†
290
HR 1591 EAS
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expa-
triate disposes of an interest in a qualified trust,
or a covered expatriate holding an interest in a
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the day before the expatria-
tion date were the date of such cessation,
disposition, or death, whichever is applica-
ble, or
‘‘(ii) the balance in the tax deferred ac-
count immediately before such date.
Such tax shall be imposed on the trust and each
trustee shall be personally liable for the amount
of such tax and any other beneficiary of the trust
shall be entitled to recover from the covered expa-
†
291
HR 1591 EAS
triate or the estate the amount of such tax im-
posed on the other beneficiary.
‘‘(G) DEFINITIONS AND SPECIAL RULES.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust which is de-
scribed in section 7701(a)(30)(E).
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
as of the day before the expatriation date, is
vested in the beneficiary.
‘‘(iii) 
NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
trust which is not a vested interest. Such
interest shall be determined by assuming the
maximum exercise of discretion in favor of
the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
account, and the timing of such adjust-
ments, in order to ensure that gain is taxed
only once.
†
292
HR 1591 EAS
‘‘(v) COORDINATION WITH RETIREMENT
PLAN
RULES.—This subsection shall not
apply to an interest in a trust which is
part of a retirement plan to which sub-
section (d)(2) applies.
‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER-
EST IN TRUST.—
‘‘(A) DETERMINATIONS UNDER PARAGRAPH
(1).—For purposes of paragraph (1), a bene-
ficiary’s interest in a trust shall be based upon
all relevant facts and circumstances, including
the terms of the trust instrument and any letter
of wishes or similar document, historical pat-
terns of trust distributions, and the existence of
and functions performed by a trust protector or
any similar adviser.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a
beneficiary of a trust is a corporation, part-
nership, trust, or estate, the shareholders,
partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this
section.
†
293
HR 1591 EAS
‘‘(ii) TAXPAYER RETURN POSITION.—A
taxpayer shall clearly indicate on its in-
come tax return—
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a dif-
ferent methodology to determine such
beneficiary’s trust interest under this
section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the case
of any covered expatriate, notwithstanding any other provi-
sion of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate on the day
before the expatriation date, and
‘‘(2) any extension of time for payment of tax
shall cease to apply on the day before the expatriation
date and the unpaid portion of such tax shall be due
and payable at the time and in the manner pre-
scribed by the Secretary.
‘‘(h) IMPOSITION OF TENTATIVE TAX.—
†
294
HR 1591 EAS
‘‘(1) IN GENERAL.—If an individual is required
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a tax
in an amount equal to the amount of tax which
would be imposed if the taxable year were a short tax-
able year ending on the expatriation date.
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after the
expatriation date.
‘‘(3) TREATMENT OF TAX.—Any tax paid under
paragraph (1) shall be treated as a payment of the
tax imposed by this chapter for the taxable year to
which subsection (a) applies.
‘‘(4) DEFERRAL OF TAX.—The provisions of sub-
section (b) shall apply to the tax imposed by this sub-
section to the extent attributable to gain includible in
gross income by reason of this section.
‘‘(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS.—
‘‘(1) IMPOSITION OF LIEN.—
‘‘(A) IN GENERAL.—If a covered expatriate
makes an election under subsection (a)(4) or (b)
which results in the deferral of any tax imposed
by reason of subsection (a), the deferred amount
(including any interest, additional amount, ad-
†
295
HR 1591 EAS
dition to tax, assessable penalty, and costs at-
tributable to the deferred amount) shall be a lien
in favor of the United States on all property of
the expatriate located in the United States (with-
out regard to whether this section applies to the
property).
‘‘(B) DEFERRED AMOUNT.—For purposes of
this subsection, the deferred amount is the
amount of the increase in the covered expatri-
ate’s income tax which, but for the election under
subsection (a)(4) or (b), would have occurred by
reason of this section for the taxable year includ-
ing the expatriation date.
‘‘(2) PERIOD OF LIEN.—The lien imposed by this
subsection shall arise on the expatriation date and
continue until—
‘‘(A) the liability for tax by reason of this
section is satisfied or has become unenforceable
by reason of lapse of time, or
‘‘(B) it is established to the satisfaction of
the Secretary that no further tax liability may
arise by reason of this section.
‘‘(3) CERTAIN RULES APPLY.—The rules set forth
in paragraphs (1), (3), and (4) of section 6324A(d)
shall apply with respect to the lien imposed by this
†
296
HR 1591 EAS
subsection as if it were a lien imposed by section
6324A.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS
RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS
FROM EXPATRIATES.—Section 102 (relating to gifts, etc.
not included in gross income) is amended by adding at the
end the following new subsection:
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—
‘‘(1) TREATMENT
OF
GIFTS
AND
INHERIT-
ANCES.—
‘‘(A) IN GENERAL.—Subsection (a) shall not
exclude from gross income the value of any prop-
erty acquired by gift, bequest, devise, or inherit-
ance from a covered expatriate after the expa-
triation date.
‘‘(B) DETERMINATION OF BASIS.—Notwith-
standing sections 1015 or 1022, the basis of any
property described in subparagraph (A) in the
hands of the donee or the person acquiring such
property from the decedent shall be equal to the
†
297
HR 1591 EAS
fair market value of the property at the time of
the gift, bequest, devise, or inheritance.
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE
SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1)
shall not apply to any property if either—
‘‘(A) the gift, bequest, devise, or inheritance
is—
‘‘(i) shown on a timely filed return of
tax imposed by chapter 12 as a taxable gift
by the covered expatriate, or
‘‘(ii) included in the gross estate of the
covered expatriate for purposes of chapter
11 and shown on a timely filed return of
tax imposed by chapter 11 of the estate of
the covered expatriate, or
‘‘(B) no such return was timely filed but no
such return would have been required to be filed
even if the covered expatriate were a citizen or
long-term resident of the United States.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, any term used in this subsection which is also
used in section 877A shall have the same meaning as
when used in section 877A.’’.
†
298
HR 1591 EAS
(c) DEFINITION OF TERMINATION OF UNITED STATES
CITIZENSHIP.—Section 7701(a) is amended by adding at
the end the following new paragraph:
‘‘(50) TERMINATION OF UNITED STATES CITIZEN-
SHIP.—
‘‘(A) IN GENERAL.—An individual shall not
cease to be treated as a United States citizen be-
fore the date on which the individual’s citizen-
ship is treated as relinquished under section
877A(e)(3).
‘‘(B) DUAL
CITIZENS.—Under regulations
prescribed by the Secretary, subparagraph (A)
shall not apply to an individual who became at
birth a citizen of the United States and a citizen
of another country.’’.
(d) INELIGIBILITY
FOR
VISA
OR
ADMISSION
TO
UNITED STATES.—
(1) IN GENERAL.—Section 212(a)(10)(E) of the
Immigration 
and 
Nationality 
Act 
(8 
U.S.C.
1182(a)(10)(E)) is amended to read as follows:
‘‘(E) FORMER
CITIZENS
NOT
IN
COMPLI-
ANCE
WITH
EXPATRIATION
REVENUE
PROVI-
SIONS.—Any alien who is a former citizen of the
United States who relinquishes United States
citizenship (within the meaning of section
†
299
HR 1591 EAS
877A(e)(3) of the Internal Revenue Code of 1986)
and who is not in compliance with section 877A
of such Code (relating to expatriation) is inad-
missible.’’.
(2) AVAILABILITY OF INFORMATION.—
(A) IN GENERAL.—Section 6103(l) (relating
to disclosure of returns and return information
for purposes other than tax administration) is
amended by adding at the end the following new
paragraph:
‘‘(21) DISCLOSURE TO DENY VISA OR ADMISSION
TO CERTAIN EXPATRIATES.—Upon written request of
the Attorney General or the Attorney General’s dele-
gate, the Secretary shall disclose whether an indi-
vidual is in compliance with section 877A (and if not
in compliance, any items of noncompliance) to offi-
cers and employees of the Federal agency responsible
for administering section 212(a)(10)(E) of the Immi-
gration and Nationality Act solely for the purpose of,
and to the extent necessary in, administering such
section 212(a)(10)(E).’’.
(B) SAFEGUARDS.—Section 6103(p)(4) (re-
lating to safeguards) is amended by striking ‘‘or
(20)’’ each place it appears and inserting ‘‘(20),
or (21)’’.
†
300
HR 1591 EAS
(3) EFFECTIVE DATES.—The amendments made
by this subsection shall apply to individuals who re-
linquish United States citizenship on or after the date
of the enactment of this Act.
(e) CONFORMING AMENDMENTS.—
(1) Section 877 is amended by adding at the end
the following new subsection:
‘‘(h) APPLICATION.—This section shall not apply to an
expatriate (as defined in section 877A(e)) whose expatria-
tion date (as so defined) occurs on or after the date of the
enactment of this subsection.’’.
(2) Section 2107 is amended by adding at the
end the following new subsection:
‘‘(f) APPLICATION.—This section shall not apply to
any expatriate subject to section 877A.’’.
(3) Section 2501(a)(3) is amended by adding at
the end the following new subparagraph:
‘‘(C) APPLICATION.—This paragraph shall
not apply to any expatriate subject to section
877A.’’.
(4) Section 6039G(a) is amended by inserting
‘‘or 877A’’ after ‘‘section 877(b)’’.
(5) The second sentence of section 6039G(d) is
amended by inserting ‘‘or who relinquishes United
†
301
HR 1591 EAS
States citizenship (within the meaning of section
877A(e)(3))’’ after ‘‘section 877(a))’’.
(f) CLERICAL AMENDMENT.—The table of sections for
subpart A of part II of subchapter N of chapter 1 is amend-
ed by inserting after the item relating to section 877 the
following new item:
‘‘Sec. 877A. Tax responsibilities of expatriation’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section shall
apply to expatriates (within the meaning of section
877A(e) of the Internal Revenue Code of 1986, as
added by this section) whose expatriation date (as so
defined) occurs on or after the date of the enactment
of this Act.
(2) GIFTS AND BEQUESTS.—Section 102(d) of
the Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to gifts and bequests received
on or after the date of the enactment of this Act, from
an individual or the estate of an individual whose ex-
patriation date (as so defined) occurs after such date.
(3) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(2) of the Internal Revenue
Code of 1986, as added by this section, shall in no
event occur before the 90th day after the date of the
enactment of this Act.
†
302
HR 1591 EAS
SEC. 536. LIMITATION ON ANNUAL AMOUNTS WHICH MAY
BE DEFERRED UNDER NONQUALIFIED DE-
FERRED COMPENSATION ARRANGEMENTS.
(a) IN GENERAL.—Section 409A(a) of the Internal
Revenue Code of 1986 (relating to inclusion of gross income
under nonqualified deferred compensation plans) is
amended—
(1) by striking ‘‘and (4)’’ in subclause (I) of
paragraph (1)(A)(i) and inserting ‘‘(4), and (5)’’,
and
(2) by adding at the end the following new para-
graph:
‘‘(5) ANNUAL
LIMITATION
ON
AGGREGATE
DE-
FERRED AMOUNTS.—
‘‘(A) LIMITATION.—The requirements of this
paragraph are met if the plan provides that the
aggregate amount of compensation which is de-
ferred for any taxable year with respect to a par-
ticipant under the plan may not exceed the ap-
plicable dollar amount for the taxable year.
‘‘(B) INCLUSION OF FUTURE EARNINGS.—If
an amount is includible under paragraph (1) in
the gross income of a participant for any taxable
year by reason of any failure to meet the require-
ments of this paragraph, any income (whether
actual or notional) for any subsequent taxable
†
303
HR 1591 EAS
year shall be included in gross income under
paragraph (1)(A) in such subsequent taxable
year to the extent such income—
‘‘(i) is attributable to compensation (or
income attributable to such compensation)
required to be included in gross income by
reason of such failure (including by reason
of this subparagraph), and
‘‘(ii) is not subject to a substantial risk
of forfeiture and has not been previously in-
cluded in gross income.
‘‘(C) AGGREGATION RULE.—For purposes of
this paragraph, all nonqualified deferred com-
pensation plans maintained by all employers
treated as a single employer under subsection
(d)(6) shall be treated as 1 plan.
‘‘(D) APPLICABLE
DOLLAR
AMOUNT.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble dollar amount’ means, with respect to
any participant, the lesser of—
‘‘(I) the average annual com-
pensation which was payable during
the base period to the participant by
the employer maintaining the non-
†
304
HR 1591 EAS
qualified deferred compensation plan
(or any predecessor of the employer)
and which was includible in the par-
ticipant’s gross income for taxable
years in the base period, or
‘‘(II) $1,000,000.
‘‘(ii) BASE PERIOD.—
‘‘(I) IN GENERAL.—The term ‘base
period’ means, with respect to any
computation year, the 5-taxable year
period ending with the taxable year
preceding the computation year.
‘‘(II) ELECTIONS
MADE
BEFORE
COMPUTATION YEAR.—If, before the be-
ginning of the computation year, an
election described in paragraph (4)(B)
is made by the participant to have
compensation for services performed in
the computation year deferred under a
nonqualified 
deferred 
compensation
plan, the base period shall be the 5-tax-
able year period ending with the tax-
able year preceding the taxable year in
which the election is made.
†
305
HR 1591 EAS
‘‘(III) COMPUTATION YEAR.—For
purposes of this clause, the term ‘com-
putation year’ means any taxable year
of the participant for which the limita-
tion under subparagraph (A) is being
determined.
‘‘(IV) SPECIAL
RULE
FOR
EM-
PLOYEES OF LESS THAN 5 YEARS.—If
a participant did not perform services
for the employer maintaining the non-
qualified deferred compensation plan
(or any predecessor of the employer)
during the entire 5-taxable year period
referred to in subparagraph (A) or (B),
only the portion of such period during
which the participant performed such
services shall be taken into account.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 2006, except that—
(A) the amendments shall only apply to
amounts deferred after December 31, 2006 (and
to earnings on such amounts), and
†
306
HR 1591 EAS
(B) taxable years beginning on or before
December 31, 2006, shall be taken into account
in determining the average annual compensation
of a participant during any base period for pur-
poses of section 409A(a)(5)(D) of the Internal
Revenue Code of 1986 (as added by such amend-
ments).
(2) GUIDANCE RELATING TO CERTAIN EXISTING
ARRANGEMENTS.—Not later than 60 days after the
date of the enactment of this Act, the Secretary of the
Treasury shall issue guidance providing a limited pe-
riod during which a nonqualified deferred compensa-
tion plan adopted before December 31, 2006, may,
without violating the requirements of section 409A(a)
of such Code, be amended—
(A) to provide that a participant may, no
later than December 31, 2007, cancel or modify
an outstanding deferral election with regard to
all or a portion of amounts deferred after Decem-
ber 31, 2006, to the extent necessary for the plan
to meet the requirements of section 409A(a)(5) of
such Code (as added by the amendments made by
this section), but only if amounts subject to the
cancellation or modification are, to the extent
not previously included in gross income, includ-
†
307
HR 1591 EAS
ible in income of the participant when no longer
subject to substantial risk of forfeiture, and
(B) to conform to the requirements of sec-
tion 409A(a)(5) of such Code (as added by the
amendments made by this section) with regard
to amounts deferred after December 31, 2006.
SEC. 537. MODIFICATION OF CRIMINAL PENALTIES FOR
WILLFUL FAILURES INVOLVING TAX PAY-
MENTS AND FILING REQUIREMENTS.
(a) INCREASE IN PENALTY FOR ATTEMPT TO EVADE
OR DEFEAT TAX.—Section 7201 (relating to attempt to
evade or defeat tax) is amended—
(1) by striking ‘‘$100,000’’ and inserting
‘‘$500,000’’,
(2) by striking ‘‘$500,000’’ and inserting
‘‘$1,000,000’’, and
(3) by striking ‘‘5 years’’ and inserting ‘‘10
years’’.
(b) MODIFICATION OF PENALTIES FOR WILLFUL FAIL-
URE TO FILE RETURN, SUPPLY INFORMATION, OR PAY
TAX.—
(1) IN GENERAL.—Section 7203 (relating to will-
ful failure to file return, supply information, or pay
tax) is amended—
(A) in the first sentence—
†
308
HR 1591 EAS
(i) by striking ‘‘Any person’’ and in-
serting the following:
‘‘(a) IN GENERAL.—Any person’’, and
(ii) by striking ‘‘$25,000’’ and insert-
ing ‘‘$50,000’’,
(B) in the third sentence, by striking ‘‘sec-
tion’’ and inserting ‘‘subsection’’, and
(C) by adding at the end the following new
subsection:
‘‘(b) AGGRAVATED FAILURE TO FILE.—
‘‘(1) IN GENERAL.—In the case of any failure de-
scribed in paragraph (2), the first sentence of sub-
section (a) shall be applied by substituting—
‘‘(A) ‘felony’ for ‘misdemeanor’,
‘‘(B) ‘$250,000 ($500,000’ for ‘$50,000
($100,000’, and
‘‘(C) ‘5 years’ for ‘1 year’.
‘‘(2) FAILURE DESCRIBED.—A failure described
in this paragraph is—
‘‘(A) a failure to make a return described in
subsection (a) for any 3 taxable years occurring
during any period of 5 consecutive taxable years
if the aggregate tax liability for such period is
not less than $50,000, or
†
309
HR 1591 EAS
‘‘(B) a failure to make a return if the tax
liability giving rise to the requirement to make
such return is attributable to an activity which
is a felony under any State or Federal law.’’.
(2) PENALTY MAY BE APPLIED IN ADDITION TO
OTHER PENALTIES.—Section 7204 (relating to fraud-
ulent statement or failure to make statement to em-
ployees) is amended by striking ‘‘the penalty provided
in section 6674’’ and inserting ‘‘the penalties pro-
vided in sections 6674 and 7203(b)’’.
(c) FRAUD AND FALSE STATEMENTS.—Section 7206
(relating to fraud and false statements) is amended—
(1) by striking ‘‘$100,000’’ and inserting
‘‘$500,000’’,
(2) by striking ‘‘$500,000’’ and inserting
‘‘$1,000,000’’, and
(3) by striking ‘‘3 years’’ and inserting ‘‘5
years’’.
(d) INCREASE IN MONETARY LIMITATION FOR UNDER-
PAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—Sec-
tion 7206 (relating to fraud and false statements), as
amended by subsection (a)(3), is amended—
(1) by striking ‘‘Any person who—’’ and insert-
ing ‘‘(a) IN GENERAL.—Any person who—’’, and
†
310
HR 1591 EAS
(2) by adding at the end the following new sub-
section:
‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN-
DERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—
If any portion of any underpayment (as defined in section
6664(a)) or overpayment (as defined in section 6401(a)) of
tax required to be shown on a return is attributable to
fraudulent action described in subsection (a), the applicable
dollar amount under subsection (a) shall in no event be less
than an amount equal to such portion. A rule similar to
the rule under section 6663(b) shall apply for purposes of
determining the portion so attributable.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to actions, and failures to act, occurring
after the date of the enactment of this Act.
SEC. 538. DOUBLING OF CERTAIN PENALTIES, FINES, AND
INTEREST ON UNDERPAYMENTS RELATED TO
CERTAIN OFFSHORE FINANCIAL ARRANGE-
MENTS.
(a) DETERMINATION OF PENALTY.—
(1) IN
GENERAL.—Notwithstanding any other
provision of law, in the case of an applicable
taxpayer—
(A) the determination as to whether any in-
terest or applicable penalty is to be imposed with
†
311
HR 1591 EAS
respect to any arrangement described in para-
graph (2), or to any underpayment of Federal
income tax attributable to items arising in con-
nection with any such arrangement, shall be
made without regard to the rules of subsections
(b), (c), and (d) of section 6664 of the Internal
Revenue Code of 1986, and
(B) if any such interest or applicable pen-
alty is imposed, the amount of such interest or
penalty shall be equal to twice that determined
without regard to this section.
(2) APPLICABLE
TAXPAYER.—For purposes of
this subsection—
(A) IN
GENERAL.—The term ‘‘applicable
taxpayer’’ means a taxpayer which—
(i) has underreported its United States
income tax liability with respect to any
item which directly or indirectly involves—
(I) any financial arrangement
which in any manner relies on the use
of offshore payment mechanisms (in-
cluding credit, debit, or charge cards)
issued by banks or other entities in for-
eign jurisdictions, or
†
312
HR 1591 EAS
(II) any offshore financial ar-
rangement (including any arrange-
ment with foreign banks, financial in-
stitutions, corporations, partnerships,
trusts, or other entities), and
(ii) has neither signed a closing agree-
ment pursuant to the Voluntary Offshore
Compliance Initiative established by the De-
partment of the Treasury under Revenue
Procedure 2003–11 nor voluntarily dis-
closed its participation in such arrange-
ment by notifying the Internal Revenue
Service of such arrangement prior to the
issue being raised by the Internal Revenue
Service during an examination.
(B) AUTHORITY TO WAIVE.—The Secretary
of the Treasury or the Secretary’s delegate may
waive the application of paragraph (1) to any
taxpayer if the Secretary or the Secretary’s dele-
gate determines that the use of such offshore pay-
ment mechanisms is incidental to the trans-
action and, in addition, in the case of a trade
or business, such use is conducted in the ordi-
nary course of the type of trade or business of the
taxpayer.
†
313
HR 1591 EAS
(C) ISSUES RAISED.—For purposes of sub-
paragraph (A)(ii), an item shall be treated as an
issue raised during an examination if the indi-
vidual examining the return—
(i) communicates to the taxpayer
knowledge about the specific item, or
(ii) has made a request to the taxpayer
for information and the taxpayer could not
make a complete response to that request
without giving the examiner knowledge of
the specific item.
(b) APPLICABLE PENALTY.—For purposes of this sec-
tion, the term ‘‘applicable penalty’’ means any penalty, ad-
dition to tax, or fine imposed under chapter 68 of the Inter-
nal Revenue Code of 1986.
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to interest, penalties, additions to tax, and fines
with respect to any taxable year if, as of the date of the
enactment of this Act, the assessment of any tax, penalty,
or interest with respect to such taxable year is not prevented
by the operation of any law or rule of law.
SEC. 539. INCREASE IN PENALTY FOR BAD CHECKS AND
MONEY ORDERS.
(a) IN GENERAL.—Section 6657 (relating to bad
checks) is amended—
†
314
HR 1591 EAS
(1) by striking ‘‘$750’’ and inserting ‘‘$1,250’’,
and
(2) by striking ‘‘$15’’ and inserting ‘‘$25’’.
(b) EFFECTIVE DATE.—The amendments made by this
section apply to checks or money orders received after the
date of the enactment of this Act.
SEC. 540. TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT INSTRUMENTS.
(a) IN GENERAL.—Section 1275(d) (relating to regula-
tion authority) is amended—
(1) by striking ‘‘The Secretary’’ and inserting
the following:
‘‘(1) IN GENERAL.—The Secretary’’, and
(2) by adding at the end the following new para-
graph:
‘‘(2) TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT.—
‘‘(A) IN GENERAL.—In the case of a debt in-
strument which—
‘‘(i) is convertible into stock of the
issuing corporation, into stock or debt of a
related party (within the meaning of section
267(b) or 707(b)(1)), or into cash or other
property in an amount equal to the approx-
imate value of such stock or debt, and
†
315
HR 1591 EAS
‘‘(ii) provides for 1 or more contingent
payments,
any regulations which require original issue dis-
count to be determined by reference to the com-
parable yield of a fixed-rate debt instrument
shall be applied as if the regulations require that
such comparable yield be determined by reference
to a fixed-rate debt instrument which is convert-
ible into stock.
‘‘(B) SPECIAL RULE.—For purposes of sub-
paragraph (A), the comparable yield shall be de-
termined without taking into account the yield
resulting from the conversion of a debt instru-
ment into stock.’’.
(b) CROSS REFERENCE.—Section 163(e)(6) (relating
to cross references) is amended by adding at the end the
following:
‘‘For the treatment of contingent payment
convertible debt, see section 1275(d)(2).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to debt instruments issued on or after
the date of the enactment of this Act.
†
316
HR 1591 EAS
SEC. 541. EXTENSION OF IRS USER FEES.
Subsection (c) of section 7528 (relating to Internal
Revenue Service user fees) is amended by striking ‘‘Sep-
tember 30, 2014’’ and inserting ‘‘September 30, 2016’’.
SEC. 542. MODIFICATION OF COLLECTION DUE PROCESS
PROCEDURES FOR EMPLOYMENT TAX LIABIL-
ITIES.
(a) IN GENERAL.—Section 6330(f) (relating to jeop-
ardy and State refund collection) is amended—
(1) by striking ‘‘; or’’ at the end of paragraph
(1) and inserting a comma,
(2) by adding ‘‘or’’ at the end of paragraph (2),
and
(3) by inserting after paragraph (2) the fol-
lowing new paragraph:
‘‘(3) the Secretary has served a levy in connec-
tion with the collection of taxes under chapter 21, 22,
23, or 24,’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to levies issued on or after the date that
is 120 days after the date of the enactment of this Act.
SEC. 543. MODIFICATIONS TO WHISTLEBLOWER REFORMS.
(a) 
MODIFICATION
OF
TAX
THRESHOLD
FOR
AWARDS.—Subparagraph (B) of section 7623(b)(5), as
added by the Tax Relief and Health Care Act of 2006, is
amended by striking ‘‘$2,000,000’’ and inserting ‘‘$20,000’’.
†
317
HR 1591 EAS
(b) WHISTLEBLOWER OFFICE.—
(1) IN GENERAL.—Section 7623 is amended by
adding at the end the following new subsections:
‘‘(c) WHISTLEBLOWER OFFICE.—
‘‘(1) IN GENERAL.—There is established in the
Internal Revenue Service an office to be known as the
‘Whistleblower Office’ which—
‘‘(A) shall at all times operate at the direc-
tion of the Commissioner and coordinate and
consult with other divisions in the Internal Rev-
enue Service as directed by the Commissioner,
‘‘(B) shall analyze information received
from any individual described in subsection (b)
and either investigate the matter itself or assign
it to the appropriate Internal Revenue Service
office,
‘‘(C) shall monitor any action taken with
respect to such matter,
‘‘(D) shall inform such individual that it
has accepted the individual’s information for
further review,
‘‘(E) may require such individual and any
legal representative of such individual to not dis-
close any information so provided,
†
318
HR 1591 EAS
‘‘(F) in its sole discretion, may ask for ad-
ditional assistance from such individual or any
legal representative of such individual, and
‘‘(G) shall determine the amount to be
awarded to such individual under subsection (b).
‘‘(2) FUNDING FOR OFFICE.—There is authorized
to be appropriated $10,000,000 for each fiscal year
for the Whistleblower Office. These funds shall be used
to maintain the Whistleblower Office and also to re-
imburse other Internal Revenue Service offices for re-
lated costs, such as costs of investigation and collec-
tion.
‘‘(3) REQUEST FOR ASSISTANCE.—
‘‘(A) IN
GENERAL.—Any assistance re-
quested under paragraph (1)(F) shall be under
the direction and control of the Whistleblower Of-
fice or the office assigned to investigate the mat-
ter under subparagraph (A). No individual or
legal representative whose assistance is so re-
quested may by reason of such request represent
himself or herself as an employee of the Federal
Government.
‘‘(B) FUNDING OF ASSISTANCE.—From the
amounts available for expenditure under sub-
section (b), the Whistleblower Office may, with
†
319
HR 1591 EAS
the agreement of the individual described in sub-
section (b), reimburse the costs incurred by any
legal representative of such individual in pro-
viding assistance described in subparagraph (A).
‘‘(d) REPORTS.—The Secretary shall each year con-
duct a study and report to Congress on the use of this sec-
tion, including—
‘‘(1) an analysis of the use of this section during
the preceding year and the results of such use, and
‘‘(2) any legislative or administrative rec-
ommendations regarding the provisions of this section
and its application.’’.
(2) CONFORMING AMENDMENT.—Section 406 of
division A of the Tax Relief and Health Care Act of
2006 is amended by striking subsections (b) and (c).
(3) REPORT
ON
IMPLEMENTATION.—Not later
than 6 months after the date of the enactment of this
Act, the Secretary of the Treasury shall submit to
Congress a report on the establishment and operation
of the Whistleblower Office under section 7623(c) of
the Internal Revenue Code of 1986.
(c) PUBLICITY OF AWARD APPEALS.—Paragraph (4)
of section 7623(b), as added by the Tax Relief and Health
Care Act of 2006, is amended to read as follows:
‘‘(4) APPEAL OF AWARD DETERMINATION.—
†
320
HR 1591 EAS
‘‘(A) IN GENERAL.—Any determination re-
garding an award under paragraph (1), (2), or
(3) may, within 30 days of such determination,
be appealed to the Tax Court (and the Tax Court
shall have jurisdiction with respect to such mat-
ter).
‘‘(B) PUBLICITY
OF
APPEALS.—Notwith-
standing sections 7458 and 7461, the Tax Court
may, in order to preserve the anonymity, pri-
vacy, or confidentiality of any person under this
subsection, provide by rules adopted under sec-
tion 7453 that portions of filings, hearings, testi-
mony, evidence, and reports in connection with
proceedings under this subsection may be closed
to the public or to inspection by the public.’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to information provided on or after the date of
the enactment of this Act.
(2) 
PUBLICITY
OF
AWARD
APPEALS.—The
amendment made by subsection (c) shall take effect as
if included in the amendments made by section 406
of the Tax Relief and Health Care Act of 2006.
†
321
HR 1591 EAS
SEC. 544. MODIFICATIONS OF DEFINITION OF EMPLOYEES
COVERED BY DENIAL OF DEDUCTION FOR EX-
CESSIVE EMPLOYEE REMUNERATION.
(a) IN GENERAL.—Paragraph (3) of section 162(m) is
amended to read as follows:
‘‘(3) COVERED EMPLOYEE.—For purposes of this
subsection, the term ‘covered employee’ means, with
respect to any taxpayer for any taxable year, an indi-
vidual who—
‘‘(A) was the chief executive officer of the
taxpayer, or an individual acting in such a ca-
pacity, at any time during the taxable year,
‘‘(B) is 1 of the 4 highest compensated offi-
cers of the taxpayer for the taxable year (other
than the individual described in subparagraph
(A)), or
‘‘(C) was a covered employee of the taxpayer
(or any predecessor) for any preceding taxable
year beginning after December 31, 2006.
‘‘In the case of an individual who was a covered
employee for any taxable year beginning after Decem-
ber 31, 2006, the term ‘covered employee’ shall include
a beneficiary of such employee with respect to any re-
muneration for services performed by such employee
as a covered employee (whether or not such services
†
322
HR 1591 EAS
are performed during the taxable year in which the
remuneration is paid).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2006.
SEC. 545. INCREASE IN AGE OF MINOR CHILDREN WHOSE
UNEARNED INCOME IS TAXED AS IF PARENT’S
INCOME.
(a) IN
GENERAL.—Subparagraph (A) of section
1(g)(2) (relating to child to whom subsection applies) is
amended to read as follows:
‘‘(A) such child—
‘‘(i) has not attained age 18 before the
close of the taxable year, or
‘‘(ii)(I) has attained age 18 before the
close of the taxable year and meets the age
requirements of section 152(c)(3) (deter-
mined without regard to subparagraph (B)
thereof), and
‘‘(II) whose earned income (as defined
in section 911(d)(2)) for such taxable year
does not exceed one-half of the amount of the
individual’s support (within the meaning of
section 152(c)(1)(D) after the application of
section 152(f)(5) (without regard to sub-