230 
‘‘(II) if such individual is mar-
ried, such individual’s spouse was 
born, or 
‘‘(III) either of such individual’s 
parents were born, and 
‘‘(ii) the individual becomes fully lia-
ble for income tax in such country. 
‘‘(C) MINIMAL PRIOR PHYSICAL PRESENCE 
IN THE UNITED STATES.—An individual is de-
scribed in this subparagraph if, for each year in 
the 10-year period ending on the date of loss of 
United States citizenship or termination of resi-
dency, the individual was physically present in 
the United States for 30 days or less. The rule 
of section 7701(b)(3)(D)(ii) shall apply for pur-
poses of this subparagraph.’’. 
(d) TRANSFERS SUBJECT TO GIFT TAX.— 
(1) IN
GENERAL.—Subsection (a) of section 
2501 (relating to taxable transfers) is amended by 
striking paragraph (4), by redesignating paragraph 
(5) as paragraph (4), and by striking paragraph (3) 
and inserting the following new paragraph: 
‘‘(3) EXCEPTION.— 
‘‘(A) CERTAIN
INDIVIDUALS.—Paragraph 
(2) shall not apply in the case of a donor to
231 
whom section 877(b) applies for the taxable 
year which includes the date of the transfer. 
‘‘(B) CREDIT FOR FOREIGN GIFT TAXES.— 
The tax imposed by this section solely by reason 
of this paragraph shall be credited with the 
amount of any gift tax actually paid to any for-
eign country in respect of any gift which is tax-
able under this section solely by reason of this 
paragraph.’’. 
(2) TRANSFERS
OF
CERTAIN
STOCK.—Sub-
section (a) of section 2501 is amended by adding at 
the end the following new paragraph: 
‘‘(5) TRANSFERS OF CERTAIN STOCK.— 
‘‘(A) IN GENERAL.—In the case of a trans-
fer of stock in a foreign corporation described 
in subparagraph (B) by a donor to whom sec-
tion 877(b) applies for the taxable year which 
includes the date of the transfer— 
‘‘(i) section 2511(a) shall be applied 
without regard to whether such stock is 
situated within the United States, and 
‘‘(ii) the value of such stock for pur-
poses of this chapter shall be its U.S.-asset 
value determined under subparagraph (C).
232 
‘‘(B) 
FOREIGN
CORPORATION
DE-
SCRIBED.—A foreign corporation is described in 
this subparagraph with respect to a donor if— 
‘‘(i) the donor owned (within the 
meaning of section 958(a)) at the time of 
such transfer 10 percent or more of the 
total combined voting power of all classes 
of stock entitled to vote of the foreign cor-
poration, and 
‘‘(ii) such donor owned (within the 
meaning of section 958(a)), or is consid-
ered to have owned (by applying the own-
ership rules of section 958(b)), at the time 
of such transfer, more than 50 percent 
of— 
‘‘(I) the total combined voting 
power of all classes of stock entitled 
to vote of such corporation, or 
‘‘(II) the total value of the stock 
of such corporation. 
‘‘(C) U.S.-ASSET VALUE.—For purposes of 
subparagraph (A), the U.S.-asset value of stock 
shall be the amount which bears the same ratio 
to the fair market value of such stock at the 
time of transfer as—
233 
‘‘(i) the fair market value (at such 
time) of the assets owned by such foreign 
corporation and situated in the United 
States, bears to 
‘‘(ii) the total fair market value (at 
such time) of all assets owned by such for-
eign corporation.’’. 
(e) ENHANCED INFORMATION REPORTING FROM IN-
DIVIDUALS LOSING UNITED STATES CITIZENSHIP.— 
(1) IN
GENERAL.—Subsection (a) of section 
6039G is amended to read as follows: 
‘‘(a) IN GENERAL.—Notwithstanding any other pro-
vision of law, any individual to whom section 877(b) ap-
plies for any taxable year shall provide a statement for 
such taxable year which includes the information described 
in subsection (b).’’. 
(2) INFORMATION
TO
BE
PROVIDED.—Sub-
section (b) of section 6039G is amended to read as 
follows: 
‘‘(b) INFORMATION TO BE PROVIDED.—Information 
required under subsection (a) shall include— 
‘‘(1) the taxpayer’s TIN, 
‘‘(2) the mailing address of such individual’s 
principal foreign residence,
234 
‘‘(3) the foreign country in which such indi-
vidual is residing, 
‘‘(4) the foreign country of which such indi-
vidual is a citizen, 
‘‘(5) information detailing the income, assets, 
and liabilities of such individual, 
‘‘(6) the number of days during any portion of 
which that the individual was physically present in 
the United States during the taxable year, and 
‘‘(7) such other information as the Secretary 
may prescribe.’’. 
(3) INCREASE IN PENALTY.—Subsection (d) of 
section 6039G is amended to read as follows: 
‘‘(d) PENALTY.—If— 
‘‘(1) an individual is required to file a state-
ment under subsection (a) for any taxable year, and 
‘‘(2) fails to file such a statement with the Sec-
retary on or before the date such statement is re-
quired to be filed or fails to include all the informa-
tion required to be shown on the statement or in-
cludes incorrect information, 
such individual shall pay a penalty of $10,000 unless it 
is shown that such failure is due to reasonable cause and 
not to willful neglect.’’.
235 
(4) 
CONFORMING
AMENDMENT.—Section 
6039G is amended by striking subsections (c), (f), 
and (g) and by redesignating subsections (d) and (e) 
as subsection (c) and (d), respectively. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to individuals who expatriate after 
June 3, 2004. 
SEC. 605. REPORTING OF TAXABLE MERGERS AND ACQUISI-
TIONS. 
(a) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 is amended by inserting after sec-
tion 6043 the following new section: 
‘‘SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS 
AND ACQUISITIONS. 
‘‘(a) IN GENERAL.—According to the forms or regu-
lations prescribed by the Secretary, the acquiring corpora-
tion in any taxable acquisition shall make a return setting 
forth— 
‘‘(1) a description of the acquisition, 
‘‘(2) the name and address of each shareholder 
of the acquired corporation who is required to recog-
nize gain (if any) as a result of the acquisition, 
‘‘(3) the amount of money and the fair market 
value of other property transferred to each such 
shareholder as part of such acquisition, and
236 
‘‘(4) such other information as the Secretary 
may prescribe. 
To the extent provided by the Secretary, the requirements 
of this section applicable to the acquiring corporation shall 
be applicable to the acquired corporation and not to the 
acquiring corporation. 
‘‘(b) NOMINEES.—According to the forms or regula-
tions prescribed by the Secretary— 
‘‘(1) REPORTING.—Any person who holds stock 
as a nominee for another person shall furnish in the 
manner prescribed by the Secretary to such other 
person the information provided by the corporation 
under subsection (d). 
‘‘(2) REPORTING TO NOMINEES.—In the case of 
stock held by any person as a nominee, references in 
this section (other than in subsection (c)) to a share-
holder shall be treated as a reference to the nomi-
nee. 
‘‘(c) TAXABLE ACQUISITION.—For purposes of this 
section, the term ‘taxable acquisition’ means any acquisi-
tion by a corporation of stock in or property of another 
corporation if any shareholder of the acquired corporation 
is required to recognize gain (if any) as a result of such 
acquisition.
237 
‘‘(d) STATEMENTS TO BE FURNISHED TO SHARE-
HOLDERS.—According to the forms or regulations pre-
scribed by the Secretary, every person required to make 
a return under subsection (a) shall furnish to each share-
holder whose name is required to be set forth in such re-
turn a written statement showing— 
‘‘(1) the name, address, and phone number of 
the information contact of the person required to 
make such return, 
‘‘(2) the information required to be shown on 
such return with respect to such shareholder, and 
‘‘(3) such other information as the Secretary 
may prescribe. 
The written statement required under the preceding sen-
tence shall be furnished to the shareholder on or before 
January 31 of the year following the calendar year during 
which the taxable acquisition occurred.’’. 
(b) ASSESSABLE PENALTIES.— 
(1) Subparagraph (B) of section 6724(d)(1) 
(relating to definitions) is amended by redesignating 
clauses (ii) through (xviii) as clauses (iii) through 
(xix), respectively, and by inserting after clause (i) 
the following new clause:
238 
‘‘(ii) section 6043A(a) (relating to re-
turns relating to taxable mergers and ac-
quisitions),’’. 
(2) Paragraph (2) of section 6724(d) is amend-
ed by redesignating subparagraphs (F) through 
(BB) as subparagraphs (G) through (CC), respec-
tively, and by inserting after subparagraph (E) the 
following new subparagraph: 
‘‘(F) subsections (b) and (d) of section 
6043A (relating to returns relating to taxable 
mergers and acquisitions).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart B of part III of subchapter A of chapter 61 
is amended by inserting after the item relating to section 
6043 the following new item: 
‘‘Sec. 6043A. Returns relating to taxable mergers and acquisi-
tions.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to acquisitions after the date of 
the enactment of this Act. 
SEC. 606. STUDIES. 
(a) TRANSFER PRICING RULES.—The Secretary of 
the Treasury or the Secretary’s delegate shall conduct a 
study regarding the effectiveness of current transfer pric-
ing rules and compliance efforts in ensuring that cross- 
border transfers and other related-party transactions, par-
239 
ticularly transactions involving intangible assets, service 
contracts, or leases cannot be used improperly to shift in-
come out of the United States. The study shall include 
a review of the contemporaneous documentation and pen-
alty rules under section 6662 of the Internal Revenue 
Code of 1986, a review of the regulatory and administra-
tive guidance implementing the principles of section 482 
of such Code to transactions involving intangible property 
and services and to cost-sharing arrangements, and an ex-
amination of whether increased disclosure of cross-border 
transactions should be required. The study shall set forth 
specific recommendations to address all abuses identified 
in the study. Not later than June 30, 2005, such Sec-
retary or delegate shall submit to the Congress a report 
of such study. 
(b) INCOME TAX TREATIES.—The Secretary of the 
Treasury or the Secretary’s delegate shall conduct a study 
of United States income tax treaties to identify any inap-
propriate reductions in United States withholding tax that 
provide opportunities for shifting income out of the United 
States, and to evaluate whether existing anti-abuse mecha-
nisms are operating properly. The study shall include spe-
cific recommendations to address all inappropriate uses of 
tax treaties. Not later than June 30, 2005, such Secretary
240 
or delegate shall submit to the Congress a report of such 
study. 
(c) IMPACT OF CORPORATE EXPATRIATION PROVI-
SIONS.—The Secretary of the Treasury or the Secretary’s 
delegate shall conduct a study of the impact of the provi-
sions of this title on corporate expatriation. The study 
shall include such recommendations as such Secretary or 
delegate may have to improve the impact of such provi-
sions in carrying out the purposes of this title. Not later 
than December 31, 2005, such Secretary or delegate shall 
submit to the Congress a report of such study. 
Subtitle B—Provisions Relating to 
Tax Shelters 
Part I—Taxpayer-Related Provisions 
SEC. 611. PENALTY FOR FAILING TO DISCLOSE REPORT-
ABLE TRANSACTIONS. 
(a) IN GENERAL.—Part I of subchapter B of chapter 
68 (relating to assessable penalties) is amended by insert-
ing after section 6707 the following new section: 
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT-
ABLE TRANSACTION INFORMATION WITH RE-
TURN. 
‘‘(a) IMPOSITION
OF PENALTY.—Any person who 
fails to include on any return or statement any informa-
tion with respect to a reportable transaction which is re-
241 
quired under section 6011 to be included with such return 
or statement shall pay a penalty in the amount determined 
under subsection (b). 
‘‘(b) AMOUNT OF PENALTY.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the amount of the penalty under sub-
section (a) shall be— 
‘‘(A) $10,000 in the case of a natural per-
son, and 
‘‘(B) $50,000 in any other case. 
‘‘(2) LISTED
TRANSACTION.—The amount of 
the penalty under subsection (a) with respect to a 
listed transaction shall be— 
‘‘(A) $100,000 in the case of a natural 
person, and 
‘‘(B) $200,000 in any other case. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) REPORTABLE
TRANSACTION.—The term 
‘reportable transaction’ means any transaction with 
respect to which information is required to be in-
cluded with a return or statement because, as deter-
mined under regulations prescribed under section 
6011, such transaction is of a type which the Sec-
retary determines as having a potential for tax 
avoidance or evasion.
242 
‘‘(2) LISTED TRANSACTION.—The term ‘listed 
transaction’ means a reportable transaction which is 
the same as, or substantially similar to, a trans-
action specifically identified by the Secretary as a 
tax avoidance transaction for purposes of section 
6011. 
‘‘(d) AUTHORITY TO RESCIND PENALTY.— 
‘‘(1) IN GENERAL.—The Commissioner of In-
ternal 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, and 
‘‘(B) rescinding the penalty would promote 
compliance with the requirements of this title 
and effective tax administration. 
‘‘(2) NO
JUDICIAL
APPEAL.—Notwithstanding 
any other provision of law, any determination under 
this subsection may not be reviewed in any judicial 
proceeding. 
‘‘(3) 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
243 
Shelter Analysis with respect to the determination, 
including— 
‘‘(A) a statement of the facts and cir-
cumstances relating to the violation, 
‘‘(B) the reasons for the rescission, and 
‘‘(C) the amount of the penalty rescinded. 
‘‘(e) COORDINATION WITH OTHER PENALTIES.—The 
penalty imposed by this section shall be in addition to any 
other penalty imposed by this title.’’ 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 is amended 
by inserting after the item relating to section 6707 the 
following: 
‘‘Sec. 6707A. Penalty for failure to include reportable transaction 
information with return.’’. 
(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. 
(d) REPORT.—The Commissioner of Internal Rev-
enue shall annually report to the Committee on Ways and 
Means of the House of Representatives and the Committee 
on Finance of the Senate— 
(1) a summary of the total number and aggre-
gate amount of penalties imposed, and rescinded,
244 
under section 6707A of the Internal Revenue Code 
of 1986, and 
(2) a description of each penalty rescinded 
under section 6707(c) of such Code and the reasons 
therefor. 
SEC. 612. ACCURACY-RELATED PENALTY FOR LISTED 
TRANSACTIONS, OTHER REPORTABLE TRANS-
ACTIONS HAVING A SIGNIFICANT TAX AVOID-
ANCE PURPOSE, ETC. 
(a) IN GENERAL.—Subchapter A of chapter 68 is 
amended by inserting after section 6662 the following new 
section: 
‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PEN-
ALTY 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 percent 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—
245 
‘‘(i) the amount of the increase (if 
any) in taxable income which results from 
a difference between the proper tax treat-
ment of an item to which this section ap-
plies 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 
taxpayer 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-
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.
246 
‘‘(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 pur-
pose of such transaction is the avoidance or 
evasion of Federal income tax. 
‘‘(c) HIGHER PENALTY FOR NONDISCLOSED TRANS-
ACTIONS.—Subsection (a) shall be applied 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. 
‘‘(d) DEFINITIONS
OF REPORTABLE
AND LISTED 
TRANSACTIONS.—For purposes of this section, the terms 
‘reportable transaction’ and ‘listed transaction’ have the 
respective 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 
understatement (as defined in section 6662(d)(2))— 
‘‘(A) the amount of such understatement 
(determined without regard to this paragraph)