‘‘(W) section 457A(c)(1)(B) (relating to 
determinability of amounts of compensation).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
of subpart B of part II of subchapter E of chapter 1 is 
amended by inserting after the item relating to section 
457 the following new item: 
‘‘Sec. 457A. Nonqualified deferred compensation from certain tax indifferent 
parties.’’. 
(d) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to amounts deferred which 
are attributable to services performed after Decem-
ber 31, 2008. 
(2) APPLICATION TO EXISTING DEFERRALS.— 
In the case of any amount deferred to which the 
amendments made by this section do not apply solely 
by reason of the fact that the amount is attributable 
to services performed before January 1, 2009, to the 
extent such amount is not includible in gross income 
in a taxable year beginning before 2018, such 
amounts shall be includible in gross income in the 
later of— 
(A) the last taxable year beginning before 
2018, or 
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(B) the taxable year in which there is no 
substantial risk of forfeiture of the rights to 
such compensation (determined in the same 
manner as determined for purposes of section 
457A of the Internal Revenue Code of 1986, as 
added by this section). 
(3) CHARITABLE CONTRIBUTIONS OF EXISTING 
DEFERRALS PERMITTED.— 
(A) IN GENERAL.—Subsection (b) of sec-
tion 170 of the Internal Revenue Code of 1986 
shall not apply to (and subsections (b) and (d) 
of such section shall be applied without regard 
to) so much of the taxpayer’s qualified con-
tributions made during the taxpayer’s last tax-
able year beginning before 2018 as does not ex-
ceed the taxpayer’s qualified inclusion amount. 
For purposes of subsection (b) of section 170 of 
such Code, the taxpayer’s contribution base for 
such last taxable year shall be reduced by the 
amount of the taxpayer’s qualified contributions 
to which such subsection does not apply by rea-
son the preceding sentence. 
(B) 
QUALIFIED
CONTRIBUTIONS.—For 
purposes of this paragraph, the term ‘‘qualified 
contributions’’ means the aggregate charitable 
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contributions (as defined in section 170(c) of 
such Code) paid in cash by the taxpayer to or-
ganizations described in section 170(b)(1)(A) of 
such Code (other than any organization de-
scribed in section 509(a)(3) of such Code or 
any fund or account described in section 
4966(d)(2) of such Code). 
(C) QUALIFIED INCLUSION AMOUNT.—For 
purposes of this paragraph, the term ‘‘qualified 
inclusion amount’’ means the amount includible 
in the taxpayer’s gross income for the last tax-
able year beginning before 2018 by reason of 
paragraph (2). 
(4) ACCELERATED PAYMENTS.—No later than 
120 days after the date of the enactment of this Act, 
the Secretary shall issue guidance providing a lim-
ited period of time during which a nonqualified de-
ferred compensation arrangement attributable to 
services performed on or before December 31, 2008, 
may, without violating the requirements of section 
409A(a) of the Internal Revenue Code of 1986, be 
amended to conform the date of distribution to the 
date the amounts are required to be included in in-
come. 
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(5) CERTAIN BACK-TO-BACK ARRANGEMENTS.— 
If the taxpayer is also a service recipient and main-
tains one or more nonqualified deferred compensa-
tion arrangements for its service providers under 
which any amount is attributable to services per-
formed on or before December 31, 2008, the guid-
ance issued under paragraph (4) shall permit such 
arrangements to be amended to conform the dates of 
distribution under such arrangement to the date 
amounts are required to be included in the income 
of such taxpayer under this subsection. 
(6) ACCELERATED PAYMENT NOT TREATED AS 
MATERIAL
MODIFICATION.—Any amendment to a 
nonqualified deferred compensation arrangement 
made pursuant to paragraph (4) or (5) shall not be 
treated as a material modification of the arrange-
ment for purposes of section 409A of the Internal 
Revenue Code of 1986. 
SEC. 207. BROKER REPORTING OF CUSTOMER’S BASIS IN 
SECURITIES TRANSACTIONS. 
(a) IN GENERAL.— 
(1) BROKER
REPORTING
FOR
SECURITIES 
TRANSACTIONS.—Section 6045 (relating to returns 
of brokers) is amended by adding at the end the fol-
lowing new subsection: 
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‘‘(g) ADDITIONAL INFORMATION REQUIRED IN THE 
CASE OF SECURITIES TRANSACTIONS, ETC.— 
‘‘(1) IN GENERAL.—If a broker is otherwise re-
quired to make a return under subsection (a) with 
respect to the gross proceeds of the sale of a covered 
security, the broker shall include in such return the 
information described in paragraph (2). 
‘‘(2) ADDITIONAL INFORMATION REQUIRED.— 
‘‘(A) IN GENERAL.—The information re-
quired under paragraph (1) to be shown on a 
return with respect to a covered security of a 
customer shall include the customer’s adjusted 
basis in such security and whether any gain or 
loss with respect to such security is long-term 
or short-term (within the meaning of section 
1222). 
‘‘(B) 
DETERMINATION
OF
ADJUSTED 
BASIS.—For purposes of subparagraph (A)— 
‘‘(i) IN
GENERAL.—The customer’s 
adjusted basis shall be determined— 
‘‘(I) in the case of any security 
(other than any stock for which an av-
erage basis method is permissible 
under section 1012), in accordance 
with the first-in first-out method un-
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less the customer notifies the broker 
by means of making an adequate 
identification of the stock sold or 
transferred, and 
‘‘(II) in the case of any stock for 
which an average basis method is per-
missible under section 1012, in ac-
cordance with the broker’s default 
method unless the customer notifies 
the broker that he elects another ac-
ceptable method under section 1012 
with respect to the account in which 
such stock is held. 
‘‘(ii) EXCEPTION FOR WASH SALES.— 
Except as otherwise provided by the Sec-
retary, the customer’s adjusted basis shall 
be determined without regard to section 
1091 (relating to loss from wash sales of 
stock or securities) unless the transactions 
occur in the same account with respect to 
identical securities. 
‘‘(3) COVERED
SECURITY.—For purposes of 
this subsection— 
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mines that adjusted basis reporting is ap-
propriate for purposes of this subsection. 
‘‘(C) APPLICABLE DATE.—The term ‘appli-
cable date’ means— 
‘‘(i) January 1, 2010, in the case of 
any specified security which is stock in a 
corporation (other than any stock de-
scribed in clause (ii)), 
‘‘(ii) January 1, 2011, in the case of 
any stock for which an average basis meth-
od is permissible under section 1012, and 
‘‘(iii) January 1, 2012, or such later 
date determined by the Secretary in the 
case of any other specified security. 
‘‘(4) TREATMENT OF S CORPORATIONS.—In the 
case of the sale of a covered security acquired by an 
S corporation (other than a financial institution) 
after December 31, 2011, such S corporation shall 
be treated in the same manner as a partnership for 
purposes of this section. 
‘‘(5) SPECIAL RULES FOR SHORT SALES.—In 
the case of a short sale, reporting under this section 
shall be made for the year in which such sale is 
closed.’’. 
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(2) BROKER INFORMATION REQUIRED WITH RE-
SPECT TO OPTIONS.—Section 6045, as amended by 
subsection (a), is amended by adding at the end the 
following new subsection: 
‘‘(h) APPLICATION TO OPTIONS ON SECURITIES.— 
‘‘(1) EXERCISE OF OPTION.—For purposes of 
this section, if a covered security is acquired or dis-
posed of pursuant to the exercise of an option that 
was granted or acquired in the same account as the 
covered security, the amount received with respect to 
the grant or paid with respect to the acquisition of 
such option shall be treated as an adjustment to 
gross proceeds or as an adjustment to basis, as the 
case may be. 
‘‘(2) LAPSE OR CLOSING TRANSACTION.—In the 
case of the lapse (or closing transaction (as defined 
in section 1234(b)(2)(A))) of an option on a speci-
fied security or the exercise of a cash-settled option 
on a specified security, reporting under subsections 
(a) and (g) with respect to such option shall be 
made for the calendar year which includes the date 
of such lapse, closing transaction, or exercise. 
‘‘(3) PROSPECTIVE APPLICATION.—Paragraphs 
(1) and (2) shall not apply to any option which is 
granted or acquired before January 1, 2012. 
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‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the terms ‘covered security’ and ‘specified 
security’ shall have the meanings given such terms 
in subsection (g)(3).’’. 
(3) EXTENSION OF PERIOD FOR STATEMENTS 
SENT TO CUSTOMERS.— 
(A) IN GENERAL.—Subsection (b) of sec-
tion 6045 is amended by striking ‘‘January 31’’ 
and inserting ‘‘February 15’’. 
(B) STATEMENTS
RELATED
TO
SUB-
STITUTE PAYMENTS.—Subsection (d) of section 
6045 is amended— 
(i) by striking ‘‘at such time and’’, 
and 
(ii) by inserting after ‘‘other item.’’ 
the following new sentence: ‘‘The written 
statement required under the preceding 
sentence shall be furnished on or before 
February 15 of the year following the cal-
endar year in which the payment was 
made.’’. 
(C) OTHER STATEMENTS.—Subsection (b) 
of section 6045 is amended by adding at the 
end the following: ‘‘In the case of a consolidated 
reporting statement (as defined in regulations) 
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with respect to any account, any statement 
which would otherwise be required to be fur-
nished on or before January 31 of a calendar 
year with respect to any item reportable to the 
taxpayer shall instead be required to be fur-
nished on or before February 15 of such cal-
endar year if furnished with such consolidated 
reporting statement.’’. 
(b) DETERMINATION OF BASIS OF CERTAIN SECURI-
TIES
ON ACCOUNT
BY ACCOUNT
OR AVERAGE BASIS 
METHOD.—Section 1012 (relating to basis of property- 
cost) is amended— 
(1) by striking ‘‘The basis of property’’ and in-
serting the following: 
‘‘(a) IN GENERAL.—The basis of property’’, 
(2) by striking ‘‘The cost of real property’’ and 
inserting the following: 
‘‘(b) SPECIAL RULE FOR APPORTIONED REAL ES-
TATE TAXES.—The cost of real property’’, and 
(3) by adding at the end the following new sub-
sections: 
‘‘(c) DETERMINATIONS BY ACCOUNT.— 
‘‘(1) IN GENERAL.—In the case of the sale, ex-
change, or other disposition of a specified security 
on or after the applicable date, the conventions pre-
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scribed by regulations under this section shall be ap-
plied on an account by account basis. 
‘‘(2) APPLICATION TO OPEN-END FUNDS.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), any stock in an open-end 
fund acquired before January 1, 2011, shall be 
treated as a separate account from any such 
stock acquired on or after such date. 
‘‘(B) ELECTION BY OPEN-END FUND FOR 
TREATMENT AS SINGLE ACCOUNT.—If an open- 
end fund elects to have this subparagraph apply 
with respect to one or more of its stock-
holders— 
‘‘(i) subparagraph (A) shall not apply 
with respect to any stock in such fund held 
by such stockholders, and 
‘‘(ii) all stock in such fund which is 
held by such stockholders shall be treated 
as covered securities described in section 
6045(g)(3) without regard to the date of 
the acquisition of such stock. 
A rule similar to the rule of the preceding sen-
tence shall apply with respect to a broker hold-
ing stock in an open-end fund as a nominee. 
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‘‘(3) DEFINITIONS.—For purposes of this sec-
tion— 
‘‘(A) OPEN-END FUND.—The term ‘open- 
end fund’ means a regulated investment com-
pany (as defined in section 851) which is offer-
ing for sale or has outstanding any redeemable 
security of which it is the issuer. Any stock 
which is traded on an established securities ex-
change shall not be treated as stock in an open- 
end fund. 
‘‘(B) SPECIFIED
SECURITY; APPLICABLE 
DATE.—The terms ‘specified security’ and ‘ap-
plicable date’ shall have the meaning given such 
terms in section 6045(g). 
‘‘(d) AVERAGE BASIS FOR STOCK ACQUIRED PURSU-
ANT TO A DIVIDEND REINVESTMENT PLAN.— 
‘‘(1) IN GENERAL.—In the case of any stock ac-
quired after December 31, 2010, in connection with 
a dividend reinvestment plan, the basis of such stock 
while held as part of such plan shall be determined 
using one of the methods which may be used for de-
termining the basis of stock in an open-end fund. 
‘‘(2) TREATMENT
AFTER
TRANSFER.—In the 
case of the transfer to another account of stock to 
which paragraph (1) applies, such stock shall have 
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a cost basis in such other account equal to its basis 
in the dividend reinvestment plan immediately before 
such transfer (properly adjusted for any fees or 
other charges taken into account in connection with 
such transfer). 
‘‘(3) SEPARATE
ACCOUNTS; 
ELECTION
FOR 
TREATMENT AS SINGLE ACCOUNT.—Rules similar to 
the rules of subsection (c)(2) shall apply for pur-
poses of this subsection. 
‘‘(4) DIVIDEND
REINVESTMENT
PLAN.—For 
purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘dividend re-
investment plan’ means any arrangement under 
which dividends on any stock are reinvested in 
stock identical to the stock with respect to 
which the dividends are paid. 
‘‘(B) INITIAL STOCK ACQUISITION TREAT-
ED
AS
ACQUIRED
IN
CONNECTION
WITH 
PLAN.—Stock shall be treated as acquired in 
connection with a dividend reinvestment plan if 
such stock is acquired pursuant to such plan or 
if the dividends paid on such stock are subject 
to such plan.’’. 
(c) INFORMATION BY TRANSFERORS TO AID BRO-
KERS.— 
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(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61 is amended by inserting 
after section 6045 the following new section: 
‘‘SEC. 6045A. INFORMATION REQUIRED IN CONNECTION 
WITH TRANSFERS OF COVERED SECURITIES 
TO BROKERS. 
‘‘(a) FURNISHING OF INFORMATION.—Every applica-
ble person which transfers to a broker (as defined in sec-
tion 6045(c)(1)) a security which is a covered security (as 
defined in section 6045(g)(3)) in the hands of such appli-
cable person shall furnish to such broker a written state-
ment in such manner and setting forth such information 
as the Secretary may by regulations prescribe for purposes 
of enabling such broker to meet the requirements of sec-
tion 6045(g). 
‘‘(b) APPLICABLE PERSON.—For purposes of sub-
section (a), the term ‘applicable person’ means— 
‘‘(1) any broker (as defined in section 
6045(c)(1)), and 
‘‘(2) any other person as provided by the Sec-
retary in regulations. 
‘‘(c) TIME FOR FURNISHING STATEMENT.—Except 
as otherwise provided by the Secretary, any statement re-
quired by subsection (a) shall be furnished not later than 
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15 days after the date of the transfer described in such 
subsection.’’. 
(2) ASSESSABLE
PENALTIES.—Paragraph (2) 
of section 6724(d) (defining payee statement) is 
amended 
by 
redesignating 
subparagraphs 
(I) 
through (DD) as subparagraphs (J) through (EE), 
respectively, and by inserting after subparagraph 
(H) the following new subparagraph: 
‘‘(I) section 6045A (relating to information 
required in connection with transfers of covered 
securities to brokers),’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of 
chapter 61 is amended by inserting after the item 
relating to section 6045 the following new item: 
‘‘Sec. 6045A. Information required in connection with transfers of covered se-
curities to brokers.’’. 
(d) ADDITIONAL ISSUER INFORMATION TO AID BRO-
KERS.— 
(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61, as amended by sub-
section (b), is amended by inserting after section 
6045A the following new section: 
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‘‘SEC. 6045B. RETURNS RELATING TO ACTIONS AFFECTING 
BASIS OF SPECIFIED SECURITIES. 
‘‘(a) IN GENERAL.—According to the forms or regu-
lations prescribed by the Secretary, any issuer of a speci-
fied security shall make a return setting forth— 
‘‘(1) a description of any organizational action 
which affects the basis of such specified security of 
such issuer, 
‘‘(2) the quantitative effect on the basis of such 
specified security resulting from such action, and 
‘‘(3) such other information as the Secretary 
may prescribe. 
‘‘(b) TIME FOR FILING RETURN.—Any return re-
quired by subsection (a) shall be filed not later than the 
earlier of— 
‘‘(1) 45 days after the date of the action de-
scribed in subsection (a), or 
‘‘(2) January 15 of the year following the cal-
endar year during which such action occurred. 
‘‘(c) STATEMENTS TO BE FURNISHED TO HOLDERS 
OF SPECIFIED SECURITIES OR THEIR NOMINEES.—Ac-
cording to the forms or regulations prescribed by the Sec-
retary, every person required to make a return under sub-
section (a) with respect to a specified security shall furnish 
to the nominee with respect to the specified security (or 
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certificate holder if there is no nominee) a written state-
ment showing— 
‘‘(1) the name, address, and phone number of 
the information contact of the person required to 
make such return, 
‘‘(2) the information required to be shown on 
such return with respect to such security, and 
‘‘(3) such other information as the Secretary 
may prescribe. 
The written statement required under the preceding sen-
tence shall be furnished to the holder on or before January 
15 of the year following the calendar year during which 
the action described in subsection (a) occurred. 
‘‘(d) SPECIFIED SECURITY.—For purposes of this 
section, the term ‘specified security’ has the meaning given 
such term by section 6045(g)(3)(B). No return shall be 
required under this section with respect to actions de-
scribed in subsection (a) with respect to a specified secu-
rity which occur before the applicable date (as defined in 
section 6045(g)(3)(C)) with respect to such security. 
‘‘(e) PUBLIC REPORTING IN LIEU OF RETURN.—The 
Secretary may waive the requirements under subsections 
(a) and (c) with respect to a specified security, if the per-
son required to make the return under subsection (a) 
makes publicly available, in such form and manner as the 
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Secretary determines necessary to carry out the purposes 
of this section— 
‘‘(1) the name, address, phone number, and 
email address of the information contact of such 
person, and 
‘‘(2) the information described in paragraphs 
(1), (2), and (3) of subsection (a).’’. 
(2) ASSESSABLE PENALTIES.— 
(A) 
Subparagraph 
(B) 
of 
section 
6724(d)(1) (defining information return) is 
amended by redesignating clause (iv) and each 
of the clauses which follow as clauses (v) 
through (xxiii), respectively, and by inserting 
after clause (iii) the following new clause: 
‘‘(iv) section 6045B(a) (relating to re-
turns relating to actions affecting basis of 
specified securities),’’. 
(B) Paragraph (2) of section 6724(d) (de-
fining payee statement), as amended by sub-
section (c)(2), is amended by redesignating sub-
paragraphs (J) through (EE) as subparagraphs 
(K) through (FF), respectively, and by insert-
ing after subparagraph (I) the following new 
subparagraph: 
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‘‘(J) subsections (c) and (e) of section 
6045B (relating to returns relating to actions 
affecting basis of specified securities),’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of 
chapter 61, as amended by subsection (b)(3), is 
amended by inserting after the item relating to sec-
tion 6045A the following new item: 
‘‘Sec. 6045B. Returns relating to actions affecting basis of specified securi-
ties.’’. 
(e) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall take effect on January 1, 2010. 
(2) EXTENSION OF PERIOD FOR STATEMENTS 
SENT TO CUSTOMERS.—The amendments made by 
subsection (a)(3) shall apply to statements required 
to be furnished after December 31, 2008. 
SEC. 208. REPEAL OF WORLDWIDE ALLOCATION OF INTER-
EST. 
(a) IN GENERAL.—Section 864 is amended by strik-
ing subsection (f) and by redesignating subsection (g) as 
subsection (f). 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
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SEC. 209. CLARIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE. 
(a) IN GENERAL.—Section 7701 is amended by re-
designating subsection (p) as subsection (q) and by insert-
ing after subsection (o) the following new subsection: 
‘‘(p) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE; ETC.— 
‘‘(1) GENERAL RULES.— 
‘‘(A) IN GENERAL.—In any case in which 
a court determines that the economic substance 
doctrine is relevant for purposes of this title to 
a transaction (or series of transactions), such 
transaction (or series of transactions) shall have 
economic substance only if the requirements of 
this paragraph are met. 
‘‘(B) DEFINITION
OF
ECONOMIC
SUB-
STANCE.—For purposes of subparagraph (A)— 
‘‘(i) IN GENERAL.—A transaction has 
economic substance only if— 
‘‘(I) the transaction changes in a 
meaningful way (apart from Federal 
tax effects) the taxpayer’s economic 
position, and 
‘‘(II) subject to clause (iii), the 
taxpayer has a substantial purpose 
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(other than a Federal tax purpose) for 
entering into such transaction. 
‘‘(ii) SPECIAL
RULE
WHERE
TAX-
PAYER RELIES ON PROFIT POTENTIAL.—A 
transaction shall not be treated as having 
economic substance solely by reason of 
having a potential for profit unless the 
present value of the reasonably expected 
pre-Federal tax profit from the transaction 
is substantial in relation to the present 
value of the expected net Federal tax bene-
fits that would be allowed if the trans-
action were respected. In determining pre- 
Federal tax profit, there shall be taken 
into account fees and other transaction ex-
penses and to the extent provided by the 
Secretary, foreign taxes. 
‘‘(iii) SPECIAL
RULES
FOR
DETER-
MINING
WHETHER
NON-FEDERAL
TAX 
PURPOSE.—For 
purposes 
of 
clause 
(i)(II)— 
‘‘(I) a purpose of achieving a fi-
nancial accounting benefit shall not be 
taken into account in determining 
whether a transaction has a substan-
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tial purpose (other than a Federal tax 
purpose) if the origin of such financial 
accounting benefit is a reduction of 
Federal tax, and 
‘‘(II) the taxpayer shall not be 
treated as having a substantial pur-
pose (other than a Federal tax pur-
pose) with respect to a transaction if 
the only such purpose is the reduction 
of non-Federal taxes and the trans-
action will result in a reduction of 
Federal taxes substantially equal to, 
or greater than, the reduction in non- 
Federal taxes because of similarities 
between the laws imposing the taxes. 
‘‘(2) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection— 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 
The term ‘economic substance doctrine’ means 
the common law doctrine under which tax bene-
fits under subtitle A with respect to a trans-
action are not allowable if the transaction does 
not have economic substance or lacks a business 
purpose. 
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‘‘(B) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, this subsection shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
‘‘(3) OTHER PROVISIONS NOT AFFECTED.—Ex-
cept as specifically provided in this subsection, the 
provisions of this subsection shall not be construed 
as altering or supplanting any other rule of law or 
provision of this title, and the requirements of this 
subsection shall be construed as being in addition to 
any such other rule of law or provision of this title. 
‘‘(4) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section. Such regulations may include exemptions 
from the application of this subsection.’’. 
(b) PENALTY
FOR
UNDERSTATEMENTS
ATTRIB-
UTABLE
TO TRANSACTIONS LACKING ECONOMIC SUB-
STANCE, ETC.— 
(1) IN GENERAL.—Subchapter A of chapter 68 
is amended by inserting after section 6662A the fol-
lowing new section: 
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‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB-
UTABLE TO TRANSACTIONS LACKING ECO-
NOMIC SUBSTANCE, ETC. 
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 
noneconomic substance transaction understatement for 
any taxable year, there shall be added to the tax an 
amount equal to 30 percent of the amount of such under-
statement. 
‘‘(b) REDUCTION
OF PENALTY
FOR DISCLOSED 
TRANSACTIONS.—Subsection (a) shall be applied by sub-
stituting ‘20 percent’ for ‘30 percent’ with respect to the 
portion of any noneconomic substance transaction under-
statement with respect to which the relevant facts affect-
ing the tax treatment of the item are adequately disclosed 
in the return or a statement attached to the return. 
‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN-
DERSTATEMENT.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘noneconomic 
substance transaction understatement’ means any 
amount which would be an understatement under 
section 6662A(b)(1) if section 6662A were applied 
by taking into account items attributable to non-
economic substance transactions rather than items 
to which section 6662A would apply without regard 
to this paragraph. 
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