† HR 2847 EAS2 
‘‘(c) CONFIDENTIALITY OF INFORMATION.— 
‘‘(1) IN GENERAL.—For purposes of this chapter, 
rules similar to the rules of section 3406(f) shall 
apply. 
‘‘(2) DISCLOSURE
OF
LIST
OF
PARTICIPATING 
FOREIGN FINANCIAL INSTITUTIONS PERMITTED.—The 
identity of a foreign financial institution which meets 
the requirements of section 1471(b) shall not be treat-
ed as return information for purposes of section 6103. 
‘‘(d) COORDINATION
WITH
OTHER
WITHHOLDING 
PROVISIONS.—The Secretary shall provide for the coordina-
tion of this chapter with other withholding provisions under 
this title, including providing for the proper crediting of 
amounts deducted and withheld under this chapter against 
amounts required to be deducted and withheld under such 
other provisions. 
‘‘(e) TREATMENT OF WITHHOLDING UNDER AGREE-
MENTS.—Any tax deducted and withheld pursuant to an 
agreement described in section 1471(b) shall be treated for 
purposes of this title as a tax deducted and withheld by 
a withholding agent under section 1471(a). 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary or 
appropriate to carry out the purposes of, and prevent the 
avoidance of, this chapter.’’.
† HR 2847 EAS2 
(b) SPECIAL RULE
FOR INTEREST
ON OVERPAY-
MENTS.—Subsection (e) of section 6611 is amended by add-
ing at the end the following new paragraph: 
‘‘(4) CERTAIN
WITHHOLDING
TAXES.—In the 
case of any overpayment resulting from tax deducted 
and withheld under chapter 3 or 4, paragraphs (1), 
(2), and (3) shall be applied by substituting ‘180 
days’ for ‘45 days’ each place it appears.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 6414 is amended by inserting ‘‘or 4’’ 
after ‘‘chapter 3’’. 
(2) Paragraph (1) of section 6501(b) is amended 
by inserting ‘‘4,’’ after ‘‘chapter 3,’’. 
(3) Paragraph (2) of section 6501(b) is amend-
ed— 
(A) by inserting ‘‘4,’’ after ‘‘chapter 3,’’ in 
the text thereof, and 
(B) by striking ‘‘TAXES AND TAX IMPOSED 
BY CHAPTER 3’’ in the heading thereof and in-
serting ‘‘AND WITHHOLDING TAXES’’. 
(4) Paragraph (3) of section 6513(b) is amend-
ed— 
(A) by inserting ‘‘or 4’’ after ‘‘chapter 3’’, 
and
† HR 2847 EAS2 
(B) by inserting ‘‘or 1474(b)’’ after ‘‘section 
1462’’. 
(5) Subsection (c) of section 6513 is amended by 
inserting ‘‘4,’’ after ‘‘chapter 3,’’. 
(6) Paragraph (1) of section 6724(d) is amended 
by inserting ‘‘under chapter 4 or’’ after ‘‘filed with 
the Secretary’’ in the last sentence thereof. 
(7) Paragraph (2) of section 6724(d) is amended 
by inserting ‘‘or 4’’ after ‘‘chapter 3’’. 
(8) The table of chapters of the Internal Revenue 
Code of 1986 is amended by adding at the end the fol-
lowing new item: 
‘‘CHAPTER 4. TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN 
ACCOUNTS.’’. 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided 
in this subsection, the amendments made by this sec-
tion shall apply to payments made after December 
31, 2012. 
(2) GRANDFATHERED
TREATMENT
OF
OUT-
STANDING OBLIGATIONS.—The amendments made by 
this section shall not require any amount to be de-
ducted or withheld from any payment under any obli-
gation outstanding on the date which is 2 years after 
the date of the enactment of this Act or from the gross 
proceeds from any disposition of such an obligation.
† HR 2847 EAS2 
(3) INTEREST ON OVERPAYMENTS.—The amend-
ment made by subsection (b) shall apply— 
(A) in the case of such amendment’s appli-
cation to paragraph (1) of section 6611(e) of the 
Internal Revenue Code of 1986, to returns the 
due date for which (determined without regard to 
extensions) is after the date of the enactment of 
this Act, 
(B) in the case of such amendment’s appli-
cation to paragraph (2) of such section, to claims 
for credit or refund of any overpayment filed 
after the date of the enactment of this Act (re-
gardless of the taxable period to which such re-
fund relates), and 
(C) in the case of such amendment’s appli-
cation to paragraph (3) of such section, to re-
funds paid after the date of the enactment of this 
Act (regardless of the taxable period to which 
such refund relates). 
SEC. 502. REPEAL OF CERTAIN FOREIGN EXCEPTIONS TO 
REGISTERED BOND REQUIREMENTS. 
(a) REPEAL OF EXCEPTION TO DENIAL OF DEDUCTION 
FOR INTEREST ON NON-REGISTERED BONDS.— 
(1) IN
GENERAL.—Paragraph (2) of section 
163(f) is amended by striking subparagraph (B) and
† HR 2847 EAS2 
by redesignating subparagraph (C) as subparagraph 
(B). 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (2) of section 149(a) is 
amended by inserting ‘‘or’’ at the end of sub-
paragraph (A), by striking ‘‘, or’’ at the end of 
subparagraph (B) and inserting a period, and 
by striking subparagraph (C). 
(B) Subparagraph (A) of section 163(f)(2) 
is amended by inserting ‘‘or’’ at the end of clause 
(ii), by striking ‘‘, or’’ at the end of clause (iii) 
and inserting a period, and by striking clause 
(iv). 
(C) Subparagraph (B) of section 163(f)(2), 
as redesignated by paragraph (1), is amended— 
(i) by striking ‘‘, and subparagraph 
(B),’’ in the matter preceding clause (i), 
and 
(ii) by amending clause (i) to read as 
follows: 
‘‘(i) such obligation is of a type which 
the Secretary has determined by regulations 
to be used frequently in avoiding Federal 
taxes, and’’.
† HR 2847 EAS2 
(D) Sections 165(j)(2)(A) and 1287(b)(1) 
are each amended by striking ‘‘except that clause 
(iv) of subparagraph (A), and subparagraph (B), 
of such section shall not apply’’. 
(b) REPEAL OF TREATMENT AS PORTFOLIO DEBT.— 
(1) IN
GENERAL.—Paragraph (2) of section 
871(h) is amended to read as follows: 
‘‘(2) PORTFOLIO
INTEREST.—For purposes of 
this subsection, the term ‘portfolio interest’ means any 
interest (including original issue discount) which— 
‘‘(A) would be subject to tax under sub-
section (a) but for this subsection, and 
‘‘(B) is paid on an obligation— 
‘‘(i) which is in registered form, and 
‘‘(ii) with respect to which— 
‘‘(I) the United States person who 
would otherwise be required to deduct 
and withhold tax from such interest 
under section 1441(a) receives a state-
ment (which meets the requirements of 
paragraph (5)) that the beneficial 
owner of the obligation is not a United 
States person, or 
‘‘(II) the Secretary has deter-
mined that such a statement is not re-
† HR 2847 EAS2 
quired in order to carry out the pur-
poses of this subsection.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 871(h)(3)(A) is amended by 
striking ‘‘subparagraph (A) or (B) of’’. 
(B) Paragraph (2) of section 881(c) is 
amended to read as follows: 
‘‘(2) PORTFOLIO
INTEREST.—For purposes of 
this subsection, the term ‘portfolio interest’ means any 
interest (including original issue discount) which— 
‘‘(A) would be subject to tax under sub-
section (a) but for this subsection, and 
‘‘(B) is paid on an obligation— 
‘‘(i) which is in registered form, and 
‘‘(ii) with respect to which— 
‘‘(I) the person who would other-
wise be required to deduct and with-
hold tax from such interest under sec-
tion 1442(a) receives a statement 
which meets the requirements of section 
871(h)(5) that the beneficial owner of 
the obligation is not a United States 
person, or 
‘‘(II) the Secretary has deter-
mined that such a statement is not re-
† HR 2847 EAS2 
quired in order to carry out the pur-
poses of this subsection.’’. 
(c) DEMATERIALIZED BOOK ENTRY SYSTEMS TREAT-
ED
AS REGISTERED FORM.—Paragraph (3) of section 
163(f) is amended by inserting ‘‘, except that a dematerial-
ized book entry system or other book entry system specified 
by the Secretary shall be treated as a book entry system 
described in such section’’ before the period at the end. 
(d) REPEAL OF EXCEPTION TO REQUIREMENT THAT 
TREASURY OBLIGATIONS BE IN REGISTERED FORM.— 
(1) IN GENERAL.—Subsection (g) of section 3121 
of title 31, United States Code, is amended by strik-
ing paragraph (2) and by redesignating paragraphs 
(3) and (4) as paragraphs (2) and (3), respectively. 
(2) CONFORMING AMENDMENTS.—Paragraph (1) 
of section 3121(g) of such title is amended— 
(A) by adding ‘‘or’’ at the end of subpara-
graph (A), 
(B) by striking ‘‘; or’’ at the end of sub-
paragraph (B) and inserting a period, and 
(C) by striking subparagraph (C). 
(e) PRESERVATION OF EXCEPTION FOR EXCISE TAX 
PURPOSES.—Paragraph (1) of section 4701(b) is amended 
to read as follows: 
‘‘(1) REGISTRATION-REQUIRED OBLIGATION.—
† HR 2847 EAS2 
‘‘(A) IN GENERAL.—The term ‘registration- 
required obligation’ has the same meaning as 
when used in section 163(f), except that such 
term shall not include any obligation which— 
‘‘(i) is required to be registered under 
section 149(a), or 
‘‘(ii) is described in subparagraph (B). 
‘‘(B) 
CERTAIN
OBLIGATIONS
NOT
IN-
CLUDED.—An obligation is described in this sub-
paragraph if— 
‘‘(i) there are arrangements reasonably 
designed to ensure that such obligation will 
be sold (or resold in connection with the 
original issue) only to a person who is not 
a United States person, 
‘‘(ii) interest on such obligation is pay-
able only outside the United States and its 
possessions, and 
‘‘(iii) on the face of such obligation 
there is a statement that any United States 
person who holds such obligation will be 
subject to limitations under the United 
States income tax laws.’’.
† HR 2847 EAS2 
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to obligations issued after the date which 
is 2 years after the date of the enactment of this Act. 
PART II—UNDER REPORTING WITH RESPECT TO 
FOREIGN ASSETS 
SEC. 511. DISCLOSURE OF INFORMATION WITH RESPECT TO 
FOREIGN FINANCIAL ASSETS. 
(a) IN GENERAL.—Subpart A of part III of subchapter 
A of chapter 61 is amended by inserting after section 6038C 
the following new section: 
‘‘SEC. 6038D. INFORMATION WITH RESPECT TO FOREIGN FI-
NANCIAL ASSETS. 
‘‘(a) IN GENERAL.—Any individual who, during any 
taxable year, holds any interest in a specified foreign finan-
cial asset shall attach to such person’s return of tax imposed 
by subtitle A for such taxable year the information described 
in subsection (c) with respect to each such asset if the aggre-
gate value of all such assets exceeds $50,000 (or such higher 
dollar amount as the Secretary may prescribe). 
‘‘(b) SPECIFIED FOREIGN FINANCIAL ASSETS.—For 
purposes of this section, the term ‘specified foreign financial 
asset’ means— 
‘‘(1) any financial account (as defined in section 
1471(d)(2)) maintained by a foreign financial insti-
tution (as defined in section 1471(d)(4)), and
† HR 2847 EAS2 
‘‘(2) any of the following assets which are not 
held in an account maintained by a financial institu-
tion (as defined in section 1471(d)(5))— 
‘‘(A) any stock or security issued by a per-
son other than a United States person, 
‘‘(B) any financial instrument or contract 
held for investment that has an issuer or 
counterparty which is other than a United 
States person, and 
‘‘(C) any interest in a foreign entity (as de-
fined in section 1473). 
‘‘(c) REQUIRED INFORMATION.—The information de-
scribed in this subsection with respect to any asset is: 
‘‘(1) In the case of any account, the name and 
address of the financial institution in which such ac-
count is maintained and the number of such account. 
‘‘(2) In the case of any stock or security, the 
name and address of the issuer and such information 
as is necessary to identify the class or issue of which 
such stock or security is a part. 
‘‘(3) In the case of any other instrument, con-
tract, or interest— 
‘‘(A) such information as is necessary to 
identify such instrument, contract, or interest, 
and
† HR 2847 EAS2 
‘‘(B) the names and addresses of all issuers 
and counterparties with respect to such instru-
ment, contract, or interest. 
‘‘(4) The maximum value of the asset during the 
taxable year. 
‘‘(d) PENALTY FOR FAILURE TO DISCLOSE.— 
‘‘(1) IN GENERAL.—If any individual fails to 
furnish the information described in subsection (c) 
with respect to any taxable year at the time and in 
the manner described in subsection (a), such person 
shall pay a penalty of $10,000. 
‘‘(2) INCREASE
IN
PENALTY
WHERE
FAILURE 
CONTINUES AFTER NOTIFICATION.—If any failure de-
scribed in paragraph (1) continues for more than 90 
days after the day on which the Secretary mails no-
tice of such failure to the individual, such individual 
shall pay a penalty (in addition to the penalties 
under paragraph (1)) of $10,000 for each 30-day pe-
riod (or fraction thereof) during which such failure 
continues after the expiration of such 90-day period. 
The penalty imposed under this paragraph with re-
spect to any failure shall not exceed $50,000. 
‘‘(e) PRESUMPTION THAT VALUE OF SPECIFIED FOR-
EIGN FINANCIAL ASSETS EXCEEDS DOLLAR THRESH-
OLD.—If—
† HR 2847 EAS2 
‘‘(1) the Secretary determines that an individual 
has an interest in one or more specified foreign finan-
cial assets, and 
‘‘(2) such individual does not provide sufficient 
information to demonstrate the aggregate value of 
such assets, 
then the aggregate value of such assets shall be treated as 
being in excess of $50,000 (or such higher dollar amount 
as the Secretary prescribes for purposes of subsection (a)) 
for purposes of assessing the penalties imposed under this 
section. 
‘‘(f) APPLICATION TO CERTAIN ENTITIES.—To the ex-
tent provided by the Secretary in regulations or other guid-
ance, the provisions of this section shall apply to any do-
mestic entity which is formed or availed of for purposes 
of holding, directly or indirectly, specified foreign financial 
assets, in the same manner as if such entity were an indi-
vidual. 
‘‘(g) REASONABLE CAUSE EXCEPTION.—No penalty 
shall be imposed by this section on any failure which is 
shown to be due to reasonable cause and not due to willful 
neglect. The fact that a foreign jurisdiction would impose 
a civil or criminal penalty on the taxpayer (or any other 
person) for disclosing the required information is not rea-
sonable cause.
† HR 2847 EAS2 
‘‘(h) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary or 
appropriate to carry out the purposes of this section, in-
cluding regulations or other guidance which provide appro-
priate exceptions from the application of this section in the 
case of— 
‘‘(1) classes of assets identified by the Secretary, 
including any assets with respect to which the Sec-
retary determines that disclosure under this section 
would be duplicative of other disclosures, 
‘‘(2) nonresident aliens, and 
‘‘(3) bona fide residents of any possession of the 
United States.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
subpart A of part III of subchapter A of chapter 61 is 
amended by inserting after the item relating to section 
6038C the following new item: 
‘‘Sec. 6038D. Information with respect to foreign financial assets.’’. 
(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. 
512. 
PENALTIES 
FOR 
UNDERPAYMENTS 
ATTRIB-
UTABLE TO UNDISCLOSED FOREIGN FINAN-
CIAL ASSETS. 
(a) IN GENERAL.—Section 6662, as amended by this 
Act, is amended—
† HR 2847 EAS2 
(1) in subsection (b), by inserting after para-
graph (6) the following new paragraph: 
‘‘(7) Any undisclosed foreign financial asset un-
derstatement.’’, and 
(2) by adding at the end the following new sub-
section: 
‘‘(j) UNDISCLOSED FOREIGN FINANCIAL ASSET UN-
DERSTATEMENT.— 
‘‘(1) IN GENERAL.—For purposes of this section, 
the term ‘undisclosed foreign financial asset under-
statement’ means, for any taxable year, the portion of 
the understatement for such taxable year which is at-
tributable to any transaction involving an undis-
closed foreign financial asset. 
‘‘(2) 
UNDISCLOSED
FOREIGN
FINANCIAL 
ASSET.—For purposes of this subsection, the term ‘un-
disclosed foreign financial asset’ means, with respect 
to any taxable year, any asset with respect to which 
information was required to be provided under sec-
tion 6038, 6038B, 6038D, 6046A, or 6048 for such 
taxable year but was not provided by the taxpayer as 
required under the provisions of those sections. 
‘‘(3) INCREASE IN PENALTY FOR UNDISCLOSED 
FOREIGN FINANCIAL ASSET UNDERSTATEMENTS.—In 
the case of any portion of an underpayment which is
† HR 2847 EAS2 
attributable to any undisclosed foreign financial asset 
understatement, subsection (a) shall be applied with 
respect to such portion by substituting ‘40 percent’ for 
‘20 percent’.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 513. MODIFICATION OF STATUTE OF LIMITATIONS FOR 
SIGNIFICANT OMISSION OF INCOME IN CON-
NECTION WITH FOREIGN ASSETS. 
(a) EXTENSION OF STATUTE OF LIMITATIONS.— 
(1) IN
GENERAL.—Paragraph (1) of section 
6501(e) is amended by redesignating subparagraphs 
(A) and (B) as subparagraphs (B) and (C), respec-
tively, and by inserting before subparagraph (B) (as 
so redesignated) the following new subparagraph: 
‘‘(A) GENERAL
RULE.—If the taxpayer 
omits from gross income an amount properly in-
cludible therein and— 
‘‘(i) such amount is in excess of 25 
percent of the amount of gross income stated 
in the return, or 
‘‘(ii) such amount— 
‘‘(I) is attributable to one or more 
assets with respect to which informa-
† HR 2847 EAS2 
tion is required to be reported under 
section 6038D (or would be so required 
if such section were applied without re-
gard to the dollar threshold specified in 
subsection (a) thereof and without re-
gard to any exceptions provided pursu-
ant to subsection (h)(1) thereof), and 
‘‘(II) is in excess of $5,000, 
the tax may be assessed, or a proceeding in court 
for collection of such tax may be begun without 
assessment, at any time within 6 years after the 
return was filed.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraph (B) of section 6501(e)(1), 
as redesignated by paragraph (1), is amended by 
striking all that precedes clause (i) and inserting 
the following: 
‘‘(B) DETERMINATION OF GROSS INCOME.— 
For purposes of subparagraph (A)—’’. 
(B) Paragraph (2) of section 6229(c) is 
amended by striking ‘‘which is in excess of 25 
percent of the amount of gross income stated in 
its return’’ and inserting ‘‘and such amount is 
described in clause (i) or (ii) of section 
6501(e)(1)(A)’’.
† HR 2847 EAS2 
(b) ADDITIONAL REPORTS SUBJECT TO EXTENDED 
PERIOD.—Paragraph (8) of section 6501(c) is amended— 
(1) by inserting ‘‘pursuant to an election under 
section 1295(b) or’’ before ‘‘under section 6038’’, 
(2) by inserting ‘‘1298(f),’’ before ‘‘6038’’, and 
(3) by inserting ‘‘6038D,’’ after ‘‘6038B,’’. 
(c) CLARIFICATIONS RELATED TO FAILURE TO DIS-
CLOSE FOREIGN TRANSFERS.—Paragraph (8) of section 
6501(c) is amended by striking ‘‘event’’ and inserting ‘‘tax 
return, event,’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to— 
(1) returns filed after the date of the enactment 
of this Act; and 
(2) returns filed on or before such date if the pe-
riod specified in section 6501 of the Internal Revenue 
Code of 1986 (determined without regard to such 
amendments) for assessment of such taxes has not ex-
pired as of such date. 
PART III—OTHER DISCLOSURE PROVISIONS 
SEC. 521. REPORTING OF ACTIVITIES WITH RESPECT TO 
PASSIVE FOREIGN INVESTMENT COMPANIES. 
(a) IN GENERAL.—Section 1298 is amended by redes-
ignating subsection (f) as subsection (g) and by inserting 
after subsection (e) the following new subsection:
100 
† HR 2847 EAS2 
‘‘(f) REPORTING REQUIREMENT.—Except as otherwise 
provided by the Secretary, each United States person who 
is a shareholder of a passive foreign investment company 
shall file an annual report containing such information as 
the Secretary may require.’’. 
(b) CONFORMING AMENDMENT.—Subsection (e) of sec-
tion 1291 is amended by striking ‘‘, (d), and (f)’’ and in-
serting ‘‘and (d)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section take effect on the date of the enactment of this Act. 
SEC. 522. SECRETARY PERMITTED TO REQUIRE FINANCIAL 
INSTITUTIONS TO FILE CERTAIN RETURNS 
RELATED TO WITHHOLDING ON FOREIGN 
TRANSFERS ELECTRONICALLY. 
(a) IN GENERAL.—Subsection (e) of section 6011 is 
amended by adding at the end the following new paragraph: 
‘‘(4) SPECIAL RULE FOR RETURNS FILED BY FI-
NANCIAL
INSTITUTIONS
WITH
RESPECT
TO
WITH-
HOLDING ON FOREIGN TRANSFERS.—The numerical 
limitation under paragraph (2)(A) shall not apply to 
any return filed by a financial institution (as defined 
in section 1471(d)(5)) with respect to tax for which 
such institution is made liable under section 1461 or 
1474(a).’’.
101 
† HR 2847 EAS2 
(b) CONFORMING AMENDMENT.—Subsection (c) of sec-
tion 6724 is amended by inserting ‘‘or with respect to a 
return described in section 6011(e)(4)’’ before the end pe-
riod. 
(c) EFFECTIVE DATE.—The amendment made by this 
section shall apply to returns the due date for which (deter-
mined without regard to extensions) is after the date of the 
enactment of this Act. 
PART IV—PROVISIONS RELATED TO FOREIGN 
TRUSTS 
SEC. 531. CLARIFICATIONS WITH RESPECT TO FOREIGN 
TRUSTS WHICH ARE TREATED AS HAVING A 
UNITED STATES BENEFICIARY. 
(a) IN GENERAL.—Paragraph (1) of section 679(c) is 
amended by adding at the end the following: 
‘‘For purposes of subparagraph (A), an amount shall 
be treated as accumulated for the benefit of a United 
States person even if the United States person’s inter-
est in the trust is contingent on a future event.’’. 
(b) CLARIFICATION REGARDING DISCRETION TO IDEN-
TIFY BENEFICIARIES.—Subsection (c) of section 679 is 
amended by adding at the end the following new paragraph: 
‘‘(4) SPECIAL RULE IN CASE OF DISCRETION TO 
IDENTIFY
BENEFICIARIES.—For purposes of para-
graph (1)(A), if any person has the discretion (by au-
102 
† HR 2847 EAS2 
thority given in the trust agreement, by power of ap-
pointment, or otherwise) of making a distribution 
from the trust to, or for the benefit of, any person, 
such trust shall be treated as having a beneficiary 
who is a United States person unless— 
‘‘(A) the terms of the trust specifically iden-
tify the class of persons to whom such distribu-
tions may be made, and 
‘‘(B) none of those persons are United 
States persons during the taxable year.’’. 
(c) CLARIFICATION THAT CERTAIN AGREEMENTS AND 
UNDERSTANDINGS ARE TERMS
OF
THE TRUST.—Sub-
section (c) of section 679, as amended by subsection (b), 
is amended by adding at the end the following new para-
graph: 
‘‘(5) 
CERTAIN
AGREEMENTS
AND
UNDER-
STANDINGS TREATED AS TERMS OF THE TRUST.—For 
purposes of paragraph (1)(A), if any United States 
person who directly or indirectly transfers property to 
the trust is directly or indirectly involved in any 
agreement or understanding (whether written, oral, or 
otherwise) that may result in the income or corpus of 
the trust being paid or accumulated to or for the ben-
efit of a United States person, such agreement or un-
derstanding shall be treated as a term of the trust.’’.
103 
† HR 2847 EAS2 
SEC. 532. PRESUMPTION THAT FOREIGN TRUST HAS 
UNITED STATES BENEFICIARY. 
(a) IN GENERAL.—Section 679 is amended by redesig-
nating subsection (d) as subsection (e) and inserting after 
subsection (c) the following new subsection: 
‘‘(d) PRESUMPTION
THAT
FOREIGN
TRUST
HAS 
UNITED STATES BENEFICIARY.—If a United States person 
directly or indirectly transfers property to a foreign trust 
(other than a trust described in section 6048(a)(3)(B)(ii)), 
the Secretary may treat such trust as having a United 
States beneficiary for purposes of applying this section to 
such transfer unless such person— 
‘‘(1) submits such information to the Secretary 
as the Secretary may require with respect to such 
transfer, and 
‘‘(2) demonstrates to the satisfaction of the Sec-
retary that such trust satisfies the requirements of 
subparagraphs (A) and (B) of subsection (c)(1).’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transfers of property after the date 
of the enactment of this Act. 
SEC. 533. UNCOMPENSATED USE OF TRUST PROPERTY. 
(a) IN GENERAL.—Paragraph (1) of section 643(i) is 
amended—
104 
† HR 2847 EAS2 
(1) by striking ‘‘directly or indirectly to’’ and 
inserting ‘‘(or permits the use of any other trust prop-
erty) directly or indirectly to or by’’, and 
(2) by inserting ‘‘(or the fair market value of the 
use of such property)’’ after ‘‘the amount of such 
loan’’. 
(b) EXCEPTION FOR COMPENSATED USE.—Paragraph 
(2) of section 643(i) is amended by adding at the end the 
following new subparagraph: 
‘‘(E) EXCEPTION
FOR
COMPENSATED
USE 
OF PROPERTY.—In the case of the use of any 
trust property other than a loan of cash or mar-
ketable securities, paragraph (1) shall not apply 
to the extent that the trust is paid the fair mar-
ket value of such use within a reasonable period 
of time of such use.’’. 
(c) APPLICATION TO GRANTOR TRUSTS.—Subsection 
(c) of section 679, as amended by this Act, is amended by 
adding at the end the following new paragraph: 
‘‘(6) UNCOMPENSATED USE OF TRUST PROPERTY 
TREATED AS A PAYMENT.—For purposes of this sub-
section, a loan of cash or marketable securities (or the 
use of any other trust property) directly or indirectly 
to or by any United States person (whether or not a 
beneficiary under the terms of the trust) shall be
105 
† HR 2847 EAS2 
treated as paid or accumulated for the benefit of a 
United States person. The preceding sentence shall 
not apply to the extent that the United States person 
repays the loan at a market rate of interest (or pays 
the fair market value of the use of such property) 
within a reasonable period of time.’’. 
(d) CONFORMING AMENDMENTS.—Paragraph (3) of 
section 643(i) is amended— 
(1) by inserting ‘‘(or use of property)’’ after ‘‘If 
any loan’’, 
(2) by inserting ‘‘or the return of such property’’ 
before ‘‘shall be disregarded’’, and 
(3) by striking ‘‘REGARDING LOAN PRINCIPAL’’ in 
the heading thereof. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to loans made, and uses of property, 
after the date of the enactment of this Act. 
SEC. 534. REPORTING REQUIREMENT OF UNITED STATES 
OWNERS OF FOREIGN TRUSTS. 
(a) IN GENERAL.—Paragraph (1) of section 6048(b) 
is amended by inserting ‘‘shall submit such information as 
the Secretary may prescribe with respect to such trust for 
such year and’’ before ‘‘shall be responsible to ensure’’.
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(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 535. MINIMUM PENALTY WITH RESPECT TO FAILURE 
TO REPORT ON CERTAIN FOREIGN TRUSTS. 
(a) IN GENERAL.—Subsection (a) of section 6677 is 
amended— 
(1) by inserting ‘‘the greater of $10,000 or’’ be-
fore ‘‘35 percent’’, and 
(2) by striking the last sentence and inserting 
the following: ‘‘At such time as the gross reportable 
amount with respect to any failure can be determined 
by the Secretary, any subsequent penalty imposed 
under this subsection with respect to such failure shall 
be reduced as necessary to assure that the aggregate 
amount of such penalties do not exceed the gross re-
portable amount (and to the extent that such aggre-
gate amount already exceeds the gross reportable 
amount the Secretary shall refund such excess to the 
taxpayer).’’ 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to notices and returns required to be 
filed after December 31, 2009.
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PART V—SUBSTITUTE DIVIDENDS AND DIVIDEND 
EQUIVALENT PAYMENTS RECEIVED BY FOR-
EIGN PERSONS TREATED AS DIVIDENDS 
SEC. 541. SUBSTITUTE DIVIDENDS AND DIVIDEND EQUIVA-
LENT PAYMENTS RECEIVED BY FOREIGN PER-
SONS TREATED AS DIVIDENDS. 
(a) IN GENERAL.—Section 871 is amended by redesig-
nating subsection (l) as subsection (m) and by inserting 
after subsection (k) the following new subsection: 
‘‘(l) TREATMENT
OF DIVIDEND EQUIVALENT PAY-
MENTS.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), sections 881 and 4948(a), and chapters 3 and 4, 
a dividend equivalent shall be treated as a dividend 
from sources within the United States. 
‘‘(2) DIVIDEND EQUIVALENT.—For purposes of 
this subsection, the term ‘dividend equivalent’ 
means— 
‘‘(A) any substitute dividend made pursu-
ant to a securities lending or a sale-repurchase 
transaction that (directly or indirectly) is con-
tingent upon, or determined by reference to, the 
payment of a dividend from sources within the 
United States, 
‘‘(B) any payment made pursuant to a 
specified notional principal contract that (di-
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rectly or indirectly) is contingent upon, or deter-
mined by reference to, the payment of a dividend 
from sources within the United States, and 
‘‘(C) any other payment determined by the 
Secretary to be substantially similar to a pay-
ment described in subparagraph (A) or (B). 
‘‘(3) SPECIFIED
NOTIONAL
PRINCIPAL
CON-
TRACT.—For purposes of this subsection, the term 
‘specified notional principal contract’ means— 
‘‘(A) any notional principal contract if— 
‘‘(i) in connection with entering into 
such contract, any long party to the con-
tract transfers the underlying security to 
any short party to the contract, 
‘‘(ii) in connection with the termi-
nation of such contract, any short party to 
the contract transfers the underlying secu-
rity to any long party to the contract, 
‘‘(iii) the underlying security is not 
readily tradable on an established securities 
market, 
‘‘(iv) in connection with entering into 
such contract, the underlying security is 
posted as collateral by any short party to
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the contract with any long party to the con-
tract, or 
‘‘(v) such contract is identified by the 
Secretary as a specified notional principal 
contract, 
‘‘(B) in the case of payments made after the 
date which is 2 years after the date of the enact-
ment of this subsection, any notional principal 
contract unless the Secretary determines that 
such contract is of a type which does not have 
the potential for tax avoidance. 
‘‘(4) DEFINITIONS.—For purposes of paragraph 
(3)(A)— 
‘‘(A) LONG PARTY.—The term ‘long party’ 
means, with respect to any underlying security 
of any notional principal contract, any party to 
the contract which is entitled to receive any pay-
ment pursuant to such contract which is contin-
gent upon, or determined by reference to, the 
payment of a dividend from sources within the 
United States with respect to such underlying se-
curity. 
‘‘(B) SHORT
PARTY.—The term ‘short 
party’ means, with respect to any underlying se-
curity of any notional principal contract, any
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party to the contract which is not a long party 
with respect to such underlying security. 
‘‘(C) UNDERLYING
SECURITY.—The term 
‘underlying security’ means, with respect to any 
notional principal contract, the security with re-
spect to which the dividend referred to in para-
graph (2)(B) is paid. For purposes of this para-
graph, any index or fixed basket of securities 
shall be treated as a single security. 
‘‘(5) 
PAYMENTS
DETERMINED
ON
GROSS 
BASIS.—For purposes of this subsection, the term 
‘payment’ includes any gross amount which is used 
in computing any net amount which is transferred to 
or from the taxpayer. 
‘‘(6) PREVENTION OF OVER-WITHHOLDING.—In 
the case of any chain of dividend equivalents one or 
more of which is subject to tax under subsection (a) 
or section 881, the Secretary may reduce such tax, but 
only to the extent that the taxpayer can establish that 
such tax has been paid with respect to another divi-
dend equivalent in such chain, or is not otherwise 
due, or as the Secretary determines is appropriate to 
address the role of financial intermediaries in such 
chain. For purposes of this paragraph, a dividend 
shall be treated as a dividend equivalent.