I 
110TH CONGRESS 
1ST SESSION H. R. 2345 
To amend the Internal Revenue Code of 1986 to curb tax abuses by dis-
allowing tax benefits claimed to arise from transactions without substan-
tial economic substance, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 16, 2007 
Mr. DOGGETT (for himself, Mr. ANDREWS, Mr. BECERRA, Mr. BERMAN, Ms. 
CARSON, Mr. CLEAVER, Mr. CONYERS, Mr. CUMMINGS, Mr. DAVIS of Illi-
nois, Mr. DEFAZIO, Ms. DELAURO, Mr. ELLISON, Mr. EMANUEL, Mr. 
FARR, Mr. FATTAH, Mr. FILNER, Mr. FRANK of Massachusetts, Mr. 
GENE GREEN of Texas, Mr. GRIJALVA, Mr. HARE, Mr. HINCHEY, Ms. 
JACKSON-LEE of Texas, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. 
JOHNSON of Georgia, Ms. KAPTUR, Mr. KUCINICH, Mr. LARSON of Con-
necticut, Ms. LEE, Mr. LEWIS of Georgia, Mrs. MALONEY of New York, 
Mr. MARKEY, Mr. MCDERMOTT, Mr. MCGOVERN, Mr. MCNULTY, Mr. 
GEORGE MILLER of California, Mr. PATRICK J. MURPHY of Pennsyl-
vania, Mr. NADLER, Mrs. NAPOLITANO, Mr. NEAL of Massachusetts, Mr. 
PAYNE, Mr. RUSH, Ms. LORETTA
SANCHEZ
of California, Ms. 
SCHAKOWSKY, Ms. SCHWARTZ, Mr. SHERMAN, Ms. SLAUGHTER, Ms. 
SOLIS, Mr. STARK, Ms. SUTTON, Mr. TIERNEY, Mr. VAN HOLLEN, Ms. 
WATERS, and Mr. WAXMAN) introduced the following bill; which was re-
ferred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to curb tax 
abuses by disallowing tax benefits claimed to arise from 
transactions without substantial economic substance, and 
for other purposes. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Abusive Tax Shelter Shutdown and Taxpayer Account-
ability Act of 2007’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; etc. 
Sec. 2. Findings and purpose. 
TITLE I—PROVISIONS DESIGNED TO CURTAIL TAX SHELTERS 
Sec. 101. Clarification of economic substance doctrine. 
Sec. 102. Modification of penalty for failing to disclose reportable transaction. 
Sec. 103. Penalty for understatements attributable to transactions lacking eco-
nomic substance, etc. 
Sec. 104. Required disclosure by material advisors not subject to claim of con-
fidentiality. 
Sec. 105. Understatement of taxpayer’s liability by income tax return preparer. 
Sec. 106. Frivolous tax submissions. 
Sec. 107. Denial of deduction for interest on underpayments attributable to 
nondisclosed reportable and noneconomic substance trans-
actions. 
TITLE II—OTHER PROVISIONS 
Sec. 201. Expanded authority to disallow tax benefits under section 269. 
Sec. 202. Modifications of certain rules relating to controlled foreign corpora-
tions. 
Sec. 203. Basis for determining loss always reduced by nontaxed portion of 
dividends. 
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SEC. 2. FINDINGS AND PURPOSE. 
(a) FINDINGS.—The Congress hereby finds that: 
(1) Many corporate tax shelter transactions are 
complicated ways of accomplishing nothing aside 
from claimed tax benefits, and the legal opinions 
justifying those transactions take an inappropriately 
narrow and restrictive view of well-developed court 
doctrines under which— 
(A) the taxation of a transaction is deter-
mined in accordance with its substance and not 
merely its form, 
(B) transactions which have no significant 
effect on the taxpayer’s economic or beneficial 
interests except for tax benefits are treated as 
sham transactions and disregarded, 
(C) transactions involving multiple steps 
are collapsed when those steps have no substan-
tial economic meaning and are merely designed 
to create tax benefits, 
(D) transactions with no business purpose 
are not given effect, and 
(E) in the absence of a specific congres-
sional authorization, it is presumed that Con-
gress did not intend a transaction to result in 
a negative tax where the taxpayer’s economic 
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position or rate of return is better after tax 
than before tax. 
(2) Permitting aggressive and abusive tax shel-
ters not only results in large revenue losses but also 
undermines voluntary compliance with the Internal 
Revenue Code of 1986. 
(b) PURPOSE.—The purpose of this Act is to elimi-
nate abusive tax shelters by denying tax attributes claimed 
to arise from transactions that do not meet a heightened 
economic substance requirement and by repealing the pro-
vision that permits legal opinions to be used to avoid pen-
alties on tax underpayments resulting from transactions 
without significant economic substance or business pur-
pose. 
TITLE I—PROVISIONS DESIGNED 
TO CURTAIL TAX SHELTERS 
SEC. 101. 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.— 
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‘‘(A) IN GENERAL.—In applying the eco-
nomic substance doctrine, the determination of 
whether a transaction has economic substance 
shall be made as provided in this paragraph. 
‘‘(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 and, if there are any Fed-
eral tax effects, also apart from any 
foreign, State, or local tax effects) the 
taxpayer’s economic position, and 
‘‘(II) the taxpayer has a substan-
tial nontax purpose for entering into 
such transaction and the transaction 
is a reasonable means of accom-
plishing such purpose. 
‘‘(ii) SPECIAL
RULE
WHERE
TAX-
PAYER RELIES ON PROFIT POTENTIAL.—A 
transaction shall not be treated as having 
economic substance by reason of having a 
potential for profit unless— 
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