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(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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‘‘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 underpay-
ments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understate-
ments with respect 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. 
404. 
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.
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‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED TRANS-
ACTIONS.—Subsection (a) shall be applied by substituting
‘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
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‘‘(B) the transaction fails to meet the re-
quirements of any similar rule of law.
‘‘(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-
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ing after the item relating to section 6662A the following
new item:
‘‘Sec. 6662B. Penalty for understatements attributable to trans-
actions lacking economic substance, etc.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions entered into after the
date of the enactment of this Act.
SEC. 405. 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.—
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(1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re-
lating to substantial authority) is amended to read as
follows:
‘‘(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.
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SEC. 406. 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:
‘‘(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. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended to read as follows:
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‘‘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—
‘‘(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, insuring, 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—
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‘‘(i) $50,000 in the case of a reportable
transaction substantially all of the tax bene-
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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‘‘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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‘‘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 re-
portable transactions.’’.
(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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(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. 408. 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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‘‘(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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(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. 409. 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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SEC. 410. 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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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, which is—
‘‘(1) subject to penalty under section 6700, 6701,
6707, or 6708, or
‘‘(2) in violation of any requirement under regu-
lations issued under section 320 of title 31, United
States Code.’’.
(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 re-
portable 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.
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SEC. 411. 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—
(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
amended—
(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.
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SEC. 412. 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.—
‘‘(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 $10,000.
‘‘(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.
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‘‘(C) WILLFUL VIOLATIONS.—In the case of
any person willfully violating, or willfully caus-
ing any violation of, any provision of section
5314—
‘‘(i) the maximum penalty under sub-
paragraph (B)(i) shall be increased to the
greater of—
‘‘(I) $100,000, or
‘‘(II) 50 percent of the amount de-
termined under subparagraph (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.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to violations occurring after the date of
the enactment of this Act.
SEC. 413. 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.—
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‘‘(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.
‘‘(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
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HR 4520 EAS
‘‘(ii) an application under—
‘‘(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
‘‘(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
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promote compliance with and administration of the Federal
tax laws.
‘‘(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.—Not-
withstanding any other provision of this section, if the Sec-
retary determines that any portion of a request for a hear-
ing under this section or section 6320 meets the requirement
of clause (i) or (ii) of section 6702(b)(2)(A), then the Sec-
retary may treat such portion as if it were never submitted
and such portion shall not be subject to any further admin-
istrative or judicial review.’’.
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS
ISSUES
AT
HEARING.—Section 
6330(c)(4) 
is
amended—
(A) by striking ‘‘(A)’’ and inserting
‘‘(A)(i)’’;
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;
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SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN-
ALTIES, 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.
‘‘(2) EXCEPTION
FOR
AMOUNTS
CONSTITUTING
RESTITUTION.—Paragraph (1) shall not apply to any
amount which the taxpayer establishes constitutes res-
titution (including remediation of property) for dam-
age or harm caused by or which may be caused by
the violation of any law or the potential violation of
any law. This paragraph shall not apply to any
amount paid or incurred as reimbursement to the
government or entity for the costs of any investigation
or litigation.