†
180
HR 4520 EAS
‘‘(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.
†
181
HR 4520 EAS
‘‘(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.
†
182
HR 4520 EAS
‘‘(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
†
183
HR 4520 EAS
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
†
184
HR 4520 EAS
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) DISCLOSURE BY SECRETARY.—
(1) IN GENERAL.—Section 6103 is amended by
redesignating subsection (q) as subsection (r) and by
inserting after subsection (p) the following new sub-
section:
‘‘(q) DISCLOSURE RELATING TO PAYMENTS OF CER-
TAIN PENALTIES.—Notwithstanding any other provision of
this section, the Secretary shall make public the name of
any person required to pay a penalty described in section
6707A(e)(2) and the amount of the penalty.’’.
(2) RECORDS.—Section 6103(p)(3)(A) is amend-
ed by striking ‘‘or (n)’’ and inserting ‘‘(n), or (q)’’.
(c) 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.’’.
†
185
HR 4520 EAS
(d) 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. 
403. 
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:
‘‘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
†
186
HR 4520 EAS
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-
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
†
187
HR 4520 EAS
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.—
‘‘(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
†
188
HR 4520 EAS
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))—
‘‘(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.
†
189
HR 4520 EAS
‘‘(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.
‘‘(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
†
190
HR 4520 EAS
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
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.
†
191
HR 4520 EAS
‘‘(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.
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
belief—
‘‘(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
†
192
HR 4520 EAS
‘‘(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—
‘‘(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
†
193
HR 4520 EAS
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,
‘‘(IV) has an arrangement with
respect to the transaction which pro-
vides that contractual disputes between
the taxpayer and the advisor are to be
settled by arbitration or which limits
damages by reference to fees paid to the
advisor for such transaction, or
‘‘(V) as determined under regula-
tions prescribed by the Secretary, has a
disqualifying financial interest with
respect to the transaction.
‘‘(iii) DISQUALIFIED
OPINIONS.—For
purposes of clause (i), an opinion is dis-
qualified if the opinion—
†
194
HR 4520 EAS
‘‘(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,
‘‘(IV) is not signed by all individ-
uals who are principal authors of the
opinion, or
‘‘(V) 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)’’.
(2) Paragraph (3) of section 1274(b) is
amended—