100 
subparagraph (A), only 50 percent of the re-
maining net premiums written with respect to 
health insurance for any United States health 
risk that are attributable to the activities (other 
than activities of an unrelated trade or business 
as defined in section 513 of the Internal Rev-
enue Code of 1986) of any covered entity quali-
fying under paragraph (3), (4), (26), or (29) of 
section 501(c) of such Code and exempt from 
tax under section 501(a) of such Code shall be 
taken into account.’’; 
(3) in subsection (c)— 
(A) by inserting ‘‘during the calendar year 
in which the fee under this section is due’’ in 
paragraph (1) after ‘‘risk’’; 
(B) in paragraph (2), by striking subpara-
graphs (C), (D), and (E) and inserting the fol-
lowing new subparagraphs: 
‘‘(C) any entity— 
‘‘(i) which is incorporated as a non-
profit corporation under a State law, 
‘‘(ii) no part of the net earnings of 
which inures to the benefit of any private 
shareholder or individual, no substantial 
part of the activities of which is carrying
101 
on propaganda, or otherwise attempting, to 
influence legislation (except as otherwise 
provided in section 501(h) of the Internal 
Revenue Code of 1986), and which does 
not participate in, or intervene in (includ-
ing the publishing or distributing of state-
ments), any political campaign on behalf of 
(or in opposition to) any candidate for 
public office, and 
‘‘(iii) more than 80 percent of the 
gross revenues of which is received from 
government programs that target low-in-
come, elderly, or disabled populations 
under titles XVIII, XIX, and XXI of the 
Social Security Act, and 
‘‘(D) any entity which is described in sec-
tion 501(c)(9) of such Code and which is estab-
lished by an entity (other than by an employer 
or employers) for purposes of providing health 
care benefits.’’; 
(C) in paragraph (3)(A), by striking ‘‘sub-
paragraph (C)(i)(I), (D)(i)(I), or (E)(i)’’ and 
inserting ‘‘subparagraph (C) or (D)’’; and 
(D) by adding at the end the following new 
paragraph:
102 
‘‘(4) JOINT AND SEVERAL LIABILITY.—If more 
than one person is liable for payment of the fee 
under subsection (a) with respect to a single covered 
entity by reason of the application of paragraph (3), 
all such persons shall be jointly and severally liable 
for payment of such fee.’’; 
(4) by striking subsection (e) and inserting the 
following: 
‘‘(e) APPLICABLE AMOUNT.—For purposes of sub-
section (b)(1)— 
‘‘(1) YEARS BEFORE 2019.—In the case of cal-
endar years beginning before 2019, the applicable 
amount shall be determined in accordance with the 
following table: 
‘‘Calendar year 
Applicable 
amount 
2014 .......................................................................
$8,000,000,000 
2015 .......................................................................
$11,300,000,000 
2016 .......................................................................
$11,300,000,000 
2017 .......................................................................
$13,900,000,000 
2018 .......................................................................
$14,300,000,000. 
‘‘(2) YEARS AFTER 2018.—In the case of any 
calendar year beginning after 2018, the applicable 
amount shall be the applicable amount for the pre-
ceding calendar year increased by the rate of pre-
mium growth (within the meaning of section 
36B(b)(3)(A)(ii) of the Internal Revenue Code of 
1986) for such preceding calendar year.’’;
103 
(5) in subsection (g), by adding at the end the 
following new paragraphs: 
‘‘(3) ACCURACY-RELATED PENALTY.— 
‘‘(A) IN GENERAL.—In the case of any un-
derstatement of a covered entity’s net premiums 
written with respect to health insurance for any 
United States health risk for any calendar year, 
there shall be paid by the covered entity making 
such understatement, an amount equal to the 
excess of— 
‘‘(i) the amount of the covered entity’s 
fee under this section for the calendar year 
the Secretary determines should have been 
paid in the absence of any such under-
statement, over 
‘‘(ii) the amount of such fee the Sec-
retary determined based on such under-
statement. 
‘‘(B) UNDERSTATEMENT.—For purposes 
of this paragraph, an understatement of a cov-
ered entity’s net premiums written with respect 
to health insurance for any United States 
health risk for any calendar year is the dif-
ference between the amount of such net pre-
miums written as reported on the return filed
104 
by the covered entity under paragraph (1) and 
the amount of such net premiums written that 
should have been reported on such return. 
‘‘(C) TREATMENT OF PENALTY.—The pen-
alty imposed under subparagraph (A) shall be 
subject to the provisions of subtitle F of the In-
ternal Revenue Code of 1986 that apply to as-
sessable penalties imposed under chapter 68 of 
such Code. 
‘‘(4) TREATMENT
OF
INFORMATION.—Section 
6103 of the Internal Revenue Code of 1986 shall not 
apply to any information reported under this sub-
section.’’; and 
(6) by striking subsection (j) and inserting the 
following new subsection: 
‘‘(j) EFFECTIVE DATE.—This section shall apply to 
calendar years beginning after December 31, 2013.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 9010 
of the Patient Protection and Affordable Care Act.
105 
SEC. 1407. DELAY OF ELIMINATION OF DEDUCTION FOR EX-
PENSES ALLOCABLE TO MEDICARE PART D 
SUBSIDY. 
Section 9012(b) of the Patient Protection and Af-
fordable Care Act is amended by striking ‘‘2010’’ and in-
serting ‘‘2012’’. 
SEC. 1408. ELIMINATION OF UNINTENDED APPLICATION OF 
CELLULOSIC BIOFUEL PRODUCER CREDIT. 
(a) IN GENERAL.—Section 40(b)(6)(E) of the Inter-
nal Revenue Code of 1986 is amended by adding at the 
end the following new clause: 
‘‘(iii) EXCLUSION
OF
UNPROCESSED 
FUELS.—The term ‘cellulosic biofuel’ shall 
not include any fuel if— 
‘‘(I) more than 4 percent of such 
fuel (determined by weight) is any 
combination of water and sediment, or 
‘‘(II) the ash content of such fuel 
is more than 1 percent (determined by 
weight).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to fuels sold or used on or after 
January 1, 2010.
106 
SEC. 1409. CODIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE AND PENALTIES. 
(a) IN GENERAL.—Section 7701 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) 
the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the case 
of any transaction to which the economic substance 
doctrine is relevant, such transaction shall be treated 
as having economic substance only if— 
‘‘(A) the transaction changes in a mean-
ingful way (apart from Federal income tax ef-
fects) the taxpayer’s economic position, and 
‘‘(B) the taxpayer has a substantial pur-
pose (apart from Federal income tax effects) 
for entering into such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES 
ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential for 
profit of a transaction shall be taken into ac-
count in determining whether the requirements 
of subparagraphs (A) and (B) of paragraph (1) 
are met with respect to the transaction only if 
the present value of the reasonably expected
107 
pre-tax profit from the transaction is substan-
tial in relation to the present value of the ex-
pected net tax benefits that would be allowed if 
the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
shall be taken into account as expenses in de-
termining pre-tax profit under subparagraph 
(A). The Secretary shall issue regulations re-
quiring foreign taxes to be treated as expenses 
in determining pre-tax profit in appropriate 
cases. 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 
purposes of paragraph (1), any State or local income 
tax effect which is related to a Federal income tax 
effect shall be treated in the same manner as a Fed-
eral income tax effect. 
‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For 
purposes of paragraph (1)(B), achieving a financial 
accounting benefit shall not be taken into account as 
a purpose for entering into a transaction if the ori-
gin of such financial accounting benefit is a reduc-
tion of Federal income tax. 
‘‘(5) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection—
108 
‘‘(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. 
‘‘(B) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, paragraph (1) shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
‘‘(C) DETERMINATION OF APPLICATION OF 
DOCTRINE NOT AFFECTED.—The determination 
of whether the economic substance doctrine is 
relevant to a transaction shall be made in the 
same manner as if this subsection had never 
been enacted. 
‘‘(D) TRANSACTION.—The term ‘trans-
action’ includes a series of transactions.’’. 
(b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE 
TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE.—
109 
(1) IN
GENERAL.—Subsection (b) of section 
6662 is amended by inserting after paragraph (5) 
the following new paragraph: 
‘‘(6) Any disallowance of claimed tax benefits 
by reason of a transaction lacking economic sub-
stance (within the meaning of section 7701(o)) or 
failing to meet the requirements of any similar rule 
of law.’’. 
(2) INCREASED PENALTY FOR NONDISCLOSED 
TRANSACTIONS.—Section 6662 is amended by add-
ing at the end the following new subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS-
CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 
‘‘(1) IN GENERAL.—In the case of any portion 
of an underpayment which is attributable to one or 
more nondisclosed noneconomic substance trans-
actions, subsection (a) shall be applied with respect 
to such portion by substituting ‘40 percent’ for ‘20 
percent’. 
‘‘(2) 
NONDISCLOSED
NONECONOMIC
SUB-
STANCE TRANSACTIONS.—For purposes of this sub-
section, the term ‘nondisclosed noneconomic sub-
stance transaction’ means any portion of a trans-
action described in subsection (b)(6) with respect to 
which the relevant facts affecting the tax treatment
110 
are not adequately disclosed in the return nor in a 
statement attached to the return. 
‘‘(3) 
SPECIAL
RULE
FOR
AMENDED
RE-
TURNS.—In no event shall any amendment or sup-
plement to a return of tax be taken into account for 
purposes of this subsection if the amendment or sup-
plement is filed after the earlier of the date the tax-
payer is first contacted by the Secretary regarding 
the examination of the return or such other date as 
is specified by the Secretary.’’. 
(3) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 6662A(e)(2) is amended— 
(A) by striking ‘‘section 6662(h)’’ and in-
serting ‘‘subsections (h) or (i) of section 6662’’; 
and 
(B) 
by 
striking 
‘‘GROSS
VALUATION 
MISSTATEMENT PENALTY’’ in the heading and 
inserting 
‘‘CERTAIN
INCREASED
UNDER-
PAYMENT PENALTIES’’. 
(c) REASONABLE CAUSE EXCEPTION NOT APPLICA-
BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.— 
(1) REASONABLE CAUSE EXCEPTION FOR UN-
DERPAYMENTS.—Subsection (c) of section 6664 is 
amended—
111 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)’’ in para-
graph (4)(A), as so redesignated, and inserting 
‘‘paragraph (3)’’; and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of an underpayment which is 
attributable to one or more transactions described in 
section 6662(b)(6).’’. 
(2) REASONABLE CAUSE EXCEPTION FOR RE-
PORTABLE
TRANSACTION
UNDERSTATEMENTS.— 
Subsection (d) of section 6664 is amended— 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)(C)’’ in 
paragraph (4), as so redesignated, and inserting 
‘‘paragraph (3)(C)’’; and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of a reportable transaction un-
derstatement which is attributable to one or more 
transactions described in section 6662(b)(6).’’.