Cell Disease; and
(ii) demonstrates to the Administrator that either
the Federally-qualified health center, the nonprofit hos-
pital or clinic, the university health center, the
organization or entity described in clause (i), or the
experts described in paragraph (2)(C), has at least
5 years of experience in working with individuals who
have Sickle Cell Disease.
(C) FEDERALLY-QUALIFIED HEALTH CENTER.—The term
‘‘Federally-qualified health center’’ has the meaning given
that term in section 1905(l)(2)(B) of the Social Security
Act (42 U.S.C. 1396d(l)(2)(B)).
(6) AUTHORIZATION OF APPROPRIATIONS.—There is author-
ized to be appropriated to carry out this subsection, $10,000,000
for each of fiscal years 2005 through 2009.
(d) EFFECTIVE DATE.—The amendments made by subsections
(a) and (b) take effect on the date of enactment of this Act and
apply to medical assistance and services provided under title XIX
of the Social Security Act (42 U.S.C. 1396 et seq.) on or after
that date.
SEC. 713. CEILING FANS.
(a) IN GENERAL.—Subchapter II of chapter 99 of the Har-
monized Tariff Schedule of the United States is amended by
inserting in numerical sequence the following new heading:
‘‘
9902.84.14
Ceiling fans for permanent instal-
lation (provided for in subheading
8414.51.00) .......................................
Free
No change
No change
On or before
12/31/2006
’’.
(b) EFFECTIVE DATE.—The amendment made by this section
applies to goods entered, or withdrawn from warehouse, for
consumption on or after the 15th day after the date of enactment
of this Act.
H. R. 4520—145
SEC. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR
VESSEL HEADS AND PRESSURIZERS, USED IN NUCLEAR
FACILITIES.
(a) CERTAIN STEAM GENERATORS.—Heading 9902.84.02 of the
Harmonized Tariff Schedule of the United States is amended by
striking ‘‘12/31/2006’’ and inserting ‘‘12/31/2008’’.
(b) CERTAIN REACTOR VESSEL HEADS AND PRESSURIZERS.—Sub-
chapter II of chapter 99 of the Harmonized Tariff Schedule of
the United States is amended by inserting in numerical sequence
the following new heading:
‘‘
9902.84.03
Reactor vessel heads and pressur-
izers for nuclear reactors (provided
for in subheading 8401.40.00) ........
Free
No change
No change
On or before
12/31/2008
’’.
(c) EFFECTIVE DATE.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall take effect on the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendment made subsection (b)
shall apply to goods entered, or withdrawn from warehouse,
for consumption on or after the 15th day after the date of
the enactment of this Act.
TITLE VIII—REVENUE PROVISIONS
Subtitle 
A—Provisions 
to 
Reduce 
Tax
Avoidance Through Individual and Cor-
porate Expatriation
SEC. 801. TAX TREATMENT OF EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
(a) IN GENERAL.—Subchapter C of chapter 80 (relating to provi-
sions affecting more than one subtitle) is amended by adding at
the end the following new section:
‘‘SEC. 7874. RULES RELATING TO EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
‘‘(a) TAX ON INVERSION GAIN OF EXPATRIATED ENTITIES.—
‘‘(1) IN GENERAL.—The taxable income of an expatriated
entity for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
‘‘(2) 
EXPATRIATED
ENTITY.—For 
purposes 
of 
this
subsection—
‘‘(A) IN
GENERAL.—The term ‘expatriated entity’
means—
‘‘(i) the domestic corporation or partnership
referred to in subparagraph (B)(i) with respect to which
a foreign corporation is a surrogate foreign corporation,
and
‘‘(ii) any United States person who is related
(within the meaning of section 267(b) or 707(b)(1))
to a domestic corporation or partnership described in
clause (i).
H. R. 4520—146
‘‘(B) SURROGATE FOREIGN CORPORATION.—A foreign cor-
poration shall be treated as a surrogate foreign corporation
if, pursuant to a plan (or a series of related transactions)—
‘‘(i) the entity completes after March 4, 2003, the
direct or indirect acquisition of substantially all of
the properties held directly or indirectly by a domestic
corporation or substantially all of the properties consti-
tuting a trade or business of a domestic partnership,
‘‘(ii) after the acquisition at least 60 percent of
the stock (by vote or value) of the entity is held—
‘‘(I) in the case of an acquisition with respect
to a domestic corporation, by former shareholders
of the domestic corporation by reason of holding
stock in the domestic corporation, or
‘‘(II) in the case of an acquisition with respect
to a domestic partnership, by former partners of
the domestic partnership by reason of holding a
capital or profits interest in the domestic partner-
ship, and
‘‘(iii) after the acquisition the expanded affiliated
group which includes the entity does not have substan-
tial business activities in the foreign country in which,
or under the law of which, the entity is created or
organized, when compared to the total business activi-
ties of such expanded affiliated group.
An entity otherwise described in clause (i) with respect
to any domestic corporation or partnership trade or busi-
ness shall be treated as not so described if, on or before
March 4, 2003, such entity acquired directly or indirectly
more than half of the properties held directly or indirectly
by such corporation or more than half of the properties
constituting such partnership trade or business, as the
case may be.
‘‘(3) COORDINATION WITH SUBSECTION (b).—Paragraph (1)
shall not apply to any entity which is treated as a domestic
corporation under subsection (b).
‘‘(b) INVERTED CORPORATIONS TREATED AS DOMESTIC CORPORA-
TIONS.—Notwithstanding section 7701(a)(4), a foreign corporation
shall be treated for purposes of this title as a domestic corporation
if such corporation would be a surrogate foreign corporation if
subsection (a)(2) were applied by substituting ‘80 percent’ for ‘60
percent’.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) EXPANDED
AFFILIATED
GROUP.—The term ‘expanded
affiliated group’ means an affiliated group as defined in section
1504(a) but without regard to section 1504(b)(3), except that
section 1504(a) shall be applied by substituting ‘more than
50 percent’ for ‘at least 80 percent’ each place it appears.
‘‘(2) CERTAIN
STOCK
DISREGARDED.—There shall not be
taken into account in determining ownership under subsection
(a)(2)(B)(ii)—
‘‘(A) stock held by members of the expanded affiliated
group which includes the foreign corporation, or
‘‘(B) stock of such foreign corporation which is sold
in a public offering related to the acquisition described
in subsection (a)(2)(B)(i).
H. R. 4520—147
‘‘(3) PLAN DEEMED IN CERTAIN CASES.—If a foreign corpora-
tion acquires directly or indirectly substantially all of the prop-
erties of a domestic corporation or partnership during the 4-
year period beginning on the date which is 2 years before
the ownership requirements of subsection (a)(2)(B)(ii) are met,
such actions shall be treated as pursuant to a plan.
‘‘(4) CERTAIN
TRANSFERS
DISREGARDED.—The transfer of
properties or liabilities (including by contribution or distribu-
tion) shall be disregarded if such transfers are part of a plan
a principal purpose of which is to avoid the purposes of this
section.
‘‘(5) SPECIAL RULE FOR RELATED PARTNERSHIPS.—For pur-
poses of applying subsection (a)(2)(B)(ii) to the acquisition of
a trade or business of a domestic partnership, except as pro-
vided in regulations, all partnerships which are under common
control (within the meaning of section 482) shall be treated
as 1 partnership.
‘‘(6) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to determine whether a
corporation is a surrogate foreign corporation, including
regulations—
‘‘(A) to treat warrants, options, contracts to acquire
stock, convertible debt interests, and other similar interests
as stock, and
‘‘(B) to treat stock as not stock.
‘‘(d) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) APPLICABLE
PERIOD.—The term ‘applicable period’
means the period—
‘‘(A) beginning on the first date properties are acquired
as part of the acquisition described in subsection
(a)(2)(B)(i), and
‘‘(B) ending on the date which is 10 years after the
last date properties are acquired as part of such acquisition.
‘‘(2) INVERSION GAIN.—The term ‘inversion gain’ means the
income or gain recognized by reason of the transfer during
the applicable period of stock or other properties by an expatri-
ated entity, and any income received or accrued during the
applicable period by reason of a license of any property by
an expatriated entity—
‘‘(A) as part of the acquisition described in subsection
(a)(2)(B)(i), or
‘‘(B) after such acquisition if the transfer or license
is to a foreign related person.
Subparagraph (B) shall not apply to property described in sec-
tion 1221(a)(1) in the hands of the expatriated entity.
‘‘(3) FOREIGN RELATED PERSON.—The term ‘foreign related
person’ means, with respect to any expatriated entity, a foreign
person which—
‘‘(A) is related (within the meaning of section 267(b)
or 707(b)(1)) to such entity, or
‘‘(B) is under the same common control (within the
meaning of section 482) as such entity.
‘‘(e) SPECIAL RULES.—
‘‘(1) CREDITS
NOT
ALLOWED
AGAINST
TAX
ON
INVERSION
GAIN.—Credits (other than the credit allowed by section 901)
shall be allowed against the tax imposed by this chapter on
H. R. 4520—148
an expatriated entity for any taxable year described in sub-
section (a) only to the extent such tax exceeds the product
of—
‘‘(A) the amount of the inversion gain for the taxable
year, and
‘‘(B) the highest rate of tax specified in section 11(b)(1).
For purposes of determining the credit allowed by section 901,
inversion gain shall be treated as from sources within the
United States.
‘‘(2) SPECIAL RULES FOR PARTNERSHIPS.—In the case of an
expatriated entity which is a partnership—
‘‘(A) subsection (a)(1) shall apply at the partner rather
than the partnership level,
‘‘(B) the inversion gain of any partner for any taxable
year shall be equal to the sum of—
‘‘(i) the partner’s distributive share of inversion
gain of the partnership for such taxable year, plus
‘‘(ii) gain recognized for the taxable year by the
partner by reason of the transfer during the applicable
period of any partnership interest of the partner in
such partnership to the surrogate foreign corporation,
and
‘‘(C) the highest rate of tax specified in the rate
schedule applicable to the partner under this chapter shall
be substituted for the rate of tax referred to in paragraph
(1).
‘‘(3) COORDINATION WITH SECTION 172 AND MINIMUM TAX.—
Rules similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of subsection (a).
‘‘(4) STATUTE OF LIMITATIONS.—
‘‘(A) IN GENERAL.—The statutory period for the assess-
ment of any deficiency attributable to the inversion gain
of any taxpayer for any pre-inversion year shall not expire
before the expiration of 3 years from the date the Secretary
is notified by the taxpayer (in such manner as the Secretary
may prescribe) of the acquisition described in subsection
(a)(2)(B)(i) to which such gain relates and such deficiency
may be assessed before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
‘‘(B) PRE-INVERSION YEAR.—For purposes of subpara-
graph (A), the term ‘pre-inversion year’ means any taxable
year if—
‘‘(i) any portion of the applicable period is included
in such taxable year, and
‘‘(ii) such year ends before the taxable year in
which 
the 
acquisition 
described 
in 
subsection
(a)(2)(B)(i) is completed.
‘‘(f) SPECIAL RULE FOR TREATIES.—Nothing in section 894 or
7852(d) or in any other provision of law shall be construed as
permitting an exemption, by reason of any treaty obligation of
the United States heretofore or hereafter entered into, from the
provisions of this section.
‘‘(g) REGULATIONS.—The Secretary shall provide such regula-
tions as are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section
H. R. 4520—149
as are necessary to prevent the avoidance of the purposes of this
section, including the avoidance of such purposes through—
‘‘(1) the use of related persons, pass-through or other non-
corporate entities, or other intermediaries, or
‘‘(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.’’.
(b) CONFORMING AMENDMENT.—The table of sections for sub-
chapter C of chapter 80 is amended by adding at the end the
following new item:
‘‘Sec. 7874. Rules relating to expatriated entities and their foreign par-
ents.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after March 4, 2003.
SEC. 802. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN
EXPATRIATED CORPORATIONS.
(a) IN GENERAL.—Subtitle D is amended by inserting after
chapter 44 end the following new chapter:
‘‘CHAPTER 45—PROVISIONS RELATING TO
EXPATRIATED ENTITIES
‘‘Sec. 4985. Stock compensation of insiders in expatriated corporations.
‘‘SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPATRIATED
CORPORATIONS.
‘‘(a) IMPOSITION OF TAX.—In the case of an individual who
is a disqualified individual with respect to any expatriated corpora-
tion, there is hereby imposed on such person a tax equal to—
‘‘(1) the rate of tax specified in section 1(h)(1)(C), multiplied
by
‘‘(2) the value (determined under subsection (b)) of the
specified stock compensation held (directly or indirectly) by
or for the benefit of such individual or a member of such
individual’s family (as defined in section 267) at any time
during the 12-month period beginning on the date which is
6 months before the expatriation date.
‘‘(b) VALUE.—For purposes of subsection (a)—
‘‘(1) IN GENERAL.—The value of specified stock compensa-
tion shall be—
‘‘(A) in the case of a stock option (or other similar
right) or a stock appreciation right, the fair value of such
option or right, and
‘‘(B) in any other case, the fair market value of such
compensation.
‘‘(2) DATE
FOR
DETERMINING
VALUE.—The determination
of value shall be made—
‘‘(A) in the case of specified stock compensation held
on the expatriation date, on such date,
‘‘(B) in the case of such compensation which is canceled
during the 6 months before the expatriation date, on the
day before such cancellation, and
‘‘(C) in the case of such compensation which is granted
after the expatriation date, on the date such compensation
is granted.
H. R. 4520—150
‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN RECOGNIZED.—
Subsection (a) shall apply to any disqualified individual with respect
to an expatriated corporation only if gain (if any) on any stock
in such corporation is recognized in whole or part by any share-
holder by reason of the acquisition referred to in section
7874(a)(2)(B)(i) with respect to such corporation.
‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON COMPENSATION.—
Subsection (a) shall not apply to—
‘‘(1) any stock option which is exercised on the expatriation
date or during the 6-month period before such date and to
the stock acquired in such exercise, if income is recognized
under section 83 on or before the expatriation date with respect
to the stock acquired pursuant to such exercise, and
‘‘(2) any other specified stock compensation which is exer-
cised, sold, exchanged, distributed, cashed-out, or otherwise
paid during such period in a transaction in which income,
gain, or loss is recognized in full.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) DISQUALIFIED INDIVIDUAL.—The term ‘disqualified indi-
vidual’ means, with respect to a corporation, any individual
who, at any time during the 12-month period beginning on
the date which is 6 months before the expatriation date—
‘‘(A) is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect to
such corporation or any member of the expanded affiliated
group which includes such corporation, or
‘‘(B) would be subject to such requirements if such
corporation or member were an issuer of equity securities
referred to in such section.
‘‘(2) EXPATRIATED CORPORATION; EXPATRIATION DATE.—
‘‘(A) EXPATRIATED
CORPORATION.—The term ‘expatri-
ated corporation’ means any corporation which is an
expatriated entity (as defined in section 7874(a)(2)). Such
term includes any predecessor or successor of such a cor-
poration.
‘‘(B) EXPATRIATION DATE.—The term ‘expatriation date’
means, with respect to a corporation, the date on which
the corporation first becomes an expatriated corporation.
‘‘(3) SPECIFIED STOCK COMPENSATION.—
‘‘(A) IN GENERAL.—The term ‘specified stock compensa-
tion’ means payment (or right to payment) granted by
the expatriated corporation (or by any member of the
expanded affiliated group which includes such corporation)
to any person in connection with the performance of serv-
ices by a disqualified individual for such corporation or
member if the value of such payment or right is based
on (or determined by reference to) the value (or change
in value) of stock in such corporation (or any such member).
‘‘(B) EXCEPTIONS.—Such term shall not include—
‘‘(i) any option to which part II of subchapter D
of chapter 1 applies, or
‘‘(ii) any payment or right to payment from a plan
referred to in section 280G(b)(6).
‘‘(4) EXPANDED
AFFILIATED
GROUP.—The term ‘expanded
affiliated group’ means an affiliated group (as defined in section
1504(a) without regard to section 1504(b)(3)); except that section
H. R. 4520—151
1504(a) shall be applied by substituting ‘more than 50 percent’
for ‘at least 80 percent’ each place it appears.
‘‘(f) SPECIAL RULES.—For purposes of this section—
‘‘(1) CANCELLATION OF RESTRICTION.—The cancellation of
a restriction which by its terms will never lapse shall be treated
as a grant.
‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY CORPORATION
TREATED
AS
SPECIFIED
STOCK
COMPENSATION.—Any payment
of the tax imposed by this section directly or indirectly by
the expatriated corporation or by any member of the expanded
affiliated group which includes such corporation—
‘‘(A) shall be treated as specified stock compensation,
and
‘‘(B) shall not be allowed as a deduction under any
provision of chapter 1.
‘‘(3) CERTAIN
RESTRICTIONS
IGNORED.—Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
‘‘(4) PROPERTY TRANSFERS.—Any transfer of property shall
be treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
‘‘(5) OTHER ADMINISTRATIVE PROVISIONS.—For purposes of
subtitle F, any tax imposed by this section shall be treated
as a tax imposed by subtitle A.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’.
(b) DENIAL OF DEDUCTION.—
(1) IN
GENERAL.—Paragraph (6) of section 275(a) is
amended by inserting ‘‘45,’’ before ‘‘46,’’.
(2) $1,000,000 limit on deductible compensation reduced
by payment of excise tax on specified stock compensation.—
Paragraph (4) of section 162(m) is amended by adding at the
end the following new subparagraph:
‘‘(G) COORDINATION
WITH
EXCISE
TAX
ON
SPECIFIED
STOCK COMPENSATION.—The dollar limitation contained in
paragraph (1) with respect to any covered employee shall
be reduced (but not below zero) by the amount of any
payment (with respect to such employee) of the tax imposed
by section 4985 directly or indirectly by the expatriated
corporation (as defined in such section) or by any member
of the expanded affiliated group (as defined in such section)
which includes such corporation.’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ‘‘or to any specified stock com-
pensation (as defined in section 4985) on which tax is imposed
by section 4985’’.
(2) The table of chapters for subtitle D is amended by
inserting after the item relating to chapter 44 the following
new item:
‘‘Chapter 45. Provisions relating to expatriated entities.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect on March 4, 2003; except that periods before
such date shall not be taken into account in applying the periods
H. R. 4520—152
in subsections (a) and (e)(1) of section 4985 of the Internal Revenue
Code of 1986, as added by this section.
SEC. 803. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURIS-
DICTIONS.
(a) IN GENERAL.—Section 845(a) (relating to allocation in case
of reinsurance agreement involving tax avoidance or evasion) is
amended by striking ‘‘source and character’’ and inserting ‘‘amount,
source, or character’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to any risk reinsured after the date of the enactment
of this Act.
SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) EXPATRIATION TO AVOID TAX.—
(1) IN GENERAL.—Subsection (a) of section 877 (relating
to treatment of expatriates) is amended to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien individual to
whom this section applies and who, within the 10-year period
immediately preceding the close of the taxable year, lost United
States citizenship shall be taxable for such taxable year in
the manner provided in subsection (b) if the tax imposed pursu-
ant to such subsection (after any reduction in such tax under
the last sentence of such subsection) exceeds the tax which,
without regard to this section, is imposed pursuant to section
871.
‘‘(2) INDIVIDUALS SUBJECT TO THIS SECTION.—This section
shall apply to any individual if—
‘‘(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period of
5 taxable years ending before the date of the loss of United
States citizenship is greater than $124,000,
‘‘(B) the net worth of the individual as of such date
is $2,000,000 or more, or
‘‘(C) such individual fails to certify under penalty of
perjury that he has met the requirements of this title
for the 5 preceding taxable years or fails to submit such
evidence of such compliance as the Secretary may require.
In the case of the loss of United States citizenship in any
calendar year after 2004, such $124,000 amount shall be
increased by an amount equal to such dollar amount multiplied
by the cost-of-living adjustment determined under section 1(f)(3)
for such calendar year by substituting ‘2003’ for ‘1992’ in
subparagraph (B) thereof. Any increase under the preceding
sentence shall be rounded to the nearest multiple of $1,000.’’.
(2) REVISION OF EXCEPTIONS FROM ALTERNATIVE TAX.—Sub-
section (c) of section 877 (relating to tax avoidance not pre-
sumed in certain cases) is amended to read as follows:
‘‘(c) EXCEPTIONS.—
‘‘(1) IN GENERAL.—Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph
(2) or (3).
‘‘(2) DUAL CITIZENS.—
‘‘(A) IN GENERAL.—An individual is described in this
paragraph if—
‘‘(i) the individual became at birth a citizen of
the United States and a citizen of another country
H. R. 4520—153
and continues to be a citizen of such other country,
and
‘‘(ii) the individual has had no substantial contacts
with the United States.
‘‘(B) SUBSTANTIAL CONTACTS.—An individual shall be
treated as having no substantial contacts with the United
States only if the individual—
‘‘(i) was never a resident of the United States
(as defined in section 7701(b)),
‘‘(ii) has never held a United States passport, and
‘‘(iii) was not present in the United States for
more than 30 days during any calendar year which
is 1 of the 10 calendar years preceding the individual’s
loss of United States citizenship.
‘‘(3) CERTAIN MINORS.—An individual is described in this
paragraph if—
‘‘(A) the individual became at birth a citizen of the
United States,
‘‘(B) neither parent of such individual was a citizen
of the United States at the time of such birth,
‘‘(C) the individual’s loss of United States citizenship
occurs before such individual attains age 181⁄2, and
‘‘(D) the individual was not present in the United
States for more than 30 days during any calendar year
which is 1 of the 10 calendar years preceding the individ-
ual’s loss of United States citizenship.’’.
(3) CONFORMING AMENDMENT.—Section 2107(a) is amended
to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—A tax computed in accord-
ance with the table contained in section 2001 is hereby imposed
on the transfer of the taxable estate, determined as provided in
section 2106, of every decedent nonresident not a citizen of the
United States if the date of death occurs during a taxable year
with respect to which the decedent is subject to tax under section
877(b).’’.
(b) SPECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
IS NO LONGER A UNITED STATES CITIZEN OR LONG-TERM RESI-
DENT.—Section 7701 (relating to definitions) is amended by redesig-
nating subsection (n) as subsection (o) and by inserting after sub-
section (m) the following new subsection:
‘‘(n) SPECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
IS NO LONGER A UNITED STATES CITIZEN OR LONG-TERM RESI-
DENT.—An individual who would (but for this subsection) cease
to be treated as a citizen or resident of the United States shall
continue to be treated as a citizen or resident of the United States,
as the case may be, until such individual—
‘‘(1) gives notice of an expatriating act or termination of
residency (with the requisite intent to relinquish citizenship
or terminate residency) to the Secretary of State or the Sec-
retary of Homeland Security, and
‘‘(2) provides a statement in accordance with section
6039G.’’.
(c) PHYSICAL PRESENCE IN THE UNITED STATES FOR MORE THAN
30 DAYS.—Section 877 (relating to expatriation to avoid tax) is
amended by adding at the end the following new subsection:
‘‘(g) PHYSICAL PRESENCE.—
H. R. 4520—154
‘‘(1) IN GENERAL.—This section shall not apply to any indi-
vidual to whom this section would otherwise apply for any
taxable year during the 10-year period referred to in subsection
(a) in which such individual is physically present in the United
States at any time on more than 30 days in the calendar
year ending in such taxable year, and such individual shall
be treated for purposes of this title as a citizen or resident
of the United States, as the case may be, for such taxable
year.
‘‘(2) EXCEPTION.—
‘‘(A) IN
GENERAL.—In the case of an individual
described in any of the following subparagraphs of this
paragraph, a day of physical presence in the United States
shall be disregarded if the individual is performing services
in the United States on such day for an employer. The
preceding sentence shall not apply if—
‘‘(i) such employer is related (within the meaning
of section 267 and 707) to such individual, or
‘‘(ii) such employer fails to meet such requirements
as the Secretary may prescribe by regulations to pre-
vent the avoidance of the purposes of this paragraph.
Not more than 30 days during any calendar year may
be disregarded under this subparagraph.
‘‘(B) INDIVIDUALS WITH TIES TO OTHER COUNTRIES.—
An individual is described in this subparagraph if—
‘‘(i) the individual becomes (not later than the close
of a reasonable period after loss of United States citi-
zenship or termination of residency) a citizen or resi-
dent of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is married, such individ-
ual’s spouse was born, or
‘‘(III) either of such individual’s parents were
born, and
‘‘(ii) the individual becomes fully liable for income
tax in such country.
‘‘(C) MINIMAL PRIOR PHYSICAL PRESENCE IN THE UNITED
STATES.—An individual is described in this subparagraph
if, for each year in the 10-year period ending on the date
of loss of United States citizenship or termination of resi-
dency, the individual was physically present in the United
States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this subpara-
graph.’’.
(d) TRANSFERS SUBJECT TO GIFT TAX.—
(1) IN GENERAL.—Subsection (a) of section 2501 (relating
to taxable transfers) is amended by striking paragraph (4),
by redesignating paragraph (5) as paragraph (4), and by
striking paragraph (3) and inserting the following new para-
graph:
‘‘(3) EXCEPTION.—
‘‘(A) CERTAIN INDIVIDUALS.—Paragraph (2) shall not
apply in the case of a donor to whom section 877(b) applies
for the taxable year which includes the date of the transfer.
‘‘(B) CREDIT
FOR
FOREIGN
GIFT
TAXES.—The tax
imposed by this section solely by reason of this paragraph
shall be credited with the amount of any gift tax actually
H. R. 4520—155
paid to any foreign country in respect of any gift which
is taxable under this section solely by reason of this para-
graph.’’.
(2) TRANSFERS OF CERTAIN STOCK.—Subsection (a) of section
2501 is amended by adding at the end the following new para-
graph:
‘‘(5) TRANSFERS OF CERTAIN STOCK.—
‘‘(A) IN GENERAL.—In the case of a transfer of stock
in a foreign corporation described in subparagraph (B) by
a donor to whom section 877(b) applies for the taxable
year which includes the date of the transfer—
‘‘(i) section 2511(a) shall be applied without regard
to whether such stock is situated within the United
States, and
‘‘(ii) the value of such stock for purposes of this
chapter shall be its U.S.-asset value determined under
subparagraph (C).
‘‘(B) FOREIGN CORPORATION DESCRIBED.—A foreign cor-
poration is described in this subparagraph with respect
to a donor if—
‘‘(i) the donor owned (within the meaning of section
958(a)) at the time of such transfer 10 percent or
more of the total combined voting power of all classes
of stock entitled to vote of the foreign corporation,
and
‘‘(ii) such donor owned (within the meaning of sec-
tion 958(a)), or is considered to have owned (by
applying the ownership rules of section 958(b)), at the
time of such transfer, more than 50 percent of—
‘‘(I) the total combined voting power of all
classes of stock entitled to vote of such corporation,
or
‘‘(II) the total value of the stock of such cor-
poration.
‘‘(C) U.S.-ASSET VALUE.—For purposes of subparagraph
(A), the U.S.-asset value of stock shall be the amount
which bears the same ratio to the fair market value of
such stock at the time of transfer as—
‘‘(i) the fair market value (at such time) of the
assets owned by such foreign corporation and situated
in the United States, bears to
‘‘(ii) the total fair market value (at such time)
of all assets owned by such foreign corporation.’’.
(e) ENHANCED INFORMATION REPORTING FROM INDIVIDUALS
LOSING UNITED STATES CITIZENSHIP.—
(1) IN
GENERAL.—Subsection (a) of section 6039G is
amended to read as follows:
‘‘(a) IN GENERAL.—Notwithstanding any other provision of law,
any individual to whom section 877(b) applies for any taxable
year shall provide a statement for such taxable year which includes
the information described in subsection (b).’’.
(2) INFORMATION TO BE PROVIDED.—Subsection (b) of section
6039G is amended to read as follows:
‘‘(b) INFORMATION TO BE PROVIDED.—Information required
under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,
H. R. 4520—156
‘‘(2) the mailing address of such individual’s principal for-
eign residence,
‘‘(3) the foreign country in which such individual is residing,
‘‘(4) the foreign country of which such individual is a citizen,
‘‘(5) information detailing the income, assets, and liabilities
of such individual,
‘‘(6) the number of days during any portion of which that
the individual was physically present in the United States
during the taxable year, and
‘‘(7) such other information as the Secretary may pre-
scribe.’’.
(3) INCREASE IN PENALTY.—Subsection (d) of section 6039G
is amended to read as follows:
‘‘(d) PENALTY.—If—
‘‘(1) an individual is required to file a statement under
subsection (a) for any taxable year, and
‘‘(2) fails to file such a statement with the Secretary on
or before the date such statement is required to be filed or
fails to include all the information required to be shown on
the statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown
that such failure is due to reasonable cause and not to willful
neglect.’’.
(4) CONFORMING AMENDMENT.—Section 6039G is amended
by striking subsections (c), (f), and (g) and by redesignating
subsections (d) and (e) as subsection (c) and (d), respectively.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to individuals who expatriate after June 3, 2004.
SEC. 805. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) IN GENERAL.—Subpart B of part III of subchapter A of
chapter 61 is amended by inserting after section 6043 the following
new section:
‘‘SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISI-
TIONS.
‘‘(a) IN GENERAL.—According to the forms or regulations pre-
scribed by the Secretary, the acquiring corporation in any taxable
acquisition shall make a return setting forth—
‘‘(1) a description of the acquisition,
‘‘(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)
as a result of the acquisition,
‘‘(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part
of such acquisition, and
‘‘(4) such other information as the Secretary may prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable
to the acquired corporation and not to the acquiring corporation.
‘‘(b) NOMINEES.—According to the forms or regulations pre-
scribed by the Secretary:
‘‘(1) REPORTING.—Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by
the Secretary to such other person the information provided
by the corporation under subsection (d).
‘‘(2) REPORTING TO NOMINEES.—In the case of stock held
by any person as a nominee, references in this section (other
H. R. 4520—157
than in subsection (c)) to a shareholder shall be treated as
a reference to the nominee.
‘‘(c) TAXABLE ACQUISITION.—For purposes of this section, the
term ‘taxable acquisition’ means any acquisition by a corporation
of stock in or property of another corporation if any shareholder
of the acquired corporation is required to recognize gain (if any)
as a result of such acquisition.
‘‘(d) STATEMENTS
TO
BE
FURNISHED
TO
SHAREHOLDERS.—
According to the forms or regulations prescribed by the Secretary,
every person required to make a return under subsection (a) shall
furnish to each shareholder whose name is required to be set
forth in such return a written statement showing—
‘‘(1) the name, address, and phone number of the informa-
tion contact of the person required to make such return,
‘‘(2) the information required to be shown on such return
with respect to such shareholder, and
‘‘(3) such other information as the Secretary may prescribe.
The written statement required under the preceding sentence shall
be furnished to the shareholder on or before January 31 of the
year following the calendar year during which the taxable acquisi-
tion occurred.’’.
(b) ASSESSABLE PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through
(xviii) as clauses (iii) through (xix), respectively, and by
inserting after clause (i) the following new clause:
‘‘(ii) section 6043A(a) (relating to returns relating
to taxable mergers and acquisitions),’’.
(2) Paragraph (2) of section 6724(d) is amended by redesig-
nating subparagraphs (F) through (BB) as subparagraphs (G)
through (CC), respectively, and by inserting after subparagraph
(E) the following new subparagraph:
‘‘(F) subsections (b) and (d) of section 6043A (relating
to returns relating to taxable mergers and acquisitions).’’.
(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 6043 the following new item:
‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to acquisitions after the date of the enactment of this
Act.
SEC. 806. STUDIES.
(a) TRANSFER PRICING RULES.—The Secretary of the Treasury
or the Secretary’s delegate shall conduct a study regarding the
effectiveness of current transfer pricing rules and compliance efforts
in ensuring that cross-border transfers and other related-party
transactions, particularly transactions involving intangible assets,
service contracts, or leases cannot be used improperly to shift
income out of the United States. The study shall include a review
of the contemporaneous documentation and penalty rules under
section 6662 of the Internal Revenue Code of 1986, a review of
the regulatory and administrative guidance implementing the prin-
ciples of section 482 of such Code to transactions involving intan-
gible property and services and to cost-sharing arrangements, and
an examination of whether increased disclosure of cross-border
transactions should be required. The study shall set forth specific
H. R. 4520—158
recommendations to address all abuses identified in the study.
Not later than June 30, 2005, such Secretary or delegate shall
submit to the Congress a report of such study.
(b) INCOME TAX TREATIES.—The Secretary of the Treasury or
the Secretary’s delegate shall conduct a study of United States
income tax treaties to identify any inappropriate reductions in
United States withholding tax that provide opportunities for shifting
income out of the United States, and to evaluate whether existing
anti-abuse mechanisms are operating properly. The study shall
include specific recommendations to address all inappropriate uses
of tax treaties. Not later than June 30, 2005, such Secretary or
delegate shall submit to the Congress a report of such study.
(c) EFFECTIVENESS OF CORPORATE EXPATRIATION PROVISIONS.—
The Secretary of the Treasury or the Secretary’s delegate shall
conduct a study of the effectiveness of the provisions of this title
on corporate expatriation. The study shall include such rec-
ommendations as such Secretary or delegate may have to improve
the effectiveness of such provisions in carrying out the purposes
of this title. Not later than December 31, 2006, such Secretary
or delegate shall submit to the Congress a report of such study.
Subtitle B—Provisions Relating to Tax
Shelters
Part I—Taxpayer-Related Provisions
SEC. 811. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANS-
ACTIONS.
(a) IN GENERAL.—Part I of subchapter B of chapter 68 (relating
to assessable penalties) is amended by inserting after section 6707
the following new section:
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE
TRANSACTION INFORMATION WITH RETURN.
‘‘(a) IMPOSITION OF PENALTY.—Any person who fails to include
on any return or statement any information with respect to a
reportable transaction which is required under section 6011 to
be included with such return or statement shall pay a penalty
in the amount determined under subsection (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the amount of the penalty under subsection (a) shall be—
‘‘(A) $10,000 in the case of a natural person, and
‘‘(B) $50,000 in any other case.
‘‘(2) LISTED
TRANSACTION.—The amount of the penalty
under subsection (a) with respect to a listed transaction shall
be—
‘‘(A) $100,000 in the case of a natural person, and
‘‘(B) $200,000 in any other case.
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) REPORTABLE
TRANSACTION.—The term ‘reportable
transaction’ means any transaction with respect to which
information is required to be included with a return or state-
ment because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
H. R. 4520—159
Secretary determines as having a potential for tax avoidance
or evasion.
‘‘(2) LISTED
TRANSACTION.—The term ‘listed transaction’
means a reportable transaction which is the same as, or
substantially similar to, a transaction specifically identified
by the Secretary as a tax avoidance transaction for purposes
of section 6011.
‘‘(d) AUTHORITY TO RESCIND PENALTY.—
‘‘(1) IN GENERAL.—The Commissioner of Internal Revenue
may rescind all or any portion of any penalty imposed by
this section with respect to any violation if—
‘‘(A) the violation is with respect to a reportable trans-
action other than a listed transaction, and
‘‘(B) rescinding the penalty would promote compliance
with the requirements of this title and effective tax
administration.
‘‘(2) NO
JUDICIAL
APPEAL.—Notwithstanding any other
provision of law, any determination under this subsection may
not be reviewed in any judicial proceeding.
‘‘(3) RECORDS.—If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office
of the Commissioner the opinion of the Commissioner with
respect to the determination, including—
‘‘(A) a statement of the facts and circumstances relating
to the violation,
‘‘(B) the reasons for the rescission, and
‘‘(C) the amount of the penalty rescinded.
‘‘(e) PENALTY REPORTED TO SEC.—In the case of a person—
‘‘(1) which is required to file periodic reports under section
13 or 15(d) of the Securities Exchange Act of 1934 or is required
to be consolidated with another person for purposes of such
reports, and
‘‘(2) which—
‘‘(A) is required to pay a penalty under this section
with respect to a listed transaction,
‘‘(B) is required to pay a penalty under section 6662A
with respect to any reportable transaction at a rate pre-
scribed under section 6662A(c), or
‘‘(C) is required to pay a penalty under section 6662(h)
with respect to any reportable transaction and would (but
for section 6662A(e)(2)(C)) have been subject to penalty
under section 6662A at a rate prescribed under section
6662A(c),
the requirement to pay such penalty shall be disclosed in such
reports filed by such person for such periods as the Secretary
shall specify. Failure to make a disclosure in accordance with the
preceding sentence shall be treated as a failure to which the penalty
under subsection (b)(2) applies.
‘‘(f) COORDINATION
WITH
OTHER
PENALTIES.—The penalty
imposed by this section shall be in addition to any other penalty
imposed by this title.’’.
H. R. 4520—160
(b) CONFORMING AMENDMENT.—The table of sections for part
I of subchapter B of chapter 68 is amended by inserting after
the item relating to section 6707 the following:
‘‘Sec. 6707A. Penalty for failure to include reportable transaction informa-
tion with return.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns and statements the due date for which
is after the date of the enactment of this Act.
(d) REPORT.—The Commissioner of Internal Revenue shall
annually report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance of the
Senate—
(1) a summary of the total number and aggregate amount
of penalties imposed, and rescinded, under section 6707A of
the Internal Revenue Code of 1986, and
(2) a description of each penalty rescinded under section
6707(c) of such Code and the reasons therefor.
SEC. 812. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS,
OTHER REPORTABLE TRANSACTIONS HAVING A SIGNIFI-
CANT TAX AVOIDANCE PURPOSE, ETC.
(a) IN GENERAL.—Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERSTATEMENTS WITH RESPECT TO REPORTABLE
TRANSACTIONS.
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be
added to the tax an amount equal to 20 percent of the amount
of such understatement.
‘‘(b) REPORTABLE TRANSACTION UNDERSTATEMENT.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘reportable transaction under-
statement’ means the sum of—
‘‘(A) the product of—
‘‘(i) the amount of the increase (if any) in taxable
income which results from a difference between the
proper tax treatment of an item to which this section
applies and the taxpayer’s treatment of such item (as
shown on the taxpayer’s return of tax), and
‘‘(ii) the highest rate of tax imposed by section
1 (section 11 in the case of a taxpayer which is a
corporation), and
‘‘(B) the amount of the decrease (if any) in the aggre-
gate amount of credits determined under subtitle A which
results from a difference between the taxpayer’s treatment
of an item to which this section applies (as shown on
the taxpayer’s return of tax) and the proper tax treatment
of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable income.
‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This section shall
apply to any item which is attributable to—
H. R. 4520—161
‘‘(A) any listed transaction, and
‘‘(B) any reportable transaction (other than a listed
transaction) if a significant purpose of such transaction
is the avoidance or evasion of Federal income tax.
‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED AND OTHER
AVOIDANCE TRANSACTIONS.—Subsection (a) shall be applied by sub-
stituting ‘30 percent’ for ‘20 percent’ with respect to the portion
of any reportable transaction understatement with respect to which
the requirement of section 6664(d)(2)(A) is not met.
‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED TRANSACTIONS.—
For purposes of this section, the terms ‘reportable transaction’ and
‘listed transaction’ have the respective meanings given to such
terms by section 6707A(c).
‘‘(e) SPECIAL RULES.—
‘‘(1) COORDINATION WITH PENALTIES, ETC., ON OTHER UNDER-
STATEMENTS.—In the case of an understatement (as defined
in section 6662(d)(2))—
‘‘(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction understate-
ments for purposes of determining whether such under-
statement is a substantial understatement under section
6662(d)(1), and
‘‘(B) the addition to tax under section 6662(a) shall
apply only to the excess of the amount of the substantial
understatement (if any) after the application of subpara-
graph (A) over the aggregate amount of reportable trans-
action understatements.
‘‘(2) COORDINATION WITH OTHER PENALTIES.—
‘‘(A) APPLICATION OF FRAUD PENALTY.—References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction understate-
ment.
‘‘(B) NO DOUBLE PENALTY.—This section shall not apply
to any portion of an understatement on which a penalty
is imposed under section 6663.
‘‘(C) COORDINATION WITH VALUATION PENALTIES.—
‘‘(i) SECTION
6662(e).—Section 6662(e) shall not
apply to any portion of an understatement on which
a penalty is imposed under this section.
‘‘(ii) SECTION 6662(h).—This section shall not apply
to any portion of an understatement on which a penalty
is imposed under section 6662(h).
‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—Except as pro-
vided in regulations, in no event shall any tax treatment
included with an amendment or supplement to a return of
tax be taken into account in determining the amount of any
reportable transaction understatement if the amendment or
supplement is filed after the earlier of the date the taxpayer
is first contacted by the Secretary regarding the examination
of the return or such other date as is specified by the Sec-
retary.’’.
(b) DETERMINATION OF OTHER UNDERSTATEMENTS.—Subpara-
graph (A) of section 6662(d)(2) is amended by adding at the end
the following flush sentence:
H. R. 4520—162
‘‘The excess under the preceding sentence shall be deter-
mined without regard to items to which section 6662A
applies.’’.
(c) REASONABLE CAUSE EXCEPTION.—
(1) IN GENERAL.—Section 6664 is amended by adding at
the end the following new subsection:
‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANS-
ACTION UNDERSTATEMENTS.—
‘‘(1) IN GENERAL.—No penalty shall be imposed under sec-
tion 6662A with respect to any portion of a reportable trans-
action understatement if it is shown that there was a reason-
able cause for such portion and that the taxpayer acted in
good faith with respect to such portion.
‘‘(2) SPECIAL RULES.—Paragraph (1) shall not apply to any
reportable transaction understatement unless—
‘‘(A) the relevant facts affecting the tax treatment of
the item are adequately disclosed in accordance with the
regulations prescribed under section 6011,
‘‘(B) there is or was substantial authority for such
treatment, and
‘‘(C) the taxpayer reasonably believed that such treat-
ment was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements
of subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
‘‘(3) RULES RELATING TO REASONABLE BELIEF.—For purposes
of paragraph (2)(C)—
‘‘(A) IN
GENERAL.—A taxpayer shall be treated as
having a reasonable belief with respect to the tax treatment
of an item only if such belief—
‘‘(i) is based on the facts and law that exist at
the time the return of tax which includes such tax
treatment is filed, and
‘‘(ii) relates solely to the taxpayer’s chances of suc-
cess on the merits of such treatment and does not
take into account the possibility that a return will
not be audited, such treatment will not be raised on
audit, or such treatment will be resolved through
settlement if it is raised.
‘‘(B) CERTAIN OPINIONS MAY NOT BE RELIED UPON.—
‘‘(i) IN GENERAL.—An opinion of a tax advisor may
not be relied upon to establish the reasonable belief
of a taxpayer if—
‘‘(I) the tax advisor is described in clause (ii),
or
‘‘(II) the opinion is described in clause (iii).
‘‘(ii) DISQUALIFIED TAX ADVISORS.—A tax advisor
is described in this clause if the tax advisor—
‘‘(I) is a material advisor (within the meaning
of section 6111(b)(1)) and participates in the
organization, management, promotion, or sale of
the transaction or is related (within the meaning
of section 267(b) or 707(b)(1)) to any person who
so participates,
‘‘(II) is compensated directly or indirectly by
a material advisor with respect to the transaction,
H. R. 4520—163
‘‘(III) has a fee arrangement with respect to
the transaction which is contingent on all or part
of the intended tax benefits from the transaction
being sustained, or
‘‘(IV) as determined under regulations pre-
scribed by the Secretary, has a disqualifying finan-
cial interest with respect to the transaction.
‘‘(iii) DISQUALIFIED
OPINIONS.—For purposes of
clause (i), an opinion is disqualified if the opinion—
‘‘(I) is based on unreasonable factual or legal
assumptions (including assumptions as to future
events),
‘‘(II) unreasonably relies on representations,
statements, findings, or agreements of the tax-
payer or any other person,
‘‘(III) does not identify and consider all rel-
evant facts, or
‘‘(IV) fails to meet any other requirement as
the Secretary may prescribe.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 6664(c) is amended by
striking ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.
(B) The heading for subsection (c) of section 6664 is
amended by inserting ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEP-
TION’’.
(d) REDUCTION IN PENALTY FOR SUBSTANTIAL UNDERSTATEMENT
OF INCOME TAX NOT TO APPLY TO TAX SHELTERS.—Subparagraph
(C) of section 6662(d)(2) (relating to substantial understatement
of income tax) is amended to read as follows:
‘‘(C) REDUCTION
NOT
TO
APPLY
TO
TAX
SHELTERS.—
‘‘(i) IN
GENERAL.—Subparagraph (B) shall not
apply to any item attributable to a tax shelter.
‘‘(ii) TAX SHELTER.—For purposes of clause (i), the
term ‘tax shelter’ means—
‘‘(I) a partnership or other entity,
‘‘(II) any investment plan or arrangement, or
‘‘(III) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.’’.
(e) CLERICAL AMENDMENTS.—
(1) The heading for section 6662 is amended to read as
follows:
‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDER-
PAYMENTS.’’.
(2) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements
with respect to reportable transactions.’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
H. R. 4520—164
SEC. 813. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES
RELATING TO TAXPAYER COMMUNICATIONS.
(a) IN GENERAL.—Section 7525(b) (relating to section not to
apply to communications regarding corporate tax shelters) is
amended to read as follows:
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS REGARDING
TAX SHELTERS.—The privilege under subsection (a) shall not apply
to any written communication which is—
‘‘(1) between a federally authorized tax practitioner and—
‘‘(A) any person,
‘‘(B) any director, officer, employee, agent, or represent-
ative of the person, or
‘‘(C) any other person holding a capital or profits
interest in the person, and
‘‘(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 6662(d)(2)(C)(ii)).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to communications made on or after the date of the
enactment of this Act.
SEC. 814. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH
REQUIRED LISTED TRANSACTIONS NOT REPORTED.
(a) IN GENERAL.—Section 6501(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
‘‘(10) LISTED TRANSACTIONS.—If a taxpayer fails to include
on any return or statement for any taxable year any information
with respect to a listed transaction (as defined in section
6707A(c)(2)) which is required under section 6011 to be included
with such return or statement, the time for assessment of
any tax imposed by this title with respect to such transaction
shall not expire before the date which is 1 year after the
earlier of—
‘‘(A) the date on which the Secretary is furnished the
information so required, or
‘‘(B) the date that a material advisor (as defined in
section 6111) meets the requirements of section 6112 with
respect to a request by the Secretary under section 6112(b)
relating to such transaction with respect to such taxpayer.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years with respect to which the period for
assessing a deficiency did not expire before the date of the enact-
ment of this Act.
SEC. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth—
‘‘(1) information identifying and describing the transaction,
‘‘(2) information describing any potential tax benefits
expected to result from the transaction, and
‘‘(3) such other information as the Secretary may prescribe.
Such return shall be filed not later than the date specified by
the Secretary.
H. R. 4520—165
‘‘(b) DEFINITIONS.—For purposes of this section:
‘‘(1) MATERIAL ADVISOR.—
‘‘(A) IN GENERAL.—The term ‘material advisor’ means
any person—
‘‘(i) who provides any material aid, assistance, or
advice with respect to organizing, managing, pro-
moting, selling, implementing, insuring, or carrying
out any reportable transaction, and
‘‘(ii) who directly or indirectly derives gross income
in excess of the threshold amount (or such other
amount as may be prescribed by the Secretary) for
such advice or assistance.
‘‘(B) THRESHOLD AMOUNT.—For purposes of subpara-
graph (A), the threshold amount is—
‘‘(i) $50,000 in the case of a reportable transaction
substantially all of the tax benefits from which are
provided to natural persons, and
‘‘(ii) $250,000 in any other case.
‘‘(2) REPORTABLE
TRANSACTION.—The term ‘reportable
transaction’ has the meaning given to such term by section
6707A(c).
‘‘(c) REGULATIONS.—The Secretary may prescribe regulations
which provide—
‘‘(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such require-
ments,
‘‘(2) exemptions from the requirements of this section, and
‘‘(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CONFORMING AMENDMENTS.—(1) The item relating to section
6111 in the table of sections for subchapter B of chapter 61 is
amended to read as follows:
‘‘Sec. 6111. Disclosure of reportable transactions.’’.
(2) So much of section 6112 as precedes subsection (c) thereof
is amended to read as follows:
‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS
MUST KEEP LISTS OF ADVISEES, ETC.
‘‘(a) IN GENERAL.—Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in
section 6707A(c)) shall (whether or not required to file a return
under section 6111 with respect to such transaction) maintain (in
such manner as the Secretary may by regulations prescribe) a
list—
‘‘(1) identifying each person with respect to whom such
advisor acted as a material advisor with respect to such trans-
action, and
‘‘(2) containing such other information as the Secretary
may by regulations require.’’.
(3) Section 6112 is amended—
(A) by redesignating subsection (c) as subsection (b),
(B) by inserting ‘‘written’’ before ‘‘request’’ in subsection
(b)(1) (as so redesignated), and
(C) by striking ‘‘shall prescribe’’ in subsection (b)(2) (as
so redesignated) and inserting ‘‘may prescribe’’.
H. R. 4520—166
(4) The item relating to section 6112 in the table of sections
for subchapter B of chapter 61 is amended to read as follows:
‘‘Sec. 6112. Material advisors of reportable transactions must keep lists of
advisees, etc.’’.
(5)(A) The heading for section 6708 is amended to read as
follows:
‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT
TO REPORTABLE TRANSACTIONS.’’
(B) The item relating to section 6708 in the table of sections
for part I of subchapter B of chapter 68 is amended to read as
follows:
‘‘Sec. 6708. Failure to maintain lists of advisees with respect to reportable
transactions.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to transactions with respect to which material aid,
assistance, or advice referred to in section 6111(b)(1)(A)(i) of the
Internal Revenue Code of 1986 (as added by this section) is provided
after the date of the enactment of this Act.
SEC. 816. FAILURE TO FURNISH INFORMATION REGARDING REPORT-
ABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORT-
ABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction—
‘‘(1) fails to file such return on or before the date prescribed
therefor, or
‘‘(2) files false or incomplete information with the Secretary
with respect to such transaction,
such person shall pay a penalty with respect to such return in
the amount determined under subsection (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
‘‘(2) LISTED
TRANSACTIONS.—The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of—
‘‘(A) $200,000, or
‘‘(B) 50 percent of the gross income derived by such
person with respect to aid, assistance, or advice which
is provided with respect to the listed transaction before
the date the return is filed under section 6111.
Subparagraph (B) shall be applied by substituting ‘75 percent’
for ‘50 percent’ in the case of an intentional failure or act
described in subsection (a).
‘‘(c) RESCISSION AUTHORITY.—The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall
apply to any penalty imposed under this section.
‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—For purposes of
this section, the terms ‘reportable transaction’ and ‘listed trans-
action’ have the respective meanings given to such terms by section
6707A(c).’’.
H. R. 4520—167
(b) CLERICAL AMENDMENT.—The item relating to section 6707
in the table of sections for part I of subchapter B of chapter
68 is amended by striking ‘‘tax shelters’’ and inserting ‘‘reportable
transactions’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns the due date for which is after the date
of the enactment of this Act.
SEC. 817. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN
LISTS OF INVESTORS.
(a) IN GENERAL.—Subsection (a) of section 6708 is amended
to read as follows:
‘‘(a) IMPOSITION OF PENALTY.—
‘‘(1) IN GENERAL.—If any person who is required to main-
tain a list under section 6112(a) fails to make such list available
upon written request to the Secretary in accordance with section
6112(b) within 20 business days after the date of such request,
such person shall pay a penalty of $10,000 for each day of
such failure after such 20th day.
‘‘(2) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed by paragraph (1) with respect to the failure on any
day if such failure is due to reasonable cause.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to requests made after the date of the enactment of
this Act.
SEC. 818. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) PENALTY ON PROMOTING ABUSIVE TAX SHELTERS.—Section
6700(a) is amended by adding at the end the following new sentence:
‘‘Notwithstanding the first sentence, if an activity with respect
to which a penalty imposed under this subsection involves a state-
ment described in paragraph (2)(A), the amount of the penalty
shall be equal to 50 percent of the gross income derived (or to
be derived) from such activity by the person on which the penalty
is imposed.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to activities after the date of the enactment of this
Act.
SEC. 819. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PEN-
ALTY FOR NONREPORTABLE TRANSACTIONS.
(a) SUBSTANTIAL UNDERSTATEMENT OF CORPORATIONS.—Section
6662(d)(1)(B) (relating to special rule for corporations) is amended
to read as follows:
‘‘(B) SPECIAL RULE FOR CORPORATIONS.—In the case
of a corporation other than an S corporation or a personal
holding company (as defined in section 542), there is a
substantial understatement of income tax for any taxable
year if the amount of the understatement for the taxable
year exceeds the lesser of—
‘‘(i) 10 percent of the tax required to be shown
on the return for the taxable year (or, if greater,
$10,000), or
‘‘(ii) $10,000,000.’’.
(b) SECRETARIAL LIST.—
(1) IN GENERAL.—Section 6662(d) is amended by adding
at the end the following new paragraph:
H. R. 4520—168
‘‘(3) SECRETARIAL
LIST.—The Secretary may prescribe a
list of positions which the Secretary believes do not meet the
1 or more of the standards specified in paragraph (2)(B)(i),
section 6664(d)(2), and section 6694(a)(1). Such list (and any
revisions thereof) shall be published in the Federal Register
or the Internal Revenue Bulletin.’’.
(2) CONFORMING
AMENDMENT.—Paragraph (2) of section
6662(d) is amended by striking subparagraph (D).
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT
RELATED TO TAX SHELTERS AND REPORTABLE TRANS-
ACTIONS.
(a) IN GENERAL.—Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a)
and (b) and inserting the following new subsections:
‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil action in the
name of the United States to enjoin any person from further
engaging in specified conduct may be commenced at the request
of the Secretary. Any action under this section shall be brought
in the district court of the United States for the district in which
such person resides, has his principal place of business, or has
engaged in specified conduct. The court may exercise its jurisdiction
over such action (as provided in section 7402(a)) separate and
apart from any other action brought by the United States against
such person.
‘‘(b) ADJUDICATION
AND DECREE.—In any action under sub-
section (a), if the court finds—
‘‘(1) that the person has engaged in any specified conduct,
and
‘‘(2) that injunctive relief is appropriate to prevent recur-
rence of such conduct,
the court may enjoin such person from engaging in such conduct
or in any other activity subject to penalty under this title.
‘‘(c) SPECIFIED CONDUCT.—For purposes of this section, the
term ‘specified conduct’ means any action, or failure to take action,
which is—
‘‘(1) subject to penalty under section 6700, 6701, 6707,
or 6708, or
‘‘(2) in violation of any requirement under regulations
issued under section 330 of title 31, United States Code.’’.
(b) CONFORMING AMENDMENTS.—(1) The heading for section
7408 is amended to read as follows:
‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.’’.
(2) The table of sections for subchapter A of chapter 76 is
amended by striking the item relating to section 7408 and inserting
the following new item:
‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and re-
portable transactions.’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the day after the date of the enactment of
this Act.
H. R. 4520—169
SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
(a) IN GENERAL.—Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
‘‘(A) PENALTY
AUTHORIZED.—The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
‘‘(B) AMOUNT OF PENALTY.—
‘‘(i) IN GENERAL.—Except as provided in subpara-
graph (C), the amount of any civil penalty imposed
under subparagraph (A) shall not exceed $10,000.
‘‘(ii) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subparagraph (A) with respect
to any violation if—
‘‘(I) such violation was due to reasonable cause,
and
‘‘(II) the amount of the transaction or the
balance in the account at the time of the trans-
action was properly reported.
‘‘(C) WILLFUL VIOLATIONS.—In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314—
‘‘(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of—
‘‘(I) $100,000, or
‘‘(II) 50 percent of the amount determined
under subparagraph (D), and
‘‘(ii) subparagraph (B)(ii) shall not apply.
‘‘(D) AMOUNT.—The amount determined under this
subparagraph is—
‘‘(i) in the case of a violation involving a trans-
action, the amount of the transaction, or
‘‘(ii) in the case of a violation involving a failure
to report the existence of an account or any identifying
information required to be provided with respect to
an account, the balance in the account at the time
of the violation.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to violations occurring after the date of the enactment
of this Act.
SEC. 822. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE
DEPARTMENT OF THE TREASURY.
(a) CENSURE; IMPOSITION OF PENALTY.—
(1) IN GENERAL.—Section 330(b) of title 31, United States
Code, is amended—
(A) by inserting ‘‘, or censure,’’ after ‘‘Department’’,
and
(B) by adding at the end the following new flush sen-
tence:
‘‘The Secretary may impose a monetary penalty on any representa-
tive described in the preceding sentence. If the representative was
acting on behalf of an employer or any firm or other entity in
connection with the conduct giving rise to such penalty, the Sec-
retary may impose a monetary penalty on such employer, firm,
H. R. 4520—170
or entity if it knew, or reasonably should have known, of such
conduct. Such penalty shall not exceed the gross income derived
(or to be derived) from the conduct giving rise to the penalty
and may be in addition to, or in lieu of, any suspension, disbarment,
or censure of the representative.’’.
(2) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to actions taken after the date of the enact-
ment of this Act.
(b) TAX SHELTER OPINIONS, ETC.—Section 330 of such title
31 is amended by adding at the end the following new subsection:
‘‘(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement,
or other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.’’.
Part II—Other Provisions
SEC. 831. TREATMENT OF STRIPPED INTERESTS IN BOND AND PRE-
FERRED STOCK FUNDS, ETC.
(a) IN GENERAL.—Section 1286 (relating to tax treatment of
stripped bonds) is amended by redesignating subsection (f) as sub-
section (g) and by inserting after subsection (e) the following new
subsection:
‘‘(f) TREATMENT OF STRIPPED INTERESTS IN BOND AND PRE-
FERRED STOCK FUNDS, ETC.—In the case of an account or entity
substantially all of the assets of which consist of bonds, preferred
stock, or a combination thereof, the Secretary may by regulations
provide that rules similar to the rules of this section and 305(e),
as appropriate, shall apply to interests in such account or entity
to which (but for this subsection) this section or section 305(e),
as the case may be, would not apply.’’.
(b) CROSS
REFERENCE.—Subsection (e) of section 305 is
amended by adding at the end the following new paragraph:
‘‘(7) CROSS REFERENCE.—
‘‘For treatment of stripped interests in certain accounts or enti-
ties holding preferred stock, see section 1286(f).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to purchases and dispositions after the date of the
enactment of this Act.
SEC. 832. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON
WITHHOLDING TAXES ON INCOME OTHER THAN DIVI-
DENDS.
(a) IN GENERAL.—Section 901 is amended by redesignating
subsection (l) as subsection (m) and by inserting after subsection
(k) the following new subsection:
‘‘(l) MINIMUM HOLDING PERIOD FOR WITHHOLDING TAXES ON
GAIN AND INCOME OTHER THAN DIVIDENDS ETC.—
‘‘(1) IN GENERAL.—In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect
to any property if—
‘‘(A) such property is held by the recipient of the item
for 15 days or less during the 31-day period beginning
H. R. 4520—171
on the date which is 15 days before the date on which
the right to receive payment of such item arises, or
‘‘(B) to the extent that the recipient of the item is
under an obligation (whether pursuant to a short sale
or otherwise) to make related payments with respect to
positions in substantially similar or related property.
This paragraph shall not apply to any dividend to which sub-
section (k) applies.
‘‘(2) EXCEPTION FOR TAXES PAID BY DEALERS.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business as
a dealer in such property.
‘‘(B) QUALIFIED TAX.—For purposes of subparagraph
(A), the term ‘qualified tax’ means a tax paid to a foreign
country (other than the foreign country referred to in
subparagraph (A)) if—
‘‘(i) the item to which such tax is attributable
is subject to taxation on a net basis by the country
referred to in subparagraph (A), and
‘‘(ii) such country allows a credit against its net
basis tax for the full amount of the tax paid to such
other foreign country.
‘‘(C) DEALER.—For purposes of subparagraph (A), the
term ‘dealer’ means—
‘‘(i) with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would not
apply by reason of paragraph (4) thereof if such secu-
rity were stock, and
‘‘(ii) with respect to any other property, any person
with respect to whom such property is described in
section 1221(a)(1).
‘‘(D) REGULATIONS.—The Secretary may prescribe such
regulations as may be appropriate to carry out this para-
graph, including regulations to prevent the abuse of the
exception provided by this paragraph and to treat other
taxes as qualified taxes.
‘‘(3) EXCEPTIONS.—The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the Sec-
retary determines that the application of paragraph (1) to such
property is not necessary to carry out the purposes of this
subsection.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
‘‘(5) DETERMINATION OF HOLDING PERIOD.—Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.’’.
(b) CONFORMING AMENDMENT.—The heading of subsection (k)
of section 901 is amended by inserting ‘‘ON DIVIDENDS’’ after
‘‘TAXES’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or accrued more than 30 days after
the date of the enactment of this Act.
H. R. 4520—172
SEC. 833. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANS-
FERS.
(a) TREATMENT
OF CONTRIBUTED PROPERTY WITH BUILT-IN
LOSS.—Paragraph (1) of section 704(c) is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the period at the
end of subparagraph (B) and inserting ‘‘, and’’, and by adding
at the end the following:
‘‘(C) if any property so contributed has a built-in loss—
‘‘(i) such built-in loss shall be taken into account
only in determining the amount of items allocated to
the contributing partner, and
‘‘(ii) except as provided in regulations, in deter-
mining the amount of items allocated to other partners,
the basis of the contributed property in the hands
of the partnership shall be treated as being equal
to its fair market value at the time of contribution.
For purposes of subparagraph (C), the term ‘built-in loss’ means
the excess of the adjusted basis of the property (determined
without regard to subparagraph (C)(ii)) over its fair market
value at the time of contribution.’’.
(b) SPECIAL RULES FOR TRANSFERS OF PARTNERSHIP INTEREST
IF THERE IS SUBSTANTIAL BUILT-IN LOSS.—
(1) ADJUSTMENT OF PARTNERSHIP BASIS REQUIRED.—Sub-
section (a) of section 743 (relating to optional adjustment to
basis of partnership property) is amended by inserting before
the period ‘‘or unless the partnership has a substantial built-
in loss immediately after such transfer’’.
(2) ADJUSTMENT.—Subsection (b) of section 743 is amended
by inserting ‘‘or which has a substantial built-in loss imme-
diately after such transfer’’ after ‘‘section 754 is in effect’’.
(3) SUBSTANTIAL BUILT-IN LOSS.—Section 743 is amended
by adding at the end the following new subsection:
‘‘(d) SUBSTANTIAL BUILT-IN LOSS.—
‘‘(1) IN GENERAL.—For purposes of this section, a partner-
ship has a substantial built-in loss with respect to a transfer
of an interest in a partnership if the partnership’s adjusted
basis in the partnership property exceeds by more than
$250,000 the fair market value of such property.
‘‘(2) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes
of paragraph (1) and section 734(d), including regulations aggre-
gating related partnerships and disregarding property acquired
by the partnership in an attempt to avoid such purposes.’’.
(4) ALTERNATIVE RULES FOR ELECTING INVESTMENT PART-
NERSHIPS.—
(A) IN GENERAL.—Section 743 is amended by adding
after subsection (d) the following new subsection:
‘‘(e) ALTERNATIVE RULES FOR ELECTING INVESTMENT PARTNER-
SHIPS.—
‘‘(1) NO ADJUSTMENT OF PARTNERSHIP BASIS.—For purposes
of this section, an electing investment partnership shall not
be treated as having a substantial built-in loss with respect
to any transfer occurring while the election under paragraph
(6)(A) is in effect.
H. R. 4520—173
‘‘(2) LOSS DEFERRAL FOR TRANSFEREE PARTNER.—In the case
of a transfer of an interest in an electing investment partner-
ship, the transferee partner’s distributive share of losses (with-
out regard to gains) from the sale or exchange of partnership
property shall not be allowed except to the extent that it
is established that such losses exceed the loss (if any) recognized
by the transferor (or any prior transferor to the extent not
fully offset by a prior disallowance under this paragraph) on
the transfer of the partnership interest.
‘‘(3) NO
REDUCTION
IN
PARTNERSHIP
BASIS.—Losses dis-
allowed under paragraph (2) shall not decrease the transferee
partner’s basis in the partnership interest.
‘‘(4) EFFECT OF TERMINATION OF PARTNERSHIP.—This sub-
section shall be applied without regard to any termination
of a partnership under section 708(b)(1)(B).
‘‘(5) CERTAIN BASIS REDUCTIONS TREATED AS LOSSES.—In
the case of a transferee partner whose basis in property distrib-
uted by the partnership is reduced under section 732(a)(2),
the amount of the loss recognized by the transferor on the
transfer of the partnership interest which is taken into account
under paragraph (2) shall be reduced by the amount of such
basis reduction.
‘‘(6) ELECTING INVESTMENT PARTNERSHIP.—For purposes of
this subsection, the term ‘electing investment partnership’
means any partnership if—
‘‘(A) the partnership makes an election to have this
subsection apply,
‘‘(B) the partnership would be an investment company
under section 3(a)(1)(A) of the Investment Company Act
of 1940 but for an exemption under paragraph (1) or (7)
of section 3(c) of such Act,
‘‘(C) such partnership has never been engaged in a
trade or business,
‘‘(D) substantially all of the assets of such partnership
are held for investment,
‘‘(E) at least 95 percent of the assets contributed to
such partnership consist of money,
‘‘(F) no assets contributed to such partnership had
an adjusted basis in excess of fair market value at the
time of contribution,
‘‘(G) all partnership interests of such partnership are
issued by such partnership pursuant to a private offering
before the date which is 24 months after the date of the
first capital contribution to such partnership,
‘‘(H) the partnership agreement of such partnership
has substantive restrictions on each partner’s ability to
cause a redemption of the partner’s interest, and
‘‘(I) the partnership agreement of such partnership pro-
vides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall
be irrevocable except with the consent of the Secretary.
‘‘(7) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes
of this subsection, including regulations for applying this sub-
section to tiered partnerships.’’.
(B) 
INFORMATION
REPORTING.—Section 
6031 
is
amended by adding at the end the following new subsection:
H. R. 4520—174
‘‘(f) ELECTING INVESTMENT PARTNERSHIPS.—In the case of any
electing investment partnership (as defined in section 743(e)(6)),
the information required under subsection (b) to be furnished to
any partner to whom section 743(e)(2) applies shall include such
information as is necessary to enable the partner to compute the
amount of losses disallowed under section 743(e).’’.
(5) SPECIAL RULE FOR SECURITIZATION PARTNERSHIPS.—Sec-
tion 743 is amended by adding after subsection (e) the following
new subsection:
‘‘(f) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—
‘‘(1) NO ADJUSTMENT OF PARTNERSHIP BASIS.—For purposes
of this section, a securitization partnership shall not be treated
as having a substantial built-in loss with respect to any
transfer.
‘‘(2) SECURITIZATION PARTNERSHIP.—For purposes of para-
graph (1), the term ‘securitization partnership’ means any part-
nership the sole business activity of which is to issue securities
which provide for a fixed principal (or similar) amount and
which are primarily serviced by the cash flows of a discrete
pool (either fixed or revolving) of receivables or other financial
assets that by their terms convert into cash in a finite period,
but only if the sponsor of the pool reasonably believes that
the receivables and other financial assets comprising the pool
are not acquired so as to be disposed of.’’.
(6) CLERICAL AMENDMENTS.—(A) The section heading for
section 743 is amended to read as follows:
‘‘SEC. 743. SPECIAL RULES WHERE SECTION 754 ELECTION OR
SUBSTANTIAL BUILT-IN LOSS.’’.
(B) The table of sections for subpart C of part II of sub-
chapter K of chapter 1 is amended by striking the item relating
to section 743 and inserting the following new item:
‘‘Sec. 743. Special rules where section 754 election or substantial built-in
loss.’’.
(c) ADJUSTMENT
TO BASIS
OF UNDISTRIBUTED PARTNERSHIP
PROPERTY IF THERE IS SUBSTANTIAL BASIS REDUCTION.—
(1) ADJUSTMENT REQUIRED.—Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed part-
nership property) is amended by inserting before the period
the following: ‘‘or unless there is a substantial basis reduction’’.
(2) ADJUSTMENT.—Subsection (b) of section 734 is amended
by inserting ‘‘or unless there is a substantial basis reduction’’
after ‘‘section 754 is in effect’’.
(3) 
SUBSTANTIAL
BASIS
REDUCTION.—Section 
734 
is
amended by adding at the end the following new subsection:
‘‘(d) SUBSTANTIAL BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this section, there is
a substantial basis reduction with respect to a distribution
if the sum of the amounts described in subparagraphs (A)
and (B) of subsection (b)(2) exceeds $250,000.
‘‘(2) REGULATIONS.—
‘‘For regulations to carry out this subsection, see section
743(d)(2).’’.
(4) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—Section
734 is amended by inserting after subsection (d) the following
new subsection:
H. R. 4520—175
‘‘(e) EXCEPTION FOR SECURITIZATION PARTNERSHIPS.—For pur-
poses of this section, a securitization partnership (as defined in
section 743(f)) shall not be treated as having a substantial basis
reduction with respect to any distribution of property to a partner.’’.
(5) CLERICAL AMENDMENTS.—(A) The section heading for
section 734 is amended to read as follows:
‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY WHERE SECTION 754 ELECTION OR SUBSTAN-
TIAL BASIS REDUCTION.’’.
(B) The table of sections for subpart B of part II of sub-
chapter K of chapter 1 is amended by striking the item relating
to section 734 and inserting the following new item:
‘‘Sec. 734. Adjustment to basis of undistributed partnership property
where section 754 election or substantial basis reduction.’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall apply to contributions made after the date of the
enactment of this Act.
(2) SUBSECTION (b).—
(A) IN GENERAL.—Except as provided in subparagraph
(B), the amendments made by subsection (b) shall apply
to transfers after the date of the enactment of this Act.
(B) TRANSITION
RULE.—In the case of an electing
investment partnership which is in existence on June 4,
2004, section 743(e)(6)(H) of the Internal Revenue Code
of 1986, as added by this section, shall not apply to such
partnership and section 743(e)(6)(I) of such Code, as so
added, shall be applied by substituting ‘‘20 years’’ for ‘‘15
years’’.
(3) SUBSECTION (c).—The amendments made by subsection
(c) shall apply to distributions after the date of the enactment
of this Act.
SEC. 834. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK
HELD BY PARTNERSHIP IN CORPORATE PARTNER.
(a) IN GENERAL.—Section 755 is amended by adding at the
end the following new subsection:
‘‘(c) NO ALLOCATION OF BASIS DECREASE TO STOCK OF COR-
PORATE PARTNER.—In making an allocation under subsection (a)
of any decrease in the adjusted basis of partnership property under
section 734(b)—
‘‘(1) no allocation may be made to stock in a corporation
(or any person related (within the meaning of sections 267(b)
and 707(b)(1)) to such corporation) which is a partner in the
partnership, and
‘‘(2) any amount not allocable to stock by reason of para-
graph (1) shall be allocated under subsection (a) to other part-
nership property.
Gain shall be recognized to the partnership to the extent that
the amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such
other property immediately before the allocation required by para-
graph (2).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to distributions after the date of the enactment of
this Act.
H. R. 4520—176
SEC. 835. REPEAL OF SPECIAL RULES FOR FASITS.
(a) IN GENERAL.—Part V of subchapter M of chapter 1 (relating
to financial asset securitization investment trusts) is hereby
repealed.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 56(g) is amended by striking
‘‘REMIC, or FASIT’’ and inserting ‘‘or REMIC’’.
(2) Clause (ii) of section 382(l)(4)(B) is amended by striking
‘‘a REMIC to which part IV of subchapter M applies, or a
FASIT to which part V of subchapter M applies,’’ and inserting
‘‘or a REMIC to which part IV of subchapter M applies,’’.
(3) Paragraph (1) of section 582(c) is amended by striking
‘‘, and any regular interest in a FASIT,’’.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5)(A) Section 860G(a)(1) is amended by adding at the
end the following new sentence: ‘‘An interest shall not fail
to qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced as
a result of the nonoccurrence of 1 or more contingent payments
with respect to any reverse mortgage loan held by the REMIC
if, on the startup day for the REMIC, the sponsor reasonably
believes that all principal and interest due under the regular
interest will be paid at or prior to the liquidation of the
REMIC.’’.
(B) The last sentence of section 860G(a)(3) is amended
by inserting ‘‘, and any reverse mortgage loan (and each balance
increase on such loan meeting the requirements of subpara-
graph (A)(iii)) shall be treated as an obligation secured by
an interest in real property’’ before the period at the end.
(6) Paragraph (3) of section 860G(a) is amended by adding
‘‘and’’ at the end of subparagraph (B), by striking ‘‘, and’’
at the end of subparagraph (C) and inserting a period, and
by striking subparagraph (D).
(7) Section 860G(a)(3), as amended by paragraph (6), is
amended by adding at the end the following new sentence:
‘‘For purposes of subparagraph (A), if more than 50 percent
of the obligations transferred to, or purchased by, the REMIC
are originated by the United States or any State (or any political
subdivision, agency, or instrumentality of the United States
or any State) and are principally secured by an interest in
real property, then each obligation transferred to, or purchased
by, the REMIC shall be treated as secured by an interest
in real property.’’.
(8)(A) Section 860G(a)(3)(A) is amended by striking ‘‘or’’
at the end of clause (i), by inserting ‘‘or’’ at the end of clause
(ii), and by inserting after clause (ii) the following new clause:
‘‘(iii) represents an increase in the principal
amount under the original terms of an obligation
described in clause (i) or (ii) if such increase—
‘‘(I) is attributable to an advance made to the
obligor pursuant to the original terms of the obliga-
tion,
‘‘(II) occurs after the startup day, and