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of exempting such nonpropulsive use of highway 
fuels for the highway motor fuels excise taxes, 
(2) in the case where non-transportation equip-
ment is run by a separate motor— 
(A) the Secretary of the Treasury shall de-
termine the annual average amount of fuel ex-
empted from tax in the use of such equipment by 
equipment type, and 
(B) the Secretary of the Treasury shall re-
view issues of administration and compliance re-
lated to the present-law exemption provided for 
such fuel use, and 
(3) the Secretary of the Treasury shall— 
(A) estimate the amount of taxable fuel con-
sumed by trucks and the emissions of various 
pollutants due to the long-term idling of diesel 
engines, and 
(B) determine the cost of reducing such 
long-term idling through the use of plug-ins at 
truck stops, auxiliary power units, or other tech-
nologies. 
(b) REPORT.—Not later than January 1, 2006, the 
Secretary of the Treasury shall report the findings of the 
study required under subsection (a) to the Committee on
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Finance of the Senate and the Committee on Ways and 
Means of the House of Representatives. 
SEC. 5506. DELTA REGIONAL TRANSPORTATION PLAN. 
(a) STUDY.—The Delta Regional Authority shall con-
duct a study of the transportation assets and needs in the 
States of Alabama, Arkansas, Illinois, Kentucky, Lou-
isiana, Mississippi, Missouri, and Tennessee which com-
prise the Delta region. 
(b) REGIONAL STRATEGIC TRANSPORTATION PLAN.— 
Upon completion of the study required under subsection (a), 
the Delta Regional Authority shall establish a regional stra-
tegic transportation plan to achieve efficient transportation 
systems in the Delta region. In developing the regional stra-
tegic transportation plan, the Delta Regional Authority 
shall consult with local planning and development districts, 
local and regional governments, metropolitan planning or-
ganizations, State transportation entities, and Federal 
transportation agencies. 
(c) ELEMENTS OF STUDY AND PLAN.—The study and 
plan under this section shall include the following transpor-
tation modes and systems: transit, rail, highway, interstate, 
bridges, air, airports, waterways and ports. 
(d) AUTHORIZATION OF APPROPRIATIONS.—There is 
authorized to be appropriated to the Delta Regional Author-
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ity $1,000,000 to carry out the purposes of this section, to 
remain available until expended. 
SEC. 5507. TREATMENT OF EMPLOYER-PROVIDED TRANSIT 
AND VAN POOLING BENEFITS. 
(a) IN
GENERAL.—Subparagraph (A) of section 
132(f)(2) (relating to limitation on exclusion) is amended 
by striking ‘‘$100’’ and inserting ‘‘$120’’. 
(b) INFLATION ADJUSTMENT CONFORMING AMEND-
MENTS.—The last sentence of section 132(f)(6)(A) (relating 
to inflation adjustment) is amended— 
(1) by striking ‘‘2002’’ and inserting ‘‘2005’’, 
and 
(2) by striking ‘‘2001’’ and inserting ‘‘2004’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2004. 
SEC. 5508. STUDY OF INCENTIVES FOR PRODUCTION OF 
BIODIESEL. 
(a) STUDY.—The General Comptroller of the United 
States shall conduct a study related to biodiesel fuels and 
the tax credit for biodiesel fuels established under this Act. 
Such study shall include— 
(1) an assessment on whether such credit pro-
vides sufficient assistance to the producers of biodiesel
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fuel to establish the fuel as a viable energy alternative 
in the current market place, 
(2) an assessment on how long such credit or 
similar subsidy would have to remain in effect before 
biodiesel fuel can compete in the market place without 
such assistance, 
(3) a cost-benefit analysis of such credit, com-
paring the cost of the credit in forgone revenue to the 
benefits of lower fuel costs for consumers, increased 
profitability for the biodiesel industry, increased farm 
income, reduced program outlays from the Depart-
ment of Agriculture, and the improved environmental 
conditions through the use of biodiesel fuel, and 
(4) an assessment on whether such credit results 
in any unintended consequences for unrelated indus-
tries, including the impact, if any, on the glycerin 
market. 
(b) REPORT.—Not later than 2 years after the date 
of the enactment of this Act, the Comptroller General of the 
United States shall report the findings of the study required 
under subsection (a) to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the House 
of Representatives.
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Subtitle G—Revenue Offsets 
PART I—LIMITATION ON EXPENSING CERTAIN 
PASSENGER AUTOMOBILES 
SEC. 5601. EXPANSION OF LIMITATION ON DEPRECIATION 
OF CERTAIN PASSENGER AUTOMOBILES. 
(a) IN GENERAL.—Section 179(b) (relating to limita-
tions) is amended by adding at the end the following new 
paragraph: 
‘‘(6) LIMITATION ON COST TAKEN INTO ACCOUNT 
FOR CERTAIN PASSENGER VEHICLES.— 
‘‘(A) IN GENERAL.—The cost of any sport 
utility vehicle for any taxable year which may 
be taken into account under this section shall not 
exceed $25,000. 
‘‘(B) SPORT UTILITY VEHICLE.—For pur-
poses of subparagraph (A)— 
‘‘(i) IN
GENERAL.—The term ‘sport 
utility vehicle’ means any 4-wheeled vehicle 
which— 
‘‘(I) is manufactured primarily 
for use on public streets, roads, and 
highways, 
‘‘(II) is not subject to section 
280F, and
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‘‘(III) is rated at not more than 
14,000 pounds gross vehicle weight. 
‘‘(ii) CERTAIN VEHICLES EXCLUDED.— 
Such term does not include any vehicle 
which— 
‘‘(I) does not have the primary 
load carrying device or container at-
tached, 
‘‘(II) has a seating capacity of 
more than 12 individuals, 
‘‘(III) is designed for more than 9 
individuals in seating rearward of the 
driver’s seat, 
‘‘(IV) is equipped with an open 
cargo area, or a covered box not read-
ily accessible from the passenger com-
partment, of at least 72.0 inches in in-
terior length, or 
‘‘(V) has an integral enclosure, 
fully enclosing the driver compartment 
and load carrying device, does not have 
seating rearward of the driver’s seat, 
and has no body section protruding 
more than 30 inches ahead of the lead-
ing edge of the windshield.’’.
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(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to property placed in service after Feb-
ruary 2, 2004. 
PART II—PROVISIONS DESIGNED TO CURTAIL 
TAX SHELTERS 
SEC. 5611. CLARIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE. 
(a) IN GENERAL.—Section 7701 is amended by redes-
ignating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following new subsection: 
‘‘(n) CLARIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE; 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—
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‘‘(I) the transaction changes in a 
meaningful way (apart from Federal 
tax effects) the taxpayer’s economic po-
sition, and 
‘‘(II) the taxpayer has a substan-
tial nontax purpose for entering into 
such transaction and the transaction is 
a reasonable means of accomplishing 
such purpose. 
In applying subclause (II), a purpose of 
achieving a financial accounting benefit 
shall not be taken into account in deter-
mining whether a transaction has a sub-
stantial nontax purpose if the origin of such 
financial accounting benefit is a reduction 
of income tax. 
‘‘(ii) SPECIAL RULE WHERE TAXPAYER 
RELIES ON PROFIT POTENTIAL.—A trans-
action shall not be treated as having eco-
nomic substance by reason of having a po-
tential for profit unless— 
‘‘(I) the present value of the rea-
sonably expected pre-tax profit from 
the transaction is substantial in rela-
tion to the present value of the expected
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net tax benefits that would be allowed 
if the transaction were respected, and 
‘‘(II) the reasonably expected pre- 
tax profit from the transaction exceeds 
a risk-free rate of return. 
‘‘(C) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
and foreign taxes shall be taken into account as 
expenses in determining pre-tax profit under 
subparagraph (B)(ii). 
‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH 
TAX-INDIFFERENT PARTIES.— 
‘‘(A) 
SPECIAL
RULES
FOR
FINANCING 
TRANSACTIONS.—The form of a transaction 
which is in substance the borrowing of money or 
the acquisition of financial capital directly or 
indirectly from a tax-indifferent party shall not 
be respected if the present value of the deductions 
to be claimed with respect to the transaction is 
substantially in excess of the present value of the 
anticipated economic returns of the person lend-
ing the money or providing the financial capital. 
A public offering shall be treated as a borrowing, 
or an acquisition of financial capital, from a 
tax-indifferent party if it is reasonably expected
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that at least 50 percent of the offering will be 
placed with tax-indifferent parties. 
‘‘(B) ARTIFICIAL
INCOME
SHIFTING
AND 
BASIS
ADJUSTMENTS.—The form of a trans-
action with a tax-indifferent party shall not be 
respected if— 
‘‘(i) it results in an allocation of in-
come or gain to the tax-indifferent party in 
excess of such party’s economic income or 
gain, or 
‘‘(ii) it results in a basis adjustment or 
shifting of basis on account of overstating 
the income or gain of the tax-indifferent 
party. 
‘‘(3) 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. 
‘‘(B) TAX-INDIFFERENT PARTY.—The term 
‘tax-indifferent party’ means any person or enti-
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ty not subject to tax imposed by subtitle A. A 
person shall be treated as a tax-indifferent party 
with respect to a transaction if the items taken 
into account with respect to the transaction have 
no substantial impact on such person’s liability 
under subtitle A. 
‘‘(C) EXCEPTION
FOR
PERSONAL
TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an in-
dividual, 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. 
‘‘(D) TREATMENT OF LESSORS.—In apply-
ing paragraph (1)(B)(ii) to the lessor of tangible 
property subject to a lease— 
‘‘(i) the expected net tax benefits with 
respect to the leased property shall not in-
clude the benefits of— 
‘‘(I) depreciation, 
‘‘(II) any tax credit, or 
‘‘(III) any other deduction as pro-
vided in guidance by the Secretary, 
and 
‘‘(ii) subclause (II) of paragraph 
(1)(B)(ii) shall be disregarded in deter-
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mining whether any of such benefits are al-
lowable. 
‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF-
FECTED.—Except as specifically provided in this sub-
section, the provisions of this subsection shall not be 
construed as altering or supplanting any other rule of 
law, and the requirements of this subsection shall be 
construed as being in addition to any such other rule 
of law. 
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or appro-
priate to carry out the purposes of this subsection. 
Such regulations may include exemptions from the 
application of this subsection.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transactions entered into after Feb-
ruary 2, 2004. 
SEC. 5612. PENALTY FOR FAILING TO DISCLOSE REPORT-
ABLE TRANSACTION. 
(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:
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‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT-
ABLE TRANSACTION INFORMATION WITH RE-
TURN OR STATEMENT. 
‘‘(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 sub-
section (b). 
‘‘(b) AMOUNT OF PENALTY.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amount of the penalty under 
subsection (a) shall be $50,000. 
‘‘(2) LISTED TRANSACTION.—The amount of the 
penalty under subsection (a) with respect to a listed 
transaction shall be $100,000. 
‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES 
AND HIGH NET WORTH INDIVIDUALS.— 
‘‘(A) IN GENERAL.—In the case of a failure 
under subsection (a) by— 
‘‘(i) a large entity, or 
‘‘(ii) a high net worth individual, 
the penalty under paragraph (1) or (2) shall be 
twice the amount determined without regard to 
this paragraph.
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‘‘(B) LARGE ENTITY.—For purposes of sub-
paragraph (A), the term ‘large entity’ means, 
with respect to any taxable year, a person (other 
than a natural person) with gross receipts in ex-
cess of $10,000,000 for the taxable year in which 
the reportable transaction occurs or the pre-
ceding taxable year. Rules similar to the rules of 
paragraph (2) and subparagraphs (B), (C), and 
(D) of paragraph (3) of section 448(c) shall 
apply for purposes of this subparagraph. 
‘‘(C) HIGH NET WORTH INDIVIDUAL.—For 
purposes of subparagraph (A), the term ‘high net 
worth individual’ means, with respect to a re-
portable transaction, a natural person whose net 
worth exceeds $2,000,000 immediately before the 
transaction. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) REPORTABLE TRANSACTION.—The term ‘re-
portable transaction’ means any transaction with re-
spect to which information is required to be included 
with a return or statement because, as determined 
under regulations prescribed under section 6011, such 
transaction is of a type which the Secretary deter-
mines as having a potential for tax avoidance or eva-
sion.
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‘‘(2) LISTED TRANSACTION.—Except as provided 
in regulations, the term ‘listed transaction’ means a 
reportable transaction which is the same as, or sub-
stantially similar to, a transaction specifically identi-
fied by the Secretary as a tax avoidance transaction 
for purposes of section 6011. 
‘‘(d) AUTHORITY TO RESCIND PENALTY.— 
‘‘(1) IN GENERAL.—The Commissioner of Inter-
nal 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 re-
portable transaction other than a listed trans-
action, 
‘‘(B) the person on whom the penalty is im-
posed has a history of complying with the re-
quirements of this title, 
‘‘(C) it is shown that the violation is due to 
an unintentional mistake of fact; 
‘‘(D) imposing the penalty would be against 
equity and good conscience, and 
‘‘(E) rescinding the penalty would promote 
compliance with the requirements of this title 
and effective tax administration.
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‘‘(2) DISCRETION.—The exercise of authority 
under paragraph (1) shall be at the sole discretion of 
the Commissioner and may be delegated only to the 
head of the Office of Tax Shelter Analysis. The Com-
missioner, in the Commissioner’s sole discretion, may 
establish a procedure to determine if a penalty should 
be referred to the Commissioner or the head of such 
Office for a determination under paragraph (1). 
‘‘(3) NO
APPEAL.—Notwithstanding any other 
provision of law, any determination under this sub-
section may not be reviewed in any administrative or 
judicial proceeding. 
‘‘(4) 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 or the head of the Office of Tax 
Shelter Analysis with respect to the determination, 
including— 
‘‘(A) the facts and circumstances of the 
transaction, 
‘‘(B) the reasons for the rescission, and 
‘‘(C) the amount of the penalty rescinded. 
‘‘(5) REPORT.—The Commissioner shall each 
year report to the Committee on Ways and Means of
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the House of Representatives and the Committee on 
Finance of the Senate— 
‘‘(A) a summary of the total number and 
aggregate amount of penalties imposed, and re-
scinded, under this section, and 
‘‘(B) a description of each penalty rescinded 
under this subsection and the reasons therefor. 
‘‘(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 an-
other 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 sec-
tion 6662A with respect to any reportable trans-
action at a rate prescribed under section 
6662A(c), or 
‘‘(C) is required to pay a penalty under sec-
tion 6662B with respect to any noneconomic 
substance transaction, 
the requirement to pay such penalty shall be disclosed in 
such reports filed by such person for such periods as the
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Secretary shall specify. Failure to make a disclosure in ac-
cordance 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 is in addition to any pen-
alty imposed under this title.’’. 
(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 fol-
lowing: 
‘‘Sec. 6707A. Penalty for failure to include reportable transaction information 
with return or statement.’’. 
(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. 
SEC. 5613. ACCURACY-RELATED PENALTY FOR LISTED 
TRANSACTIONS AND OTHER REPORTABLE 
TRANSACTIONS HAVING A SIGNIFICANT TAX 
AVOIDANCE PURPOSE. 
(a) IN GENERAL.—Subchapter A of chapter 68 is 
amended by inserting after section 6662 the following new 
section:
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‘‘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 per-
cent of the amount of such understatement. 
‘‘(b) 
REPORTABLE
TRANSACTION
UNDERSTATE-
MENT.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘reportable trans-
action understatement’ means the sum of— 
‘‘(A) the product of— 
‘‘(i) the amount of the increase (if any) 
in taxable income which results from a dif-
ference 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 tax-
payer which is a corporation), and 
‘‘(B) the amount of the decrease (if any) in 
the aggregate 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 tax-
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payer’s return of tax) and the proper tax treat-
ment 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— 
‘‘(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.— 
‘‘(1) IN GENERAL.—Subsection (a) shall be ap-
plied by substituting ‘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. 
‘‘(2) RULES
APPLICABLE
TO
ASSERTION
AND 
COMPROMISE OF PENALTY.—
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‘‘(A) IN
GENERAL.—Only upon the ap-
proval by the Chief Counsel for the Internal Rev-
enue Service or the Chief Counsel’s delegate at 
the national office of the Internal Revenue Serv-
ice may a penalty to which paragraph (1) ap-
plies be included in a 1st letter of proposed defi-
ciency which allows the taxpayer an opportunity 
for administrative review in the Internal Rev-
enue Service Office of Appeals. If such a letter is 
provided to the taxpayer, only the Commissioner 
of Internal Revenue may compromise all or any 
portion of such penalty. 
‘‘(B) APPLICABLE
RULES.—The rules of 
paragraphs (2), (3), (4), and (5) of section 
6707A(d) shall apply for purposes of subpara-
graph (A). 
‘‘(d) DEFINITIONS
OF
REPORTABLE
AND
LISTED 
TRANSACTIONS.—For purposes of this section, the terms ‘re-
portable transaction’ and ‘listed transaction’ have the re-
spective meanings given to such terms by section 6707A(c). 
‘‘(e) SPECIAL RULES.— 
‘‘(1) COORDINATION WITH PENALTIES, ETC., ON 
OTHER UNDERSTATEMENTS.—In the case of an under-
statement (as defined in section 6662(d)(2))—
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‘‘(A) the amount of such understatement 
(determined without regard to this paragraph) 
shall be increased by the aggregate amount of re-
portable transaction understatements and non-
economic substance transaction understatements 
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 subparagraph (A) 
over the aggregate amount of reportable trans-
action understatements and noneconomic sub-
stance transaction 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 re-
portable transaction understatement and a non-
economic substance transaction understatement. 
‘‘(B) NO DOUBLE PENALTY.—This section 
shall not apply to any portion of an understate-
ment on which a penalty is imposed under sec-
tion 6662B or 6663.
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‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.— 
Except as provided 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 trans-
action understatement or noneconomic substance 
transaction understatement 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. 
‘‘(4) NONECONOMIC
SUBSTANCE
TRANS-
ACTION UNDERSTATEMENT.—For purposes of this 
subsection, the term ‘noneconomic substance 
transaction understatement’ has the meaning 
given such term by section 6662B(c). 
‘‘(5) CROSS REFERENCE.— 
‘‘For reporting of section 6662A(c) penalty to the 
Securities and Exchange Commission, see section 
6707A(e).’’. 
(b) 
DETERMINATION
OF
OTHER
UNDERSTATE-
MENTS.—Subparagraph (A) of section 6662(d)(2) is 
amended by adding at the end the following flush sentence: 
‘‘The excess under the preceding sentence shall be 
determined without regard to items to which sec-
tion 6662A applies and without regard to items
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with respect to which a penalty is imposed by 
section 6662B.’’. 
(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 REPORT-
ABLE TRANSACTION UNDERSTATEMENTS.— 
‘‘(1) IN GENERAL.—No penalty shall be imposed 
under section 6662A with respect to any portion of a 
reportable transaction understatement if it is shown 
that there was a reasonable 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 treatment was more likely than not the 
proper treatment.
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A taxpayer failing to adequately disclose in accord-
ance 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
BE-
LIEF.—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 be-
lief— 
‘‘(i) is based on the facts and law that 
exist at the time the return of tax which in-
cludes such tax treatment is filed, and 
‘‘(ii) relates solely to the taxpayer’s 
chances of success on the merits of such 
treatment and does not take into account 
the possibility that a return will not be au-
dited, 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 RE-
LIED UPON.— 
‘‘(i) IN
GENERAL.—An opinion of a 
tax advisor may not be relied upon to estab-
lish the reasonable belief of a taxpayer if—
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HR 3550 EAS 
‘‘(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)) who 
participates in the organization, man-
agement, promotion, or sale of the 
transaction or who is related (within 
the meaning of section 267(b) or 
707(b)(1)) to any person who so par-
ticipates, 
‘‘(II) is compensated directly or 
indirectly by a material advisor with 
respect to the transaction, 
‘‘(III) has a fee arrangement with 
respect to the transaction which is con-
tingent on all or part of the intended 
tax benefits from the transaction being 
sustained, or 
‘‘(IV) as determined under regula-
tions prescribed by the Secretary, has a
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HR 3550 EAS 
disqualifying financial interest with 
respect to the transaction. 
‘‘(iii) DISQUALIFIED
OPINIONS.—For 
purposes of clause (i), an opinion is dis-
qualified if the opinion— 
‘‘(I) is based on unreasonable fac-
tual or legal assumptions (including 
assumptions as to future events), 
‘‘(II) unreasonably relies on rep-
resentations, statements, findings, or 
agreements of the taxpayer or any 
other person, 
‘‘(III) does not identify and con-
sider all relevant facts, or 
‘‘(IV) fails to meet any other re-
quirement as the Secretary may pre-
scribe.’’. 
(2) CONFORMING AMENDMENT.—The heading for 
subsection (c) of section 6664 is amended by inserting 
‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Subparagraph (C) of section 461(i)(3) is 
amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ and 
inserting ‘‘section 1274(b)(3)(C)’’.
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HR 3550 EAS 
(2) Paragraph (3) of section 1274(b) is amend-
ed— 
(A) by striking ‘‘(as defined in section 
6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(C) TAX SHELTER.—For purposes of sub-
paragraph (B), the term ‘tax shelter’ means— 
‘‘(i) a partnership or other entity, 
‘‘(ii) any investment plan or arrange-
ment, or 
‘‘(iii) any other plan or arrangement, 
if a significant purpose of such partnership, en-
tity, plan, or arrangement is the avoidance or 
evasion of Federal income tax.’’. 
(3) Section 6662(d)(2) is amended by striking 
subparagraphs (C) and (D). 
(4) Section 6664(c)(1) is amended by striking 
‘‘this part’’ and inserting ‘‘section 6662 or 6663’’. 
(5) Subsection (b) of section 7525 is amended by 
striking ‘‘section 6662(d)(2)(C)(iii)’’ and inserting 
‘‘section 1274(b)(3)(C)’’. 
(6)(A) The heading for section 6662 is amended 
to read as follows:
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HR 3550 EAS 
‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY 
ON UNDERPAYMENTS.’’. 
(B) The table of sections for part II of sub-
chapter A of chapter 68 is amended by striking the 
item relating to section 6662 and inserting the fol-
lowing new items: 
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments. 
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements with re-
spect to reportable transactions.’’. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years ending after the date 
of the enactment of this Act. 
SEC. 5614. PENALTY FOR UNDERSTATEMENTS ATTRIB-
UTABLE TO TRANSACTIONS LACKING ECO-
NOMIC SUBSTANCE, ETC. 
(a) IN GENERAL.—Subchapter A of chapter 68 is 
amended by inserting after section 6662A the following new 
section: 
‘‘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 40 percent of the amount of such understatement. 
‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED TRANS-
ACTIONS.—Subsection (a) shall be applied by substituting
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HR 3550 EAS 
‘20 percent’ for ‘40 percent’ with respect to the portion of 
any noneconomic substance transaction understatement 
with respect to which the relevant facts affecting the tax 
treatment of the item are adequately disclosed in the return 
or a statement attached to the return. 
‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UNDER-
STATEMENT.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘noneconomic sub-
stance 
transaction 
understatement’ 
means 
any 
amount which would be an understatement under sec-
tion 6662A(b)(1) if section 6662A were applied by 
taking into account items attributable to noneconomic 
substance transactions rather than items to which sec-
tion 6662A would apply without regard to this para-
graph. 
‘‘(2) NONECONOMIC SUBSTANCE TRANSACTION.— 
The term ‘noneconomic substance transaction’ means 
any transaction if— 
‘‘(A) there is a lack of economic substance 
(within the meaning of section 7701(n)(1)) for 
the transaction giving rise to the claimed benefit 
or the transaction was not respected under sec-
tion 7701(n)(2), or 
‘‘(B) the transaction fails to meet the re-
quirements of any similar rule of law.
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‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN-
ALTY.— 
‘‘(1) IN GENERAL.—If the 1st letter of proposed 
deficiency which allows the taxpayer an opportunity 
for administrative review in the Internal Revenue 
Service Office of Appeals has been sent with respect 
to a penalty to which this section applies, only the 
Commissioner of Internal Revenue may compromise 
all or any portion of such penalty. 
‘‘(2) APPLICABLE
RULES.—The rules of para-
graphs (2), (3), (4), and (5) of section 6707A(d) shall 
apply for purposes of paragraph (1). 
‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex-
cept as otherwise provided in this part, the penalty imposed 
by this section shall be in addition to any other penalty 
imposed by this title. 
‘‘(f) CROSS REFERENCES.— 
‘‘(1) For coordination of penalty with understate-
ments under section 6662 and other special rules, see 
section 6662A(e). 
‘‘(2) For reporting of penalty imposed under this 
section to the Securities and Exchange Commission, 
see section 6707A(e).’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
part II of subchapter A of chapter 68 is amended by insert-
ing after the item relating to section 6662A the following 
new item: 
‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking eco-
nomic substance, etc.’’.
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HR 3550 EAS 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transactions entered into after Feb-
ruary 2, 2004. 
SEC. 5615. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE-
MENT 
PENALTY 
FOR 
NONREPORTABLE 
TRANSACTIONS. 
(a) SUBSTANTIAL UNDERSTATEMENT
OF CORPORA-
TIONS.—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 cor-
poration or a personal holding company (as de-
fined in section 542), there is a substantial un-
derstatement of income tax for any taxable year 
if the amount of the understatement for the tax-
able 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) REDUCTION FOR UNDERSTATEMENT OF TAXPAYER 
DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.— 
(1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re-
lating to substantial authority) is amended to read as 
follows:
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HR 3550 EAS 
‘‘(i) the tax treatment of any item by 
the taxpayer if the taxpayer had reasonable 
belief that the tax treatment was more likely 
than not the proper treatment, or’’. 
(2) CONFORMING AMENDMENT.—Section 6662(d) 
is amended by adding at the end the following new 
paragraph: 
‘‘(3) SECRETARIAL LIST.—For purposes of this 
subsection, section 6664(d)(2), and section 6694(a)(1), 
the Secretary may prescribe a list of positions for 
which the Secretary believes there is not substantial 
authority or there is no reasonable belief that the tax 
treatment is more likely than not the proper tax 
treatment. Such list (and any revisions thereof) shall 
be published in the Federal Register or the Internal 
Revenue Bulletin.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 5616. TAX SHELTER EXCEPTION TO CONFIDENTIALITY 
PRIVILEGES RELATING TO TAXPAYER COM-
MUNICATIONS. 
(a) IN GENERAL.—Section 7525(b) (relating to section 
not to apply to communications regarding corporate tax 
shelters) is amended to read as follows:
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HR 3550 EAS 
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS 
REGARDING TAX SHELTERS.—The privilege under sub-
section (a) shall not apply to any written communication 
which is— 
‘‘(1) between a federally authorized tax practi-
tioner and— 
‘‘(A) any person, 
‘‘(B) any director, officer, employee, agent, 
or representative 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 di-
rect or indirect participation of the person in any tax 
shelter (as defined in section 1274(b)(3)(C)).’’. 
(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. 5617. DISCLOSURE OF REPORTABLE TRANSACTIONS. 
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended to read as follows: 
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS. 
‘‘(a) IN GENERAL.—Each material advisor with re-
spect to any reportable transaction shall make a return (in 
such form as the Secretary may prescribe) setting forth—
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HR 3550 EAS 
‘‘(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. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) MATERIAL ADVISOR.— 
‘‘(A) IN GENERAL.—The term ‘material ad-
visor’ means any person— 
‘‘(i) who provides any material aid, 
assistance, or advice with respect to orga-
nizing, managing, promoting, selling, im-
plementing, or carrying out any reportable 
transaction, and 
‘‘(ii) who directly or indirectly derives 
gross income in excess of the threshold 
amount for such aid, assistance, or advice. 
‘‘(B) THRESHOLD AMOUNT.—For purposes 
of subparagraph (A), the threshold amount is— 
‘‘(i) $50,000 in the case of a reportable 
transaction substantially all of the tax bene-
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HR 3550 EAS 
fits from which are provided to natural per-
sons, and 
‘‘(ii) $250,000 in any other case. 
‘‘(2) REPORTABLE TRANSACTION.—The term ‘re-
portable transaction’ has the meaning given to such 
term by section 6707A(c). 
‘‘(c) REGULATIONS.—The Secretary may prescribe reg-
ulations 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 requirements, 
‘‘(2) exemptions from the requirements of this 
section, and 
‘‘(3) such rules as may be necessary or appro-
priate 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)(A) So much of section 6112 as precedes sub-
section (c) thereof is amended to read as follows:
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HR 3550 EAS 
‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANS-
ACTIONS MUST KEEP LISTS OF ADVISEES. 
‘‘(a) IN GENERAL.—Each material advisor (as defined 
in section 6111) with respect to any reportable transaction 
(as defined in section 6707A(c)) shall 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 such a material advisor 
with respect to such transaction, and 
‘‘(2) containing such other information as the 
Secretary may by regulations require. 
This section shall apply without regard to whether a mate-
rial advisor is required to file a return under section 6111 
with respect to such transaction.’’. 
(B) Section 6112 is amended by redesignating 
subsection (c) as subsection (b). 
(C) Section 6112(b), as redesignated by subpara-
graph (B), is amended— 
(i) by inserting ‘‘written’’ before ‘‘request’’ 
in paragraph (1)(A), and 
(ii) by striking ‘‘shall prescribe’’ in para-
graph (2) and inserting ‘‘may prescribe’’. 
(D) The item relating to section 6112 in the 
table of sections for subchapter B of chapter 61 is 
amended to read as follows:
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HR 3550 EAS 
‘‘Sec. 6112. Material advisors of reportable transactions must keep lists of 
advisees.’’. 
(3)(A) The heading for section 6708 is amended 
to read as follows: 
‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES 
WITH 
RESPECT 
TO 
REPORTABLE 
TRANS-
ACTIONS.’’. 
(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 trans-
actions.’’. 
(c) REQUIRED DISCLOSURE NOT SUBJECT TO CLAIM 
OF
CONFIDENTIALITY.—Subparagraph (A) of section 
6112(b)(1), as redesignated by subsection (b)(2)(B), is 
amended by adding at the end the following new flush sen-
tence: 
‘‘For purposes of this section, the identity of any per-
son on such list shall not be privileged.’’. 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), 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.
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HR 3550 EAS 
(2) NO CLAIM OF CONFIDENTIALITY AGAINST DIS-
CLOSURE.—The amendment made by subsection (c) 
shall take effect as if included in the amendments 
made by section 142 of the Deficit Reduction Act of 
1984. 
SEC. 5618. MODIFICATIONS TO PENALTY FOR FAILURE TO 
REGISTER TAX SHELTERS. 
(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 REGARD-
ING REPORTABLE TRANSACTIONS. 
‘‘(a) IN GENERAL.—If a person who is required to file 
a return under section 6111(a) with respect to any report-
able 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 para-
graph (2), the penalty imposed under subsection (a) 
with respect to any failure shall be $50,000.
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HR 3550 EAS 
‘‘(2) LISTED TRANSACTIONS.—The penalty im-
posed 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 list-
ed transaction before the date the return includ-
ing the transaction is filed under section 6111. 
Subparagraph (B) shall be applied by substituting 
‘75 percent’ for ‘50 percent’ in the case of an inten-
tional failure or act described in subsection (a). 
‘‘(c) CERTAIN RULES TO APPLY.—The provisions of 
section 6707A(d) shall apply to any penalty imposed under 
this section. 
‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—The 
terms ‘reportable transaction’ and ‘listed transaction’ have 
the respective meanings given to such terms by section 
6707A(c).’’. 
(b) CLERICAL AMENDMENT.—The item relating to sec-
tion 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’’.
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HR 3550 EAS 
(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. 5619. 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 re-
quired to maintain a list under section 6112(a) fails 
to make such list available upon written request to 
the 
Secretary 
in 
accordance 
with 
section 
6112(b)(1)(A) within 20 business days after the date 
of the Secretary’s 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 pen-
alty shall be imposed by paragraph (1) with respect 
to the failure on any day if such failure is due to rea-
sonable cause.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to requests made after the date of the 
enactment of this Act.
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HR 3550 EAS 
SEC. 5620. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN 
CONDUCT RELATED TO TAX SHELTERS AND 
REPORTABLE TRANSACTIONS. 
(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 ac-
tion in the name of the United States to enjoin any person 
from further engaging in specified conduct may be com-
menced 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 speci-
fied 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 subsection (a), if the court finds— 
‘‘(1) that the person has engaged in any specified 
conduct, and 
‘‘(2) that injunctive relief is appropriate to pre-
vent recurrence of such conduct,
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HR 3550 EAS 
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 sec-
tion, the term ‘specified conduct’ means any action, or fail-
ure to take action, subject to penalty under section 6700, 
6701, 6707, or 6708.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The heading for section 7408 is amended to 
read as follows: 
‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RE-
LATED TO TAX SHELTERS AND REPORTABLE 
TRANSACTIONS.’’. 
(2) The table of sections for subchapter A of 
chapter 67 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 report-
able transactions.’’. 
(c) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on the day after the date of the en-
actment of this Act. 
SEC. 5621. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY 
INCOME TAX RETURN PREPARER. 
(a) STANDARDS CONFORMED TO TAXPAYER STAND-
ARDS.—Section 6694(a) (relating to understatements due to 
unrealistic positions) is amended—
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HR 3550 EAS 
(1) by striking ‘‘realistic possibility of being sus-
tained on its merits’’ in paragraph (1) and inserting 
‘‘reasonable belief that the tax treatment in such posi-
tion was more likely than not the proper treatment’’, 
(2) by striking ‘‘or was frivolous’’ in paragraph 
(3) and inserting ‘‘or there was no reasonable basis 
for the tax treatment of such position’’, and 
(3) by striking ‘‘UNREALISTIC’’ in the heading 
and inserting ‘‘IMPROPER’’. 
(b) AMOUNT OF PENALTY.—Section 6694 is amend-
ed— 
(1) by striking ‘‘$250’’ in subsection (a) and in-
serting ‘‘$1,000’’, and 
(2) by striking ‘‘$1,000’’ in subsection (b) and 
inserting ‘‘$5,000’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to documents prepared after the date 
of the enactment of this Act. 
SEC. 5622. 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.—
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HR 3550 EAS 
‘‘(A) PENALTY
AUTHORIZED.—The Sec-
retary 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 subparagraph (C), the amount of any 
civil penalty imposed under subparagraph 
(A) shall not exceed $5,000. 
‘‘(ii) 
REASONABLE
CAUSE
EXCEP-
TION.—No penalty shall be imposed under 
subparagraph (A) with respect to any viola-
tion if— 
‘‘(I) such violation was due to 
reasonable cause, and 
‘‘(II) the amount of the trans-
action or the balance in the account at 
the time of the transaction was prop-
erly reported. 
‘‘(C) WILLFUL VIOLATIONS.—In the case of 
any person willfully violating, or willfully caus-
ing any violation of, any provision of section 
5314—
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HR 3550 EAS 
‘‘(i) the maximum penalty under sub-
paragraph (B)(i) shall be increased to the 
greater of— 
‘‘(I) $25,000, or 
‘‘(II) the amount (not exceeding 
$100,000) determined under subpara-
graph (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 transaction, the amount of the trans-
action, or 
‘‘(ii) in the case of a violation involv-
ing a failure to report the existence of an 
account or any identifying information re-
quired to be provided with respect to an ac-
count, 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.
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HR 3550 EAS 
SEC. 5623. FRIVOLOUS TAX SUBMISSIONS. 
(a) CIVIL PENALTIES.—Section 6702 is amended to 
read as follows: 
‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 
‘‘(a) CIVIL
PENALTY
FOR
FRIVOLOUS
TAX
RE-
TURNS.—A person shall pay a penalty of $5,000 if— 
‘‘(1) such person files what purports to be a re-
turn of a tax imposed by this title but which— 
‘‘(A) does not contain information on which 
the substantial correctness of the self-assessment 
may be judged, or 
‘‘(B) contains information that on its face 
indicates that the self-assessment is substantially 
incorrect; and 
‘‘(2) the conduct referred to in paragraph (1)— 
‘‘(A) is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c), or 
‘‘(B) reflects a desire to delay or impede the 
administration of Federal tax laws. 
‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB-
MISSIONS.— 
‘‘(1) IMPOSITION OF PENALTY.—Except as pro-
vided in paragraph (3), any person who submits a 
specified frivolous submission shall pay a penalty of 
$5,000.
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HR 3550 EAS 
‘‘(2) SPECIFIED
FRIVOLOUS
SUBMISSION.—For 
purposes of this section— 
‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.— 
The term ‘specified frivolous submission’ means 
a specified submission if any portion of such 
submission— 
‘‘(i) is based on a position which the 
Secretary has identified as frivolous under 
subsection (c), or 
‘‘(ii) reflects a desire to delay or im-
pede the administration of Federal tax 
laws. 
‘‘(B) SPECIFIED
SUBMISSION.—The term 
‘specified submission’ means— 
‘‘(i) a request for a hearing under— 
‘‘(I) section 6320 (relating to no-
tice and opportunity for hearing upon 
filing of notice of lien), or 
‘‘(II) section 6330 (relating to no-
tice and opportunity for hearing before 
levy), and 
‘‘(ii) an application under— 
‘‘(I) section 6159 (relating to 
agreements for payment of tax liability 
in installments),
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HR 3550 EAS 
‘‘(II) section 7122 (relating to 
compromises), or 
‘‘(III) section 7811 (relating to 
taxpayer assistance orders). 
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with notice 
that a submission is a specified frivolous submission 
and such person withdraws such submission within 
30 days after such notice, the penalty imposed under 
paragraph (1) shall not apply with respect to such 
submission. 
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of posi-
tions which the Secretary has identified as being frivolous 
for purposes of this subsection. The Secretary shall not in-
clude in such list any position that the Secretary deter-
mines 
meets 
the 
requirement 
of 
section 
6662(d)(2)(B)(ii)(II). 
‘‘(d) REDUCTION OF PENALTY.—The Secretary may 
reduce the amount of any penalty imposed under this sec-
tion if the Secretary determines that such reduction would 
promote compliance with and administration of the Federal 
tax laws.
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HR 3550 EAS 
‘‘(e) PENALTIES
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalties imposed by this section shall be in 
addition to any other penalty provided by law.’’. 
(b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS BEFORE LEVY.— 
(1) FRIVOLOUS REQUESTS DISREGARDED.—Sec-
tion 6330 (relating to notice and opportunity for 
hearing before levy) is amended by adding at the end 
the following new subsection: 
‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.— 
Notwithstanding any other provision of this section, if the 
Secretary determines that any portion of a request for a 
hearing under this section or section 6320 meets the require-
ment of clause (i) or (ii) of section 6702(b)(2)(A), then the 
Secretary may treat such portion as if it were never sub-
mitted and such portion shall not be subject to any further 
administrative or judicial review.’’. 
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS 
ISSUES AT HEARING.—Section 6330(c)(4) is amend-
ed— 
(A) by striking ‘‘(A)’’ and inserting 
‘‘(A)(i)’’; 
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 
(C) by striking the period at the end of the 
first sentence and inserting ‘‘; or’’; and
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(D) by inserting after subparagraph (A)(ii) 
(as so redesignated) the following: 
‘‘(B) the issue meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A).’’. 
(3) 
STATEMENT
OF
GROUNDS.—Section 
6330(b)(1) is amended by striking ‘‘under subsection 
(a)(3)(B)’’ and inserting ‘‘in writing under subsection 
(a)(3)(B) and states the grounds for the requested 
hearing’’. 
(c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is 
amended— 
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under 
subsection (a)(3)(B) and states the grounds for the re-
quested hearing’’, and 
(2) in subsection (c), by striking ‘‘and (e)’’ and 
inserting ‘‘(e), and (g)’’. 
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR 
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end 
the following new subsection: 
‘‘(e) 
FRIVOLOUS
SUBMISSIONS, 
ETC.—Notwith-
standing any other provision of this section, if the Secretary 
determines that any portion of an application for an offer-
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in-compromise or installment agreement submitted under 
this section or section 6159 meets the requirement of clause 
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such 
portion shall not be subject to any further administrative 
or judicial review.’’. 
(e) CLERICAL AMENDMENT.—The table of sections for 
part I of subchapter B of chapter 68 is amended by striking 
the item relating to section 6702 and inserting the following 
new item: 
‘‘Sec. 6702. Frivolous tax submissions.’’. 
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to submissions made and issues raised 
after the date on which the Secretary first prescribes a list 
under section 6702(c) of the Internal Revenue Code of 1986, 
as amended by subsection (a). 
SEC. 5624. REGULATION OF INDIVIDUALS PRACTICING BE-
FORE THE DEPARTMENT OF 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 ‘‘De-
partment’’, and 
(B) by adding at the end the following new 
flush sentence:
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‘‘The Secretary may impose a monetary penalty on any 
representative 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 Secretary may impose a monetary 
penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such pen-
alty shall not exceed the gross income derived (or to be de-
rived) 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 subsection shall apply to actions taken after 
the date of the enactment 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 Sec-
retary 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 arrange-
ment, which is of a type which the Secretary determines 
as having a potential for tax avoidance or evasion.’’.
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SEC. 5625. PENALTY ON PROMOTERS OF TAX SHELTERS. 
(a) PENALTY ON PROMOTING ABUSIVE TAX SHEL-
TERS.—Section 6700(a) is amended by adding at the end 
the following new sentence: ‘‘Notwithstanding the first sen-
tence, if an activity with respect to which a penalty im-
posed under this subsection involves a statement 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 pen-
alty is imposed.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to activities after the date of the enact-
ment of this Act. 
SEC. 5626. STATUTE OF LIMITATIONS FOR TAXABLE YEARS 
FOR 
WHICH 
REQUIRED 
LISTED 
TRANS-
ACTIONS NOT REPORTED. 
(a) IN GENERAL.—Section 6501(c) (relating to excep-
tions) 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
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transaction shall not expire before the date which is 
1 year after the earlier of— 
‘‘(A) the date on which the Secretary is fur-
nished 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 enactment of this Act. 
SEC. 5627. DENIAL OF DEDUCTION FOR INTEREST ON UN-
DERPAYMENTS ATTRIBUTABLE TO NONDIS-
CLOSED REPORTABLE AND NONECONOMIC 
SUBSTANCE TRANSACTIONS. 
(a) IN GENERAL.—Section 163 (relating to deduction 
for interest) is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the fol-
lowing new subsection: 
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE TO 
NONDISCLOSED REPORTABLE TRANSACTIONS
AND NON-
ECONOMIC SUBSTANCE TRANSACTIONS.—No deduction shall 
be allowed under this chapter for any interest paid or ac-
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crued under section 6601 on any underpayment of tax 
which is attributable to— 
‘‘(1) the portion of any reportable transaction 
understatement (as defined in section 6662A(b)) with 
respect 
to 
which 
the 
requirement 
of 
section 
6664(d)(2)(A) is not met, or 
‘‘(2) any noneconomic substance transaction un-
derstatement (as defined in section 6662B(c)).’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transactions in taxable years begin-
ning after the date of the enactment of this Act. 
SEC. 5628. AUTHORIZATION OF APPROPRIATIONS FOR TAX 
LAW ENFORCEMENT. 
There is authorized to be appropriated $300,000,000 
for each fiscal year beginning after September 30, 2003, for 
the purpose of carrying out tax law enforcement to combat 
tax avoidance transactions and other tax shelters, including 
the use of offshore financial accounts to conceal taxable in-
come. 
PART III—OTHER CORPORATE GOVERNANCE 
PROVISIONS 
SEC. 5631. AFFIRMATION OF CONSOLIDATED RETURN REG-
ULATION AUTHORITY. 
(a) IN GENERAL.—Section 1502 (relating to consoli-
dated return regulations) is amended by adding at the end
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the following new sentence: ‘‘In prescribing such regula-
tions, the Secretary may prescribe rules applicable to cor-
porations filing consolidated returns under section 1501 
that are different from other provisions of this title that 
would apply if such corporations filed separate returns.’’. 
(b) RESULT
NOT
OVERTURNED.—Notwithstanding 
subsection (a), the Internal Revenue Code of 1986 shall be 
construed by treating Treasury regulation § 1.1502– 
20(c)(1)(iii) (as in effect on January 1, 2001) as being in-
applicable to the type of factual situation in 255 F.3d 1357 
(Fed. Cir. 2001). 
(c) EFFECTIVE DATE.—The provisions of this section 
shall apply to taxable years beginning before, on, or after 
the date of the enactment of this Act. 
SEC. 5632. DECLARATION BY CHIEF EXECUTIVE OFFICER 
RELATING TO FEDERAL ANNUAL CORPORATE 
INCOME TAX RETURN. 
(a) IN GENERAL.—The Federal tax return of a cor-
poration with respect to income shall also include a declara-
tion signed by the chief executive officer of such corporation 
(or other such officer of the corporation as the Secretary 
of the Treasury may designate if the corporation does not 
have a chief executive officer), under penalties of perjury, 
that the chief executive officer has established processes and 
procedures that ensure that such return complies with the
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Internal Revenue Code of 1986 and that the chief executive 
officer was provided reasonable assurance of the accuracy 
of all material aspects of such return. The preceding sen-
tence shall not apply to any return of a regulated invest-
ment company (within the meaning of section 851 of such 
Code). 
(b) EFFECTIVE DATE.—This section shall apply to 
Federal tax returns filed after the date of the enactment 
of this Act. 
SEC. 5633. DENIAL OF DEDUCTION FOR CERTAIN FINES, 
PENALTIES, AND OTHER AMOUNTS. 
(a) IN GENERAL.—Subsection (f) of section 162 (relat-
ing to trade or business expenses) is amended to read as 
follows: 
‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no deduction otherwise allowable shall be 
allowed under this chapter for any amount paid or 
incurred (whether by suit, agreement, or otherwise) 
to, or at the direction of, a government or entity de-
scribed in paragraph (4) in relation to the violation 
of any law or the investigation or inquiry by such 
government or entity into the potential violation of 
any law.
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‘‘(2) EXCEPTION
FOR
AMOUNTS
CONSTITUTING 
RESTITUTION.—Paragraph (1) shall not apply to any 
amount which the taxpayer establishes constitutes res-
titution for damage or harm caused by the violation 
of any law or the potential violation of any law. This 
paragraph shall not apply to any amount paid or in-
curred as reimbursement to the government or entity 
for the costs of any investigation or litigation. 
‘‘(3) EXCEPTION
FOR
AMOUNTS
PAID
OR
IN-
CURRED
AS
THE
RESULT
OF
CERTAIN
COURT
OR-
DERS.—Paragraph (1) shall not apply to any 
amount paid or incurred by order of a court in a suit 
in which no government or entity described in para-
graph (4) is a party. 
‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY 
ENTITIES.—An entity is described in this paragraph 
if it is— 
‘‘(A) a nongovernmental entity which exer-
cises self-regulatory powers (including imposing 
sanctions) in connection with a qualified board 
or exchange (as defined in section 1256(g)(7)), or 
‘‘(B) to the extent provided in regulations, 
a nongovernmental entity which exercises self- 
regulatory powers (including imposing sanc-
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HR 3550 EAS 
tions) as part of performing an essential govern-
mental function.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to amounts paid or incurred after April 
27, 2003, except that such amendment shall not apply to 
amounts paid or incurred under any binding order or 
agreement entered into on or before April 27, 2003. Such 
exception shall not apply to an order or agreement requir-
ing court approval unless the approval was obtained on or 
before April 27, 2003. 
SEC. 5634. DISALLOWANCE OF DEDUCTION FOR PUNITIVE 
DAMAGES. 
(a) DISALLOWANCE OF DEDUCTION.— 
(1) IN
GENERAL.—Section 162(g) (relating to 
treble damage payments under the antitrust laws) is 
amended by adding at the end the following new 
paragraph: 
‘‘(2) PUNITIVE DAMAGES.—No deduction shall be 
allowed under this chapter for any amount paid or 
incurred for punitive damages in connection with 
any judgment in, or settlement of, any action. This 
paragraph shall not apply to punitive damages de-
scribed in section 104(c).’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 162(g) is amended—
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(i) by striking ‘‘If’’ and inserting: 
‘‘(1) TREBLE DAMAGES.—If’’, and 
(ii) by redesignating paragraphs (1) 
and (2) as subparagraphs (A) and (B), re-
spectively. 
(B) The heading for section 162(g) is 
amended by inserting ‘‘OR PUNITIVE DAMAGES’’ 
after ‘‘LAWS’’. 
(b) INCLUSION IN INCOME OF PUNITIVE DAMAGES 
PAID BY INSURER OR OTHERWISE.— 
(1) IN GENERAL.—Part II of subchapter B of 
chapter 1 (relating to items specifically included in 
gross income) is amended by adding at the end the 
following new section: 
‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR-
ANCE OR OTHERWISE. 
‘‘Gross income shall include any amount paid to or 
on behalf of a taxpayer as insurance or otherwise by reason 
of the taxpayer’s liability (or agreement) to pay punitive 
damages.’’. 
(2) REPORTING REQUIREMENTS.—Section 6041 
(relating to information at source) is amended by 
adding at the end the following new subsection: 
‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES COM-
PENSATION.—This section shall apply to payments by a
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person to or on behalf of another person as insurance or 
otherwise by reason of the other person’s liability (or agree-
ment) to pay punitive damages.’’. 
(3) CONFORMING AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 1 is 
amended by adding at the end the following new item: 
‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to damages paid or incurred on or after 
the date of the enactment of this Act. 
SEC. 5635. INCREASE IN CRIMINAL MONETARY PENALTY 
LIMITATION FOR THE UNDERPAYMENT OR 
OVERPAYMENT OF TAX DUE TO FRAUD. 
(a) IN GENERAL.—Section 7206 (relating to fraud and 
false statements) is amended— 
(1) by striking ‘‘Any person who—’’ and insert-
ing ‘‘(a) IN GENERAL.—Any person who—’’, and 
(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
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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.’’. 
(b) INCREASE IN PENALTIES.— 
(1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec-
tion 7201 is amended— 
(A) by striking ‘‘$100,000’’ and inserting 
‘‘$250,000’’, 
(B) by striking ‘‘$500,000’’ and inserting 
‘‘$1,000,000’’, and 
(C) by striking ‘‘5 years’’ and inserting ‘‘10 
years’’. 
(2) WILLFUL FAILURE TO FILE RETURN, SUPPLY 
INFORMATION, OR PAY TAX.—Section 7203 is amend-
ed— 
(A) in the first sentence— 
(i) by striking ‘‘misdemeanor’’ and in-
serting ‘‘felony’’, and 
(ii) by striking ‘‘1 year’’ and inserting 
‘‘10 years’’, and 
(B) by striking the third sentence. 
(3) FRAUD
AND
FALSE
STATEMENTS.—Section 
7206(a) (as redesignated by subsection (a)) is amend-
ed—
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(A) by striking ‘‘$100,000’’ and inserting 
‘‘$250,000’’, 
(B) by striking ‘‘$500,000’’ and inserting 
‘‘$1,000,000’’, and 
(C) by striking ‘‘3 years’’ and inserting ‘‘5 
years’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to underpayments and overpayments at-
tributable to actions occurring after the date of the enact-
ment of this Act. 
SEC. 5636. DOUBLING OF CERTAIN PENALTIES, FINES, AND 
INTEREST ON UNDERPAYMENTS RELATED TO 
CERTAIN OFFSHORE FINANCIAL ARRANGE-
MENTS. 
(a) GENERAL RULE.—If— 
(1) a taxpayer eligible to participate in— 
(A) the Department of the Treasury’s Off-
shore Voluntary Compliance Initiative, or 
(B) the Department of the Treasury’s vol-
untary disclosure initiative which applies to the 
taxpayer by reason of the taxpayer’s under-
reporting of United States income tax liability 
through financial arrangements which rely on 
the use of offshore arrangements which were the
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subject of the initiative described in subpara-
graph (A), and 
(2) any interest or applicable penalty is imposed 
with respect to any arrangement to which any initia-
tive described in paragraph (1) applied or to any un-
derpayment of Federal income tax attributable to 
items arising in connection with any arrangement 
described in paragraph (1), 
then, notwithstanding any other provision of law, the 
amount of such interest or penalty shall be equal to twice 
that determined without regard to this section. 
(b) DEFINITIONS AND RULES.—For purposes of this 
section— 
(1) APPLICABLE PENALTY.—The term ‘‘applica-
ble penalty’’ means any penalty, addition to tax, or 
fine imposed under chapter 68 of the Internal Rev-
enue Code of 1986. 
(2) VOLUNTARY OFFSHORE COMPLIANCE INITIA-
TIVE.—The term ‘‘Voluntary Offshore Compliance 
Initiative’’ means the program established by the De-
partment of the Treasury in January of 2003 under 
which any taxpayer was eligible to voluntarily dis-
close previously undisclosed income on assets placed 
in offshore accounts and accessed through credit card 
and other financial arrangements.
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(3) PARTICIPATION.—A taxpayer shall be treated 
as having participated in the Voluntary Offshore 
Compliance Initiative if the taxpayer submitted the 
request in a timely manner and all information re-
quested by the Secretary of the Treasury or his dele-
gate within a reasonable period of time following the 
request. 
(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. 
PART IV—ENRON-RELATED TAX SHELTER 
PROVISIONS 
SEC. 5641. LIMITATION ON TRANSFER OR IMPORTATION OF 
BUILT-IN LOSSES. 
(a) IN GENERAL.—Section 362 (relating to basis to 
corporations) is amended by adding at the end the following 
new subsection: 
‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.— 
‘‘(1) LIMITATION ON IMPORTATION OF BUILT-IN 
LOSSES.— 
‘‘(A) IN GENERAL.—If in any transaction 
described in subsection (a) or (b) there would
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(but for this subsection) be an importation of a 
net built-in loss, the basis of each property de-
scribed in subparagraph (B) which is acquired 
in such transaction shall (notwithstanding sub-
sections (a) and (b)) be its fair market value im-
mediately after such transaction. 
‘‘(B) PROPERTY DESCRIBED.—For purposes 
of subparagraph (A), property is described in 
this subparagraph if— 
‘‘(i) gain or loss with respect to such 
property is not subject to tax under this 
subtitle in the hands of the transferor imme-
diately before the transfer, and 
‘‘(ii) gain or loss with respect to such 
property is subject to such tax in the hands 
of the transferee immediately after such 
transfer. 
In any case in which the transferor is a partner-
ship, the preceding sentence shall be applied by 
treating each partner in such partnership as 
holding such partner’s proportionate share of the 
property of such partnership. 
‘‘(C) 
IMPORTATION
OF
NET
BUILT-IN 
LOSS.—For purposes of subparagraph (A), there 
is an importation of a net built-in loss in a
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transaction if the transferee’s aggregate adjusted 
bases of property described in subparagraph (B) 
which is transferred in such transaction would 
(but for this paragraph) exceed the fair market 
value of such property immediately after such 
transaction.’’. 
‘‘(2) LIMITATION
ON
TRANSFER
OF
BUILT-IN 
LOSSES IN SECTION 351 TRANSACTIONS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) property is transferred by a trans-
feror in any transaction which is described 
in subsection (a) and which is not described 
in paragraph (1) of this subsection, and 
‘‘(ii) the transferee’s aggregate adjusted 
bases of such property so transferred would 
(but for this paragraph) exceed the fair 
market value of such property immediately 
after such transaction, 
then, notwithstanding subsection (a), the trans-
feree’s aggregate adjusted bases of the property so 
transferred shall not exceed the fair market value 
of such property immediately after such trans-
action. 
‘‘(B) ALLOCATION OF BASIS REDUCTION.— 
The aggregate reduction in basis by reason of
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subparagraph (A) shall be allocated among the 
property so transferred in proportion to their re-
spective built-in losses immediately before the 
transaction. 
‘‘(C) EXCEPTION FOR TRANSFERS WITHIN 
AFFILIATED
GROUP.—Subparagraph (A) shall 
not apply to any transaction if the transferor 
owns stock in the transferee meeting the require-
ments of section 1504(a)(2). In the case of prop-
erty to which subparagraph (A) does not apply 
by reason of the preceding sentence, the trans-
feror’s basis in the stock received for such prop-
erty shall not exceed its fair market value imme-
diately after the transfer.’’. 
(b) COMPARABLE
TREATMENT
WHERE
LIQUIDA-
TION.—Paragraph (1) of section 334(b) (relating to liquida-
tion of subsidiary) is amended to read as follows: 
‘‘(1) IN GENERAL.—If property is received by a 
corporate distributee in a distribution in a complete 
liquidation to which section 332 applies (or in a 
transfer described in section 337(b)(1)), the basis of 
such property in the hands of such distributee shall 
be the same as it would be in the hands of the trans-
feror; except that the basis of such property in the
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HR 3550 EAS 
hands of such distributee shall be the fair market 
value of the property at the time of the distribution— 
‘‘(A) in any case in which gain or loss is 
recognized by the liquidating corporation with 
respect to such property, or 
‘‘(B) in any case in which the liquidating 
corporation is a foreign corporation, the cor-
porate distributee is a domestic corporation, and 
the corporate distributee’s aggregate adjusted 
bases 
of 
property 
described 
in 
section 
362(e)(1)(B) which is distributed in such liq-
uidation would (but for this subparagraph) ex-
ceed the fair market value of such property im-
mediately after such liquidation.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transactions after February 13, 2003. 
SEC. 5642. NO REDUCTION OF BASIS UNDER SECTION 734 IN 
STOCK 
HELD 
BY 
PARTNERSHIP 
IN 
COR-
PORATE 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 CORPORATE PARTNER.—In making an allocation under 
subsection (a) of any decrease in the adjusted basis of part-
nership property under section 734(b)—
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‘‘(1) no allocation may be made to stock in a 
corporation (or any person which is related (within 
the meaning of section 267(b) or 707(b)(1)) to such 
corporation) which is a partner in the partnership, 
and 
‘‘(2) any amount not allocable to stock by reason 
of paragraph (1) shall be allocated under subsection 
(a) to other partnership property in such manner as 
the Secretary may prescribe. 
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 ad-
justed basis of such other property immediately before the 
allocation required by paragraph (2).’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to distributions after February 13, 2003. 
SEC. 5643. 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’’.
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(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 be-
cause the specified principal amount of the regular 
interest (or the amount of interest accrued on the reg-
ular interest) can be reduced as a result of the non-
occurrence of 1 or more contingent payments with re-
spect 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 in-
terest 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 subparagraph (A)(iii)) shall be
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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 para-
graph (6), is amended by adding at the end the fol-
lowing new sentence: ‘‘For purposes of subparagraph 
(A), if more than 50 percent of the obligations trans-
ferred 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—
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‘‘(I) is attributable to an advance 
made to the obligor pursuant to the 
original terms of the obligation, 
‘‘(II) occurs after the startup day, 
and 
‘‘(III) is purchased by the REMIC 
pursuant to a fixed price contract in 
effect on the startup day.’’. 
(B) Section 860G(a)(7)(B) is amended to read as 
follows: 
‘‘(B) QUALIFIED RESERVE FUND.—For pur-
poses of subparagraph (A), the term ‘qualified 
reserve fund’ means any reasonably required re-
serve to— 
‘‘(i) provide for full payment of ex-
penses of the REMIC or amounts due on 
regular interests in the event of defaults on 
qualified mortgages or lower than expected 
returns on cash flow investments, or 
‘‘(ii) provide a source of funds for the 
purchase of obligations described in clause 
(ii) or (iii) of paragraph (3)(A). 
The aggregate fair market value of the assets held 
in any such reserve shall not exceed 50 percent 
of the aggregate fair market value of all of the
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assets of the REMIC on the startup day, and the 
amount of any such reserve shall be promptly 
and appropriately reduced to the extent the 
amount held in such reserve is no longer reason-
ably required for purposes specified in clause (i) 
or (ii) of paragraph (3)(A).’’. 
(9) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’. 
(10) Clause (xi) of section 7701(a)(19)(C) is 
amended— 
(A) by striking ‘‘and any regular interest in 
a FASIT,’’, and 
(B) by striking ‘‘or FASIT’’ each place it 
appears. 
(11) The table of parts for subchapter M of chap-
ter 1 is amended by striking the item relating to part 
V. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall 
take effect on February 14, 2003. 
(2) EXCEPTION
FOR
EXISTING
FASITS.—Para-
graph (1) shall not apply to any FASIT in existence 
on the date of the enactment of this Act to the extent
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that regular interests issued by the FASIT before such 
date continue to remain outstanding in accordance 
with the original terms of issuance. 
SEC. 5644. EXPANDED DISALLOWANCE OF DEDUCTION FOR 
INTEREST ON CONVERTIBLE DEBT. 
(a) IN GENERAL.—Paragraph (2) of section 163(l) is 
amended by striking ‘‘or a related party’’ and inserting ‘‘or 
equity held by the issuer (or any related party) in any other 
person’’. 
(b) CAPITALIZATION ALLOWED WITH RESPECT TO EQ-
UITY OF PERSONS OTHER THAN ISSUER AND RELATED 
PARTIES.—Section 163(l) is amended by redesignating 
paragraphs (4) and (5) as paragraphs (5) and (6) and by 
inserting after paragraph (3) the following new paragraph: 
‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT 
TO EQUITY OF PERSONS OTHER THAN ISSUER AND 
RELATED PARTIES.—If the disqualified debt instru-
ment of a corporation is payable in equity held by the 
issuer (or any related party) in any other person 
(other than a related party), the basis of such equity 
shall be increased by the amount not allowed as a de-
duction by reason of paragraph (1) with respect to 
the instrument.’’. 
(c) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED 
BY DEALERS IN SECURITIES.—Section 163(l), as amended
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by subsection (b), is amended by redesignating paragraphs 
(5) and (6) as paragraphs (6) and (7) and by inserting 
after paragraph (4) the following new paragraph: 
‘‘(5) EXCEPTION
FOR
CERTAIN
INSTRUMENTS 
ISSUED BY DEALERS IN SECURITIES.—For purposes 
of this subsection, the term ‘disqualified debt instru-
ment’ does not include indebtedness issued by a dealer 
in securities (or a related party) which is payable in, 
or by reference to, equity (other than equity of the 
issuer or a related party) held by such dealer in its 
capacity as a dealer in securities. For purposes of 
this paragraph, the term ‘dealer in securities’ has the 
meaning given such term by section 475.’’. 
(c) CONFORMING AMENDMENTS.—Paragraph (3) of 
section 163(l) is amended— 
(1) by striking ‘‘or a related party’’ in the mate-
rial preceding subparagraph (A) and inserting ‘‘or 
any other person’’, and 
(2) by striking ‘‘or interest’’ each place it ap-
pears. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to debt instruments issued after Feb-
ruary 13, 2003.
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SEC. 5645. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269. 
(a) IN GENERAL.—Subsection (a) of section 269 (relat-
ing to acquisitions made to evade or avoid income tax) is 
amended to read as follows: 
‘‘(a) IN GENERAL.—If— 
‘‘(1)(A) any person or persons acquire, directly 
or indirectly, control of a corporation, or 
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis 
of such property, in the hands of the acquiring cor-
poration, is determined by reference to the basis in 
the hands of the transferor corporation, and 
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal 
income tax, 
then the Secretary may disallow such deduction, credit, or 
other allowance. For purposes of paragraph (1)(A), control 
means the ownership of stock possessing at least 50 percent 
of the total combined voting power of all classes of stock 
entitled to vote or at least 50 percent of the total value of 
all shares of all classes of stock of the corporation.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to stock and property acquired after 
February 13, 2003.
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SEC. 5646. MODIFICATION OF INTERACTION BETWEEN SUB-
PART F AND PASSIVE FOREIGN INVESTMENT 
COMPANY RULES. 
(a) LIMITATION ON EXCEPTION FROM PFIC RULES 
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED 
FOREIGN
CORPORATIONS.—Paragraph (2) of section 
1297(e) (relating to passive foreign investment company) 
is amended by adding at the end the following flush sen-
tence: 
‘‘Such term shall not include any period if the 
earning of subpart F income by such corporation 
during such period would result in only a remote 
likelihood of an inclusion in gross income under 
section 951(a)(1)(A)(i).’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years of controlled foreign cor-
porations beginning after February 13, 2003, and to tax-
able years of United States shareholders with or within 
which such taxable years of controlled foreign corporations 
end.
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PART V—PROVISIONS TO DISCOURAGE 
EXPATRIATION 
SEC. 5651. TAX TREATMENT OF INVERTED CORPORATE EN-
TITIES. 
(a) IN GENERAL.—Subchapter C of chapter 80 (relat-
ing to provisions affecting more than one subtitle) is 
amended by adding at the end the following new section: 
‘‘SEC. 7874. RULES RELATING TO INVERTED CORPORATE 
ENTITIES. 
‘‘(a) INVERTED CORPORATIONS TREATED AS DOMES-
TIC CORPORATIONS.— 
‘‘(1) IN GENERAL.—If a foreign incorporated en-
tity is treated as an inverted domestic corporation, 
then, notwithstanding section 7701(a)(4), such entity 
shall be treated for purposes of this title as a domestic 
corporation. 
‘‘(2) INVERTED
DOMESTIC
CORPORATION.—For 
purposes of this section, a foreign incorporated entity 
shall be treated as an inverted domestic corporation 
if, pursuant to a plan (or a series of related trans-
actions)— 
‘‘(A) the entity completes after March 20, 
2002, the direct or indirect acquisition of sub-
stantially all of the properties held directly or 
indirectly by a domestic corporation or substan-
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HR 3550 EAS 
tially all of the properties constituting a trade or 
business of a domestic partnership, 
‘‘(B) after the acquisition at least 80 per-
cent 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 cor-
poration, or 
‘‘(ii) in the case of an acquisition with 
respect to a domestic partnership, by former 
partners of the domestic partnership by rea-
son of holding a capital or profits interest 
in the domestic partnership, and 
‘‘(C) the expanded affiliated group which 
after the acquisition includes the entity does not 
have substantial 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 activities of such expanded af-
filiated group. 
Except as provided in regulations, an acquisition of 
properties of a domestic corporation shall not be 
treated as described in subparagraph (A) if none of
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HR 3550 EAS 
the corporation’s stock was readily tradeable on an es-
tablished securities market at any time during the 4- 
year period ending on the date of the acquisition. 
‘‘(b) PRESERVATION OF DOMESTIC TAX BASE IN CER-
TAIN INVERSION TRANSACTIONS TO WHICH SUBSECTION 
(a) DOES NOT APPLY.— 
‘‘(1) IN GENERAL.—If a foreign incorporated en-
tity would be treated as an inverted domestic corpora-
tion with respect to an acquired entity if either— 
‘‘(A) subsection (a)(2)(A) were applied by 
substituting ‘after December 31, 1996, and on or 
before March 20, 2002’ for ‘after March 20, 2002’ 
and subsection (a)(2)(B) were applied by sub-
stituting ‘more than 50 percent’ for ‘at least 80 
percent’, or 
‘‘(B) subsection (a)(2)(B) were applied by 
substituting ‘more than 50 percent’ for ‘at least 
80 percent’, 
then the rules of subsection (c) shall apply to any in-
version gain of the acquired entity during the appli-
cable period and the rules of subsection (d) shall 
apply to any related party transaction of the ac-
quired entity during the applicable period. This sub-
section shall not apply for any taxable year if sub-
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section (a) applies to such foreign incorporated entity 
for such taxable year. 
‘‘(2) ACQUIRED ENTITY.—For purposes of this 
section— 
‘‘(A) IN GENERAL.—The term ‘acquired en-
tity’ means the domestic corporation or partner-
ship substantially all of the properties of which 
are directly or indirectly acquired in an acquisi-
tion described in subsection (a)(2)(A) to which 
this subsection applies. 
‘‘(B) AGGREGATION RULES.—Any domestic 
person bearing a relationship described in sec-
tion 267(b) or 707(b) to an acquired entity shall 
be treated as an acquired entity with respect to 
the acquisition described in subparagraph (A). 
‘‘(3) APPLICABLE PERIOD.—For purposes of this 
section— 
‘‘(A) IN
GENERAL.—The term ‘applicable 
period’ means the period— 
‘‘(i) beginning on the first date prop-
erties are acquired as part of the acquisi-
tion described in subsection (a)(2)(A) to 
which this subsection applies, and
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HR 3550 EAS 
‘‘(ii) ending on the date which is 10 
years after the last date properties are ac-
quired as part of such acquisition. 
‘‘(B) SPECIAL RULE FOR INVERSIONS OC-
CURRING BEFORE MARCH 21, 2002.—In the case 
of any acquired entity to which paragraph 
(1)(A) applies, the applicable period shall be the 
10-year period beginning on January 1, 2003. 
‘‘(c) TAX ON INVERSION GAINS MAY NOT BE OFF-
SET.—If subsection (b) applies— 
‘‘(1) IN GENERAL.—The taxable income of an ac-
quired entity (or any expanded affiliated group which 
includes such entity) for any taxable year which in-
cludes any portion of the applicable period shall in 
no event be less than the inversion gain of the entity 
for the taxable year. 
‘‘(2) CREDITS NOT ALLOWED AGAINST TAX ON IN-
VERSION GAIN.—Credits shall be allowed against the 
tax imposed by this chapter on an acquired entity for 
any taxable year described in paragraph (1) 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 sec-
tion 11(b)(1).
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For purposes of determining the credit allowed by sec-
tion 901 inversion gain shall be treated as from 
sources within the United States. 
‘‘(3) SPECIAL RULES FOR PARTNERSHIPS.—In 
the case of an acquired entity which is a partner-
ship— 
‘‘(A) the limitations of this subsection 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) income or gain required to be rec-
ognized for the taxable year by the partner 
under section 367(a), 741, or 1001, or 
under any other provision of chapter 1, by 
reason of the transfer during the applicable 
period of any partnership interest of the 
partner in such partnership to the foreign 
incorporated entity, and 
‘‘(C) the highest rate of tax specified in the 
rate schedule applicable to the partner under
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chapter 1 shall be substituted for the rate of tax 
under paragraph (2)(B). 
‘‘(4) INVERSION GAIN.—For purposes of this sec-
tion, the term ‘inversion gain’ means any income or 
gain required to be recognized under section 304, 
311(b), 367, 1001, or 1248, or under any other provi-
sion of chapter 1, by reason of the transfer during the 
applicable period of stock or other properties by an 
acquired entity— 
‘‘(A) as part of the acquisition described in 
subsection (a)(2)(A) to which subsection (b) ap-
plies, or 
‘‘(B) after such acquisition to a foreign re-
lated person. 
The Secretary may provide that income or gain from 
the sale of inventories or other transactions in the or-
dinary course of a trade or business shall not be treat-
ed as inversion gain under subparagraph (B) to the 
extent the Secretary determines such treatment would 
not be inconsistent with the purposes of this section. 
‘‘(5) COORDINATION WITH SECTION 172 AND MIN-
IMUM TAX.—Rules similar to the rules of paragraphs 
(3) and (4) of section 860E(a) shall apply for pur-
poses of this section. 
‘‘(6) STATUTE OF LIMITATIONS.—
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HR 3550 EAS 
‘‘(A) IN
GENERAL.—The statutory period 
for the assessment of any deficiency attributable 
to the inversion gain of any taxpayer for any 
pre-inversion year shall not expire before the ex-
piration 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)(A) to which such 
gain relates and such deficiency may be assessed 
before the expiration of such 3-year period not-
withstanding the provisions of any other law or 
rule of law which would otherwise prevent such 
assessment. 
‘‘(B) PRE-INVERSION YEAR.—For purposes 
of subparagraph (A), the term ‘pre-inversion 
year’ means any taxable year if— 
‘‘(i) any portion of the applicable pe-
riod is included in such taxable year, and 
‘‘(ii) such year ends before the taxable 
year in which the acquisition described in 
subsection (a)(2)(A) is completed. 
‘‘(d) SPECIAL RULES APPLICABLE TO ACQUIRED EN-
TITIES TO WHICH SUBSECTION (B) APPLIES.—
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HR 3550 EAS 
‘‘(1) INCREASES
IN
ACCURACY-RELATED
PEN-
ALTIES.—In the case of any underpayment of tax of 
an acquired entity to which subsection (b) applies— 
‘‘(A) section 6662(a) shall be applied with 
respect to such underpayment by substituting ‘30 
percent’ for ‘20 percent’, and 
‘‘(B) if such underpayment is attributable 
to one or more gross valuation understatements, 
the increase in the rate of penalty under section 
6662(h) shall be to 50 percent rather than 40 
percent. 
‘‘(2) MODIFICATIONS OF LIMITATION ON INTER-
EST DEDUCTION.—In the case of an acquired entity 
to which subsection (b) applies, section 163(j) shall be 
applied— 
‘‘(A) without regard to paragraph (2)(A)(ii) 
thereof, and 
‘‘(B) by substituting ‘25 percent’ for ‘50 
percent’ each place it appears in paragraph 
(2)(B) thereof. 
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For 
purposes of this section— 
‘‘(1) RULES FOR APPLICATION OF SUBSECTION 
(a)(2).—In applying subsection (a)(2) for purposes of
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HR 3550 EAS 
subsections (a) and (b), the following rules shall 
apply: 
‘‘(A) 
CERTAIN
STOCK
DISREGARDED.— 
There shall not be taken into account in deter-
mining ownership for purposes of subsection 
(a)(2)(B)— 
‘‘(i) stock held by members of the ex-
panded affiliated group which includes the 
foreign incorporated entity, or 
‘‘(ii) stock of such entity which is sold 
in a public offering or private placement re-
lated to the acquisition described in sub-
section (a)(2)(A). 
‘‘(B) PLAN DEEMED IN CERTAIN CASES.—If 
a foreign incorporated entity acquires directly or 
indirectly substantially all of the properties of a 
domestic corporation or partnership during the 
4-year period beginning on the date which is 2 
years before the ownership requirements of sub-
section (a)(2)(B) are met with respect to such do-
mestic corporation or partnership, such actions 
shall be treated as pursuant to a plan. 
‘‘(C) CERTAIN TRANSFERS DISREGARDED.— 
The transfer of properties or liabilities (includ-
ing by contribution or distribution) shall be dis-
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HR 3550 EAS 
regarded if such transfers are part of a plan a 
principal purpose of which is to avoid the pur-
poses of this section. 
‘‘(D) SPECIAL RULE FOR RELATED PART-
NERSHIPS.—For purposes of applying subsection 
(a)(2) to the acquisition of a domestic partner-
ship, except as provided in regulations, all part-
nerships which are under common control (with-
in the meaning of section 482) shall be treated 
as 1 partnership. 
‘‘(E) TREATMENT
OF
CERTAIN
RIGHTS.— 
The Secretary shall prescribe such regulations as 
may be necessary— 
‘‘(i) to treat warrants, options, con-
tracts to acquire stock, convertible debt in-
struments, and other similar interests as 
stock, and 
‘‘(ii) to treat stock as not stock. 
‘‘(2) 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.
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HR 3550 EAS 
‘‘(3) FOREIGN
INCORPORATED
ENTITY.—The 
term ‘foreign incorporated entity’ means any entity 
which is, or but for subsection (a)(1) would be, treated 
as a foreign corporation for purposes of this title. 
‘‘(4) FOREIGN RELATED PERSON.—The term ‘for-
eign related person’ means, with respect to any ac-
quired entity, a foreign person which— 
‘‘(A) bears a relationship to such entity de-
scribed in section 267(b) or 707(b), or 
‘‘(B) is under the same common control 
(within the meaning of section 482) as such enti-
ty. 
‘‘(5) SUBSEQUENT ACQUISITIONS BY UNRELATED 
DOMESTIC CORPORATIONS.— 
‘‘(A) IN GENERAL.—Subject to such condi-
tions, limitations, and exceptions as the Sec-
retary may prescribe, if, after an acquisition de-
scribed in subsection (a)(2)(A) to which sub-
section (b) applies, a domestic corporation stock 
of which is traded on an established securities 
market acquires directly or indirectly any prop-
erties of one or more acquired entities in a 
transaction with respect to which the require-
ments of subparagraph (B) are met, this section
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HR 3550 EAS 
shall cease to apply to any such acquired entity 
with respect to which such requirements are met. 
‘‘(B) REQUIREMENTS.—The requirements of 
the subparagraph are met with respect to a 
transaction involving any acquisition described 
in subparagraph (A) if— 
‘‘(i) before such transaction the domes-
tic corporation did not have a relationship 
described in section 267(b) or 707(b), and 
was not under common control (within the 
meaning of section 482), with the acquired 
entity, or any member of an expanded af-
filiated group including such entity, and 
‘‘(ii) after such transaction, such ac-
quired entity— 
‘‘(I) is a member of the same ex-
panded affiliated group which includes 
the domestic corporation or has such a 
relationship or is under such common 
control with any member of such 
group, and 
‘‘(II) is not a member of, and does 
not have such a relationship and is not 
under such common control with any 
member of, the expanded affiliated
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HR 3550 EAS 
group which before such acquisition in-
cluded such entity. 
‘‘(f) REGULATIONS.—The Secretary shall provide such 
regulations as are necessary to carry out this section, in-
cluding regulations providing for such adjustments to the 
application of this section 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-thru or other 
noncorporate 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) INFORMATION REPORTING.—The Secretary of the 
Treasury shall exercise the Secretary’s authority under the 
Internal Revenue Code of 1986 to require entities involved 
in transactions to which section 7874 of such Code (as 
added by subsection (a)) applies to report to the Secretary, 
shareholders, partners, and such other persons as the Sec-
retary may prescribe such information as is necessary to 
ensure the proper tax treatment of such transactions. 
(c) CONFORMING AMENDMENT.—The table of sections 
for subchapter C of chapter 80 is amended by adding at 
the end the following new item: 
‘‘Sec. 7874. Rules relating to inverted corporate entities.’’.
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HR 3550 EAS 
(d) TRANSITION RULE FOR CERTAIN REGULATED IN-
VESTMENT COMPANIES AND UNIT INVESTMENT TRUSTS.— 
Notwithstanding section 7874 of the Internal Revenue Code 
of 1986 (as added by subsection (a)), a regulated investment 
company, or other pooled fund or trust specified by the Sec-
retary of the Treasury, may elect to recognize gain by rea-
son of section 367(a) of such Code with respect to a trans-
action under which a foreign incorporated entity is treated 
as an inverted domestic corporation under section 7874(a) 
of such Code by reason of an acquisition completed after 
March 20, 2002, and before January 1, 2004. 
SEC. 5652. IMPOSITION OF MARK-TO-MARKET TAX ON INDI-
VIDUALS WHO EXPATRIATE. 
(a) IN GENERAL.—Subpart A of part II of subchapter 
N of chapter 1 is amended by inserting after section 877 
the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—Except as provided in 
subsections (d) and (f), all property of a covered expa-
triate to whom this section applies shall be treated as 
sold on the day before the expatriation date for its 
fair market value.
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HR 3550 EAS 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(A) notwithstanding any other provision of 
this title, any gain arising from such sale shall 
be taken into account for the taxable year of the 
sale, and 
‘‘(B) any loss arising from such sale shall 
be taken into account for the taxable year of the 
sale to the extent otherwise provided by this title, 
except that section 1091 shall not apply to any 
such loss. 
Proper adjustment shall be made in the amount of 
any gain or loss subsequently realized for gain or loss 
taken into account under the preceding sentence. 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN GENERAL.—The amount which, but 
for this paragraph, would be includible in the 
gross income of any individual by reason of this 
section shall be reduced (but not below zero) by 
$600,000. For purposes of this paragraph, allo-
cable expatriation gain taken into account under 
subsection (f)(2) shall be treated in the same 
manner as an amount required to be includible 
in gross income. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
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HR 3550 EAS 
‘‘(i) IN GENERAL.—In the case of an 
expatriation date occurring in any calendar 
year after 2004, the $600,000 amount under 
subparagraph (A) shall be increased by an 
amount equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjustment 
determined under section 1(f)(3) for 
such calendar year, determined by sub-
stituting ‘calendar year 2003’ for ‘cal-
endar year 1992’ in subparagraph (B) 
thereof. 
‘‘(ii) 
ROUNDING
RULES.—If 
any 
amount after adjustment under clause (i) is 
not a multiple of $1,000, such amount shall 
be rounded to the next lower multiple of 
$1,000. 
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS 
UNITED STATES CITIZEN.— 
‘‘(A) IN GENERAL.—If a covered expatriate 
elects the application of this paragraph— 
‘‘(i) this section (other than this para-
graph and subsection (i)) shall not apply to 
the expatriate, but
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HR 3550 EAS 
‘‘(ii) in the case of property to which 
this section would apply but for such elec-
tion, the expatriate shall be subject to tax 
under this title in the same manner as if 
the individual were a United States citizen. 
‘‘(B) REQUIREMENTS.—Subparagraph (A) 
shall not apply to an individual unless the indi-
vidual— 
‘‘(i) provides security for payment of 
tax in such form and manner, and in such 
amount, as the Secretary may require, 
‘‘(ii) consents to the waiver of any 
right of the individual under any treaty of 
the United States which would preclude as-
sessment or collection of any tax which may 
be imposed by reason of this paragraph, 
and 
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe. 
‘‘(C) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to 
which this section would apply but for the elec-
tion and, once made, shall be irrevocable. Such 
election shall also apply to property the basis of 
which is determined in whole or in part by ref-
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HR 3550 EAS 
erence to the property with respect to which the 
election was made. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty treated as sold by reason of subsection (a), the 
payment of the additional tax attributable to such 
property shall be postponed until the due date of the 
return for the taxable year in which such property is 
disposed of (or, in the case of property disposed of in 
a transaction in which gain is not recognized in 
whole or in part, until such other date as the Sec-
retary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT TO 
PROPERTY.—For purposes of paragraph (1), the addi-
tional tax attributable to any property is an amount 
which bears the same ratio to the additional tax im-
posed by this chapter for the taxable year solely by 
reason of subsection (a) as the gain taken into ac-
count under subsection (a) with respect to such prop-
erty bears to the total gain taken into account under 
subsection (a) with respect to all property to which 
subsection (a) applies. 
‘‘(3) TERMINATION OF POSTPONEMENT.—No tax 
may be postponed under this subsection later than the
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HR 3550 EAS 
due date for the return of tax imposed by this chapter 
for the taxable year which includes the date of death 
of the expatriate (or, if earlier, the time that the secu-
rity provided with respect to the property fails to 
meet the requirements of paragraph (4), unless the 
taxpayer corrects such failure within the time speci-
fied by the Secretary). 
‘‘(4) SECURITY.— 
‘‘(A) IN
GENERAL.—No election may be 
made under paragraph (1) with respect to any 
property unless adequate security is provided to 
the Secretary with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
any property shall be treated as adequate secu-
rity if— 
‘‘(i) it is a bond in an amount equal 
to the deferred tax amount under paragraph 
(2) for the property, or 
‘‘(ii) the taxpayer otherwise establishes 
to the satisfaction of the Secretary that the 
security is adequate. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election 
may be made under paragraph (1) unless the tax-
payer consents to the waiver of any right under any
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treaty of the United States which would preclude as-
sessment or collection of any tax imposed by reason 
of this section. 
‘‘(6) ELECTIONS.—An election under paragraph 
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may 
be made under paragraph (1) with respect to an in-
terest in a trust with respect to which gain is re-
quired to be recognized under subsection (f)(1). 
‘‘(7) INTEREST.—For purposes of section 6601— 
‘‘(A) the last date for the payment of tax 
shall be determined without regard to the election 
under this subsection, and 
‘‘(B) section 6621(a)(2) shall be applied by 
substituting ‘5 percentage points’ for ‘3 percent-
age points’ in subparagraph (B) thereof. 
‘‘(c) COVERED EXPATRIATE.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘covered expatriate’ means an ex-
patriate. 
‘‘(2) EXCEPTIONS.—An individual shall not be 
treated as a covered expatriate if— 
‘‘(A) the individual—
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‘‘(i) became at birth a citizen of the 
United States and a citizen of another 
country and, as of the expatriation date, 
continues to be a citizen of, and is taxed as 
a resident of, such other country, and 
‘‘(ii) has not been a resident of the 
United States (as defined in section 
7701(b)(1)(A)(ii)) during the 5 taxable 
years ending with the taxable year during 
which the expatriation date occurs, or 
‘‘(B)(i) the individual’s relinquishment of 
United States citizenship occurs before such indi-
vidual attains age 181⁄2, and 
‘‘(ii) the individual has been a resident of 
the United States (as so defined) for not more 
than 5 taxable years before the date of relin-
quishment. 
‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN-
SION PLANS.— 
‘‘(1) EXEMPT PROPERTY.—This section shall not 
apply to the following: 
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other 
than stock of a United States real property hold-
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ing corporation which does not, on the day before 
the expatriation date, meet the requirements of 
section 897(c)(2). 
‘‘(B) SPECIFIED PROPERTY.—Any property 
or interest in property not described in subpara-
graph (A) which the Secretary specifies in regu-
lations. 
‘‘(2) SPECIAL RULES FOR CERTAIN RETIREMENT 
PLANS.— 
‘‘(A) IN GENERAL.—If a covered expatriate 
holds on the day before the expatriation date any 
interest in a retirement plan to which this para-
graph applies— 
‘‘(i) such interest shall not be treated 
as sold for purposes of subsection (a)(1), but 
‘‘(ii) an amount equal to the present 
value of the expatriate’s nonforfeitable ac-
crued benefit shall be treated as having been 
received by such individual on such date as 
a distribution under the plan. 
‘‘(B) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS.—In the case of any distribution on 
or after the expatriation date to or on behalf of 
the covered expatriate from a plan from which 
the expatriate was treated as receiving a dis-
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tribution under subparagraph (A), the amount 
otherwise includible in gross income by reason of 
the subsequent distribution shall be reduced by 
the excess of the amount includible in gross in-
come under subparagraph (A) over any portion 
of such amount to which this subparagraph pre-
viously applied. 
‘‘(C) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS BY PLAN.—For purposes of this title, 
a retirement plan to which this paragraph ap-
plies, and any person acting on the plan’s behalf, 
shall treat any subsequent distribution described 
in subparagraph (B) in the same manner as 
such distribution would be treated without re-
gard to this paragraph. 
‘‘(D) APPLICABLE PLANS.—This paragraph 
shall apply to— 
‘‘(i) any qualified retirement plan (as 
defined in section 4974(c)), 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an el-
igible 
employer 
described 
in 
section 
457(e)(1)(A), and
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‘‘(iii) to the extent provided in regula-
tions, any foreign pension plan or similar 
retirement arrangements or programs. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’ 
means— 
‘‘(A) any United States citizen who relin-
quishes citizenship, and 
‘‘(B) any long-term resident of the United 
States who— 
‘‘(i) ceases to be a lawful permanent 
resident of the United States (within the 
meaning of section 7701(b)(6)), or 
‘‘(ii) commences to be treated as a resi-
dent of a foreign country under the provi-
sions of a tax treaty between the United 
States and the foreign country and who 
does not waive the benefits of such treaty 
applicable to residents of the foreign coun-
try. 
‘‘(2) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means— 
‘‘(A) the date an individual relinquishes 
United States citizenship, or
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‘‘(B) in the case of a long-term resident of 
the United States, the date of the event described 
in clause (i) or (ii) of paragraph (1)(B). 
‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A cit-
izen shall be treated as relinquishing United States 
citizenship on the earliest of— 
‘‘(A) the date the individual renounces such 
individual’s United States nationality before a 
diplomatic or consular officer of the United 
States pursuant to paragraph (5) of section 
349(a) of the Immigration and Nationality Act 
(8 U.S.C. 1481(a)(5)), 
‘‘(B) the date the individual furnishes to the 
United States Department of State a signed 
statement of voluntary relinquishment of United 
States nationality confirming the performance of 
an act of expatriation specified in paragraph 
(1), (2), (3), or (4) of section 349(a) of the Im-
migration and Nationality Act (8 U.S.C. 
1481(a)(1)–(4)), 
‘‘(C) the date the United States Department 
of State issues to the individual a certificate of 
loss of nationality, or
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‘‘(D) the date a court of the United States 
cancels a naturalized citizen’s certificate of natu-
ralization. 
Subparagraph (A) or (B) shall not apply to any in-
dividual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance to 
the individual of a certificate of loss of nationality by 
the United States Department of State. 
‘‘(4) LONG-TERM
RESIDENT.—The term ‘long- 
term resident’ has the meaning given to such term by 
section 877(e)(2). 
‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’ 
INTERESTS IN TRUST.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust on the day 
before the expatriation date— 
‘‘(A) the individual shall not be treated as 
having sold such interest, 
‘‘(B) such interest shall be treated as a sep-
arate share in the trust, and 
‘‘(C)(i) such separate share shall be treated 
as a separate trust consisting of the assets allo-
cable to such share,
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‘‘(ii) the separate trust shall be treated as 
having sold its assets on the day before the expa-
triation date for their fair market value and as 
having distributed all of its assets to the indi-
vidual as of such time, and 
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate trust. 
Subsection (a)(2) shall apply to any income, gain, or 
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii). In determining the 
amount of such distribution, proper adjustments shall 
be made for liabilities of the trust allocable to an in-
dividual’s share in the trust. 
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.— 
‘‘(A) IN GENERAL.—If the trust interest de-
scribed in paragraph (1) is an interest in a 
qualified trust— 
‘‘(i) paragraph (1) and subsection (a) 
shall not apply, and 
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed 
on each distribution with respect to such in-
terest a tax in the amount determined 
under subparagraph (B).
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‘‘(B) AMOUNT OF TAX.—The amount of tax 
under subparagraph (A)(ii) shall be equal to the 
lesser of— 
‘‘(i) the highest rate of tax imposed by 
section 1(e) for the taxable year which in-
cludes the day before the expatriation date, 
multiplied by the amount of the distribu-
tion, or 
‘‘(ii) the balance in the deferred tax ac-
count immediately before the distribution 
determined without regard to any increases 
under subparagraph (C)(ii) after the 30th 
day preceding the distribution. 
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)— 
‘‘(i) OPENING BALANCE.—The opening 
balance in a deferred tax account with re-
spect to any trust interest is an amount 
equal to the tax which would have been im-
posed on the allocable expatriation gain 
with respect to the trust interest if such 
gain had been included in gross income 
under subsection (a). 
‘‘(ii) INCREASE
FOR
INTEREST.—The 
balance in the deferred tax account shall be
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HR 3550 EAS 
increased by the amount of interest deter-
mined (on the balance in the account at the 
time the interest accrues), for periods after 
the 90th day after the expatriation date, by 
using the rates and method applicable 
under section 6621 for underpayments of 
tax for such periods, except that section 
6621(a)(2) shall be applied by substituting 
‘5 percentage points’ for ‘3 percentage 
points’ in subparagraph (B) thereof. 
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced— 
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any dis-
tribution to the person holding the 
trust interest, and 
‘‘(II) in the case of a person hold-
ing a nonvested interest, to the extent 
provided in regulations, by the amount 
of taxes imposed by subparagraph (A) 
on distributions from the trust with re-
spect to nonvested interests not held by 
such person.
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‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For 
purposes of this paragraph, the allocable expa-
triation gain with respect to any beneficiary’s 
interest in a trust is the amount of gain which 
would be allocable to such beneficiary’s vested 
and nonvested interests in the trust if the bene-
ficiary held directly all assets allocable to such 
interests. 
‘‘(E) TAX DEDUCTED AND WITHHELD.— 
‘‘(i) IN GENERAL.—The tax imposed by 
subparagraph (A)(ii) shall be deducted and 
withheld by the trustees from the distribu-
tion to which it relates. 
‘‘(ii) EXCEPTION WHERE FAILURE TO 
WAIVE TREATY RIGHTS.—If an amount may 
not be deducted and withheld under clause 
(i) by reason of the distributee failing to 
waive any treaty right with respect to such 
distribution— 
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the 
trust and each trustee shall be person-
ally liable for the amount of such tax, 
and
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‘‘(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-
triate or the estate the amount of such tax im-
posed on the other beneficiary.
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HR 3550 EAS 
‘‘(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. 
‘‘(v) COORDINATION WITH RETIREMENT 
PLAN
RULES.—This subsection shall not
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HR 3550 EAS 
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. 
‘‘(ii) TAXPAYER RETURN POSITION.—A 
taxpayer shall clearly indicate on its in-
come tax return—
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‘‘(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.— 
‘‘(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
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HR 3550 EAS 
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-
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-
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HR 3550 EAS 
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 
subsection as if it were a lien imposed by section 
6324A.
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‘‘(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) IN GENERAL.—Subsection (a) shall not ex-
clude from gross income the value of any property ac-
quired by gift, bequest, devise, or inheritance from a 
covered expatriate after the expatriation date. For 
purposes of this subsection, any term used in this sub-
section which is also used in section 877A shall have 
the same meaning as when used in section 877A. 
‘‘(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
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HR 3550 EAS 
‘‘(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.’’. 
(c) DEFINITION OF TERMINATION OF UNITED STATES 
CITIZENSHIP.—Section 7701(a) is amended by adding at 
the end the following new paragraph: 
‘‘(48) 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.’’.
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HR 3550 EAS 
(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 
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).’’. 
(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: 
‘‘(19) 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-
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HR 3550 EAS 
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.— 
(i) TECHNICAL
AMENDMENTS.—Para-
graph (4) of section 6103(p) of the Internal 
Revenue Code of 1986, as amended by sec-
tion 202(b)(2)(B) of the Trade Act of 2002 
(Public Law 107–210; 116 Stat. 961), is 
amended by striking ‘‘or (17)’’ after ‘‘any 
other person described in subsection (l)(16)’’ 
each place it appears and inserting ‘‘or 
(18)’’. 
(ii) CONFORMING AMENDMENTS.—Sec-
tion 6103(p)(4) (relating to safeguards), as 
amended by clause (i), is amended by strik-
ing ‘‘or (18)’’ after ‘‘any other person de-
scribed in subsection (l)(16)’’ each place it 
appears and inserting ‘‘(18), or (19)’’. 
(3) EFFECTIVE DATES.— 
(A) IN GENERAL.—Except as provided in 
subparagraph (B), the amendments made by this 
subsection shall apply to individuals who relin-
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HR 3550 EAS 
quish United States citizenship on or after the 
date of the enactment of this Act. 
(B) 
TECHNICAL
AMENDMENTS.—The 
amendments made by paragraph (2)(B)(i) shall 
take effect as if included in the amendments 
made by section 202(b)(2)(B) of the Trade Act of 
2002 (Public Law 107–210; 116 Stat. 961). 
(e) CONFORMING AMENDMENTS.— 
(1) Section 877 is amended by adding at the end 
the following new subsection: 
‘‘(g) 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 February 2, 
2004.’’. 
(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: 
‘‘(F) APPLICATION.—This paragraph shall 
not apply to any expatriate subject to section 
877A.’’. 
(4)(A) Paragraph (1) of section 6039G(d) is 
amended by inserting ‘‘or 877A’’ after ‘‘section 877’’.
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HR 3550 EAS 
(B) The second sentence of section 6039G(e) is 
amended by inserting ‘‘or who relinquishes United 
States citizenship (within the meaning of section 
877A(e)(3))’’ after ‘‘877(a))’’. 
(C) Section 6039G(f) is amended by inserting 
‘‘or 877A(e)(2)(B)’’ after ‘‘877(e)(1)’’. 
(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 February 2, 2004. 
(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 February 2, 2004, from an individual or 
the estate of an individual whose expatriation 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
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HR 3550 EAS 
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. 
SEC. 5653. EXCISE TAX ON STOCK COMPENSATION OF IN-
SIDERS IN INVERTED CORPORATIONS. 
(a) IN GENERAL.—Subtitle D is amended by adding 
at the end the following new chapter: 
‘‘CHAPTER 48—STOCK COMPENSATION OF 
INSIDERS IN INVERTED CORPORATIONS 
‘‘Sec. 5000A. Stock compensation of insiders in inverted corporations entities. 
‘‘SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN IN-
VERTED CORPORATIONS. 
‘‘(a) IMPOSITION OF TAX.—In the case of an indi-
vidual who is a disqualified individual with respect to any 
inverted corporation, there is hereby imposed on such per-
son a tax equal to 20 percent of the value (determined under 
subsection (b)) of the specified stock compensation held (di-
rectly or indirectly) by or for the benefit of such individual 
or a member of such individual’s family (as defined in sec-
tion 267) at any time during the 12-month period begin-
ning on the date which is 6 months before the inversion 
date. 
‘‘(b) VALUE.—For purposes of subsection (a)— 
‘‘(1) IN GENERAL.—The value of specified stock 
compensation shall be—
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HR 3550 EAS 
‘‘(A) in the case of a stock option (or other 
similar right) or any 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 de-
termination of value shall be made— 
‘‘(A) in the case of specified stock compensa-
tion held on the inversion date, on such date, 
‘‘(B) in the case of such compensation which 
is canceled during the 6 months before the inver-
sion date, on the day before such cancellation, 
and 
‘‘(C) in the case of such compensation which 
is granted after the inversion date, on the date 
such compensation is granted. 
‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN 
RECOGNIZED.—Subsection (a) shall apply to any disquali-
fied individual with respect to an inverted corporation only 
if gain (if any) on any stock in such corporation is recog-
nized in whole or part by any shareholder by reason of the 
acquisition referred to in section 7874(a)(2)(A) (determined 
by substituting ‘July 10, 2002’ for ‘March 20, 2002’) with 
respect to such corporation.
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‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON COM-
PENSATION.—Subsection (a) shall not apply to— 
‘‘(1) any stock option which is exercised on the 
inversion 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 inversion date with respect to the stock acquired 
pursuant to such exercise, and 
‘‘(2) any specified stock compensation which is 
exercised, sold, exchanged, distributed, cashed out, or 
otherwise paid during such period in a transaction in 
which gain or loss is recognized in full. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) DISQUALIFIED INDIVIDUAL.—The term ‘dis-
qualified individual’ means, with respect to a cor-
poration, any individual who, at any time during the 
12-month period beginning on the date which is 6 
months before the inversion date— 
‘‘(A) is subject to the requirements of section 
16(a) of the Securities Exchange Act of 1934 
with respect to such corporation, or 
‘‘(B) would be subject to such requirements 
if such corporation were an issuer of equity secu-
rities referred to in such section.
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‘‘(2) 
INVERTED
CORPORATION; 
INVERSION 
DATE.— 
‘‘(A) INVERTED
CORPORATION.—The term 
‘inverted corporation’ means any corporation to 
which subsection (a) or (b) of section 7874 ap-
plies determined— 
‘‘(i) by substituting ‘July 10, 2002’ for 
‘March 20, 2002’ in section 7874(a)(2)(A), 
and 
‘‘(ii) without regard to subsection 
(b)(1)(A). 
Such term includes any predecessor or successor 
of such a corporation. 
‘‘(B) INVERSION
DATE.—The term ‘inver-
sion date’ means, with respect to a corporation, 
the date on which the corporation first becomes 
an inverted corporation. 
‘‘(3) SPECIFIED STOCK COMPENSATION.— 
‘‘(A) IN
GENERAL.—The term ‘specified 
stock compensation’ means payment (or right to 
payment) granted by the inverted corporation 
(or by any member of the expanded affiliated 
group which includes such corporation) to any 
person in connection with the performance of 
services by a disqualified individual for such cor-
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poration 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 in-
clude— 
‘‘(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 sec-
tion 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. 
‘‘(f) SPECIAL RULES.—For purposes of this section— 
‘‘(1) CANCELLATION OF RESTRICTION.—The can-
cellation 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 COM-
PENSATION.—Any payment of the tax imposed by this 
section directly or indirectly by the inverted corpora-
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tion or by any member of the expanded affiliated 
group which includes such corporation— 
‘‘(A) shall be treated as specified stock com-
pensation, and 
‘‘(B) shall not be allowed as a deduction 
under any provision of chapter 1. 
‘‘(3) CERTAIN RESTRICTIONS IGNORED.—Wheth-
er there is specified stock compensation, and the value 
thereof, shall be determined without regard to any re-
striction 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 sec-
tion shall be treated as a tax imposed by subtitle A. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations 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 ‘‘48,’’ after ‘‘46,’’.
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(2) $1,000,000 LIMIT
ON
DEDUCTIBLE
COM-
PENSATION 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 re-
spect to any covered employee shall be reduced 
(but not below zero) by the amount of any pay-
ment (with respect to such employee) of the tax 
imposed by section 5000A directly or indirectly 
by the inverted corporation (as defined in such 
section) or by any member of the expanded affili-
ated group (as defined in such section) which in-
cludes 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 compensation (as defined in section 
5000A) on which tax is imposed by section 5000A’’. 
(2) The table of chapters for subtitle D is amend-
ed by adding at the end the following new item: 
‘‘Chapter 48. Stock compensation of insiders in inverted corporations.’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on July 11, 2002; except that periods
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before such date shall not be taken into account in applying 
the periods in subsections (a) and (e)(1) of section 5000A 
of the Internal Revenue Code of 1986, as added by this sec-
tion. 
SEC. 5654. REINSURANCE OF UNITED STATES RISKS IN FOR-
EIGN JURISDICTIONS. 
(a) IN GENERAL.—Section 845(a) (relating to alloca-
tion in case of reinsurance agreement involving tax avoid-
ance or evasion) is amended by striking ‘‘source and char-
acter’’ and inserting ‘‘amount, source, or character’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to any risk reinsured after April 11, 
2002. 
Subtitle H—Additional Revenue 
Provisions 
PART I—ADMINISTRATIVE PROVISIONS 
SEC. 5671. EXTENSION OF IRS USER FEES. 
(a) IN GENERAL.—Section 7528(c) (relating to termi-
nation) is amended by striking ‘‘December 31, 2004’’ and 
inserting ‘‘September 30, 2013’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to requests after the date of the enact-
ment of this Act.
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SEC. 5672. CLARIFICATION OF RULES FOR PAYMENT OF ES-
TIMATED TAX FOR CERTAIN DEEMED ASSET 
SALES. 
(a) IN GENERAL.—Paragraph (13) of section 338(h) 
(relating to tax on deemed sale not taken into account for 
estimated tax purposes) is amended by adding at the end 
the following: ‘‘The preceding sentence shall not apply with 
respect to a qualified stock purchase for which an election 
is made under paragraph (10).’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to transactions occurring after the 
date of the enactment of this Act. 
SEC. 5673. PARTIAL PAYMENT OF TAX LIABILITY IN IN-
STALLMENT AGREEMENTS. 
(a) IN GENERAL.— 
(1) Section 6159(a) (relating to authorization of 
agreements) is amended— 
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, and 
(B) by inserting ‘‘full or partial’’ after ‘‘fa-
cilitate’’. 
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in certain 
cases) is amended in the matter preceding paragraph 
(1) by inserting ‘‘full’’ before ‘‘payment’’.
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(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT 
AGREEMENTS
EVERY
TWO
YEARS.—Section 6159, as 
amended by this Act, is amended by redesignating sub-
sections (d), (e), and (f) as subsections (e), (f), and (g), re-
spectively, and inserting after subsection (c) the following 
new subsection: 
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO 
YEARS.—In the case of an agreement entered into by the 
Secretary under subsection (a) for partial collection of a 
tax liability, the Secretary shall review the agreement at 
least once every 2 years.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to agreements entered into on or after 
the date of the enactment of this Act. 
PART II—FINANCIAL INSTRUMENTS 
SEC. 5675. TREATMENT OF STRIPPED INTERESTS IN BOND 
AND PREFERRED STOCK FUNDS, ETC. 
(a) IN GENERAL.—Section 1286 (relating to tax treat-
ment of stripped bonds) is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) TREATMENT OF STRIPPED INTERESTS IN BOND 
AND PREFERRED STOCK FUNDS, ETC.—In the case of an 
account or entity substantially all of the assets of which
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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 para-
graph: 
‘‘(7) CROSS REFERENCE.— 
‘‘For treatment of stripped interests in certain ac-
counts or entities 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. 5676. APPLICATION OF EARNINGS STRIPPING RULES 
TO PARTNERSHIPS AND S CORPORATIONS. 
(a) IN GENERAL.—Section 168(j) (relating to limita-
tion on deduction for interest on certain indebtedness) is 
amended by redesignating paragraph (8) as paragraph (9) 
and by inserting after paragraph (7) the following new 
paragraph: 
‘‘(8) APPLICATION TO PARTNERSHIPS AND S COR-
PORATIONS.—