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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.—
Notwithstanding any other provision of this section, if the
Secretary determines that any portion of a request for a
hearing under this section or section 6320 meets the require-
ment of clause (i) or (ii) of section 6702(b)(2)(A), then the
Secretary may treat such portion as if it were never sub-
mitted and such portion shall not be subject to any further
administrative or judicial review.’’
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS
ISSUES
AT
HEARING.—Section 
6330(c)(4) 
is
amended—
(A) by striking ‘‘(A)’’ and inserting
‘‘(A)(i)’’;
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;
188
(C) by striking the period at the end of the
first sentence and inserting ‘‘; or’’; and
(D) by inserting after subparagraph (A)(ii)
(as so redesignated) the following:
‘‘(B) the issue meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A).’’
(3) 
STATEMENT
OF
GROUNDS.—Section
6330(b)(1) is amended by striking ‘‘under subsection
(a)(3)(B)’’ and inserting ‘‘in writing under subsection
(a)(3)(B) and states the grounds for the requested
hearing’’.
(c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is
amended—
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under
subsection (a)(3)(B) and states the grounds for the re-
quested hearing’’, and
(2) in subsection (c), by striking ‘‘and (e)’’ and
inserting ‘‘(e), and (g)’’.
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end
the following new subsection:
189
‘‘(e) 
FRIVOLOUS
SUBMISSIONS, 
ETC.—Notwith-
standing any other provision of this section, if the Secretary
determines that any portion of an application for an offer-
in-compromise or installment agreement submitted under
this section or section 6159 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative
or judicial review.’’
(e) CLERICAL AMENDMENT.—The table of sections for
part I of subchapter B of chapter 68 is amended by striking
the item relating to section 6702 and inserting the following
new item:
‘‘Sec. 6702. Frivolous tax submissions.’’
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to submissions made and issues raised
after the date on which the Secretary first prescribes a list
under section 6702(c) of the Internal Revenue Code of 1986,
as amended by subsection (a).
SEC. 624. REGULATION OF INDIVIDUALS PRACTICING BE-
FORE THE DEPARTMENT OF TREASURY.
(a) CENSURE; IMPOSITION OF PENALTY.—
(1) IN
GENERAL.—Section 330(b) of title 31,
United States Code, is amended—
(A) by inserting ‘‘, or censure,’’ after ‘‘De-
partment’’, and
190
(B) by adding at the end the following new
flush sentence:
‘‘The Secretary may impose a monetary penalty on any
representative described in the preceding sentence. If the
representative was acting on behalf of an employer or any
firm or other entity in connection with the conduct giving
rise to such penalty, the Secretary may impose a monetary
penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such pen-
alty shall not exceed the gross income derived (or to be de-
rived) from the conduct giving rise to the penalty and may
be in addition to, or in lieu of, any suspension, disbarment,
or censure.’’
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to actions taken after
the date of the enactment of this Act.
(b) TAX SHELTER OPINIONS, ETC.—Section 330 of
such title 31 is amended by adding at the end the following
new subsection:
‘‘(d) Nothing in this section or in any other provision
of law shall be construed to limit the authority of the Sec-
retary of the Treasury to impose standards applicable to
the rendering of written advice with respect to any entity,
transaction plan or arrangement, or other plan or arrange-
191
ment, which is of a type which the Secretary determines
as having a potential for tax avoidance or evasion.’’
SEC. 625. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) PENALTY ON PROMOTING ABUSIVE TAX SHEL-
TERS.—Section 6700(a) is amended by adding at the end
the following new sentence: ‘‘Notwithstanding the first sen-
tence, if an activity with respect to which a penalty im-
posed under this subsection involves a statement described
in paragraph (2)(A), the amount of the penalty shall be
equal to 50 percent of the gross income derived (or to be
derived) from such activity by the person on which the pen-
alty is imposed.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to activities after the date of the enact-
ment of this Act.
PART III—OTHER PROVISIONS
SEC. 631. AFFIRMATION OF CONSOLIDATED RETURN REGU-
LATION AUTHORITY.
(a) IN GENERAL.—Section 1502 (relating to consoli-
dated return regulations) is amended by adding at the end
the following new sentence: ‘‘In prescribing such regula-
tions, the Secretary may prescribe rules applicable to cor-
porations filing consolidated returns under section 1501
that are different from other provisions of this title that
would apply if such corporations filed separate returns.’’
192
(b) RESULT
NOT
OVERTURNED.—Notwithstanding
subsection (a), the Internal Revenue Code of 1986 shall be
construed by treating Treasury regulation § 1.1502–
20(c)(1)(iii) (as in effect on January 1, 2001) as being in-
applicable to the type of factual situation in Rite Aid Cor-
poration v. United States, 255 F.3d 1357 (Fed. Cir. 2001).
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to taxable years beginning before, on, or after
the date of the enactment of this Act.
Subtitle B—Tax Treatment of
Inversion Transactions
SEC. 641. TAX TREATMENT OF INVERTED CORPORATE ENTI-
TIES.
(a) IN GENERAL.—Subchapter C of chapter 80 (relat-
ing to provisions affecting more than one subtitle) is
amended by adding at the end the following new section:
‘‘SEC. 7874. RULES RELATING TO INVERTED CORPORATE
ENTITIES.
‘‘(a) INVERTED CORPORATIONS TREATED AS DOMES-
TIC CORPORATIONS.—
‘‘(1) IN GENERAL.—If a foreign incorporated en-
tity is treated as an inverted domestic corporation,
then, notwithstanding section 7701(a)(4), such entity
shall be treated for purposes of this title as a domestic
corporation.
193
‘‘(2) INVERTED
DOMESTIC
CORPORATION.—For
purposes of this section, a foreign incorporated entity
shall be treated as an inverted domestic corporation
if, pursuant to a plan (or a series of related trans-
actions)—
‘‘(A) the entity completes after March 20,
2002, the direct or indirect acquisition of sub-
stantially all of the properties held directly or
indirectly by a domestic corporation or substan-
tially all of the properties constituting a trade or
business of a domestic partnership,
‘‘(B) after the acquisition at least 80 per-
cent of the stock (by vote or value) of the entity
is held—
‘‘(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic cor-
poration, or
‘‘(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by rea-
son of holding a capital or profits interest
in the domestic partnership, and
194
‘‘(C) the expanded affiliated group which
after the acquisition includes the entity does not
have substantial business activities in the foreign
country in which or under the law of which the
entity is created or organized when compared to
the total business activities of such expanded af-
filiated group.
‘‘(b) PRESERVATION OF DOMESTIC TAX BASE IN CER-
TAIN INVERSION TRANSACTIONS TO WHICH SUBSECTION
(a) DOES NOT APPLY.—
‘‘(1) IN GENERAL.—If a foreign incorporated en-
tity would be treated as an inverted domestic corpora-
tion with respect to an acquired entity if either—
‘‘(A) subsection (a)(2)(A) were applied by
substituting ‘after December 31, 1996, and on or
before March 20, 2002’ for ‘after March 20, 2002’
and subsection (a)(2)(B) were applied by sub-
stituting ‘more than 50 percent’ for ‘at least 80
percent’, or
‘‘(B) subsection (a)(2)(B) were applied by
substituting ‘more than 50 percent’ for ‘at least
80 percent’,
then the rules of subsection (c) shall apply to any in-
version gain of the acquired entity during the appli-
cable period and the rules of subsection (d) shall
195
apply to any related party transaction of the ac-
quired entity during the applicable period. This sub-
section shall not apply for any taxable year if sub-
section (a) applies to such foreign incorporated entity
for such taxable year.
‘‘(2) ACQUIRED ENTITY.—For purposes of this
section—
‘‘(A) IN GENERAL.—The term ‘acquired en-
tity’ means the domestic corporation or partner-
ship substantially all of the properties of which
are directly or indirectly acquired in an acquisi-
tion described in subsection (a)(2)(A) to which
this subsection applies.
‘‘(B) AGGREGATION RULES.—Any domestic
person bearing a relationship described in sec-
tion 267(b) or 707(b) to an acquired entity shall
be treated as an acquired entity with respect to
the acquisition described in subparagraph (A).
‘‘(3) APPLICABLE PERIOD.—For purposes of this
section—
‘‘(A) IN
GENERAL.—The term ‘applicable
period’ means the period—
‘‘(i) beginning on the first date prop-
erties are acquired as part of the acquisi-
196
tion described in subsection (a)(2)(A) to
which this subsection applies, and
‘‘(ii) ending on the date which is 10
years after the last date properties are ac-
quired as part of such acquisition.
‘‘(B) SPECIAL RULE FOR INVERSIONS OC-
CURRING BEFORE MARCH 21, 2002.—In the case
of any acquired entity to which paragraph
(1)(A) applies, the applicable period shall be the
10-year period beginning on January 1, 2002.
‘‘(c) TAX ON INVERSION GAINS MAY NOT BE OFF-
SET.—If subsection (b) applies—
‘‘(1) IN GENERAL.—The taxable income of an ac-
quired entity (or any expanded affiliated group which
includes such entity) for any taxable year which in-
cludes any portion of the applicable period shall in
no event be less than the inversion gain of the entity
for the taxable year.
‘‘(2) CREDITS NOT ALLOWED AGAINST TAX ON IN-
VERSION GAIN.—Credits shall be allowed against the
tax imposed by this chapter on an acquired entity for
any taxable year described in paragraph (1) only to
the extent such tax exceeds the product of—
‘‘(A) the amount of the inversion gain for
the taxable year, and