I 
108TH CONGRESS 
2D SESSION 
H. R. 4351 
To amend the Internal Revenue Code of 1986 to restrict the use of abusive 
tax shelters. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 12, 2004 
Mr. EMANUEL introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to restrict 
the use of abusive tax shelters. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Tax Shelter Promoter 
Liability Act of 2004’’. 
SEC 2. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS. 
(a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL-
TERS.—Section 6700 of the Internal Revenue Code of 
1986 (relating to promoting abusive tax shelters, etc.) is 
amended—
(1) by redesignating subsections (b) and (c) as 
subsections (d) and (e), respectively, 
(2) by striking ‘‘a penalty’’ and all that follows 
through the period in the first sentence of subsection 
(a) and inserting ‘‘a penalty determined under sub-
section (b)’’, and 
(3) by inserting after subsection (a) the fol-
lowing new subsections: 
‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN-
ALTY; LIABILITY FOR PENALTY.— 
‘‘(1) AMOUNT OF PENALTY.—The amount of 
the penalty imposed by subsection (a) shall not ex-
ceed 150 percent of the gross income derived (or to 
be derived) from such activity by the person or per-
sons subject to such penalty. 
‘‘(2) CALCULATION OF PENALTY.—The penalty 
amount determined under paragraph (1) shall be 
calculated with respect to each instance of an activ-
ity described in subsection (a), each instance in 
which income was derived by the person or persons 
subject to such penalty, and each person who par-
ticipated in such an activity. 
‘‘(3) LIABILITY FOR PENALTY.—If more than 1 
person is liable under subsection (a) with respect to 
such activity, all such persons shall be jointly and
severally liable for the penalty under such sub-
section. 
‘‘(c) PENALTY NOT DEDUCTIBLE.—The payment of 
any penalty imposed under this section or the payment 
of any amount to settle or avoid the imposition of such 
penalty shall not be considered an ordinary and necessary 
expense in carrying on a trade or business for purposes 
of this title and shall not be deductible by the person who 
is subject to such penalty or who makes such payment.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to activities after the date of the 
enactment of this Act. 
SEC. 3. PENALTY FOR AIDING AND ABETTING THE UNDER-
STATEMENT OF TAX LIABILITY. 
(a) IN GENERAL.—Section 6701(a) of the Internal 
Revenue Code of 1986 (relating to imposition of penalty) 
is amended— 
(1) by inserting ‘‘the tax liability or’’ after ‘‘re-
spect to,’’ in paragraph (1), 
(2) by inserting ‘‘aid, assistance, procurement, 
or advice with respect to such’’ before ‘‘portion’’ 
both places it appears in paragraphs (2) and (3), 
and
(3) by inserting ‘‘instance of aid, assistance, 
procurement, or advice or each such’’ before ‘‘docu-
ment’’ in the matter following paragraph (3). 
(b) AMOUNT OF PENALTY.—Subsection (b) of section 
6701 of such Code (relating to penalties for aiding and 
abetting understatement of tax liability) is amended to 
read as follows: 
‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN-
ALTY; LIABILITY FOR PENALTY.— 
‘‘(1) AMOUNT OF PENALTY.—The amount of 
the penalty imposed by subsection (a) shall not ex-
ceed 150 percent of the gross income derived (or to 
be derived) from such aid, assistance, procurement, 
or advice provided by the person or persons subject 
to such penalty. 
‘‘(2) CALCULATION OF PENALTY.—The penalty 
amount determined under paragraph (1) shall be 
calculated with respect to each instance of aid, as-
sistance, procurement, or advice described in sub-
section (a), each instance in which income was de-
rived by the person or persons subject to such pen-
alty, and each person who made such an understate-
ment of the liability for tax. 
‘‘(3) LIABILITY FOR PENALTY.—If more than 1 
person is liable under subsection (a) with respect to
providing such aid, assistance, procurement, or ad-
vice, all such persons shall be jointly and severally 
liable for the penalty under such subsection.’’. 
(c) PENALTY NOT DEDUCTIBLE.—Section 6701 of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of 
any penalty imposed under this section or the payment 
of any amount to settle or avoid the imposition of such 
penalty shall not be considered an ordinary and necessary 
expense in carrying on a trade or business for purposes 
of this title and shall not be deductible by the person who 
is subject to such penalty or who makes such payment.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to activities after the date of the 
enactment of this Act. 
SEC. 4. PENALTY FOR FAILURE TO REGISTER TAX SHEL-
TER. 
(a) IN GENERAL.—Section 6707 of the Internal Rev-
enue Code of 1986 (relating to failure to furnish informa-
tion regarding tax shelters) is amended to read as follows:
‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION ON PO-
TENTIALLY ABUSIVE TAX SHELTER OR LIST-
ED TRANSACTION. 
‘‘(a) IN GENERAL.—If a person who is required to 
file a return under section 6111 with respect to any poten-
tially abusive tax shelter— 
‘‘(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 shelter, 
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 not less than 
$50,000 and not more than $100,000. 
‘‘(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) 100 percent of the gross income de-
rived by such person for providing aid, assist-
ance, procurement, advice, or other services 
with respect to the listed transaction before the
date the return including the transaction is 
filed under section 6111. 
Subparagraph (B) shall be applied by substituting 
‘150 percent’ for ‘100 percent’ in the case of an in-
tentional failure or act described in subsection (a). 
‘‘(c) CERTAIN RULES TO APPLY.—The provisions of 
section 6707A(d) allowing the Commissioner of Internal 
Revenue to rescind a penalty under certain circumstances 
shall apply to any penalty imposed under this section. 
‘‘(d) POTENTIALLY ABUSIVE TAX SHELTERS AND 
LISTED TRANSACTIONS.—The terms ‘potentially abusive 
tax shelter’ and ‘listed transaction’ have the respective 
meanings given to such terms by section 6707A(c). 
‘‘(e) PENALTY NOT DEDUCTIBLE.—The payment of 
any penalty imposed under this section or the payment 
of any amount to settle or avoid the imposition of such 
penalty shall not be considered an ordinary and necessary 
expense in carrying on a trade or business for purposes 
of this title and shall not be deductible by the person who 
is subject to such penalty or who makes such payment.’’. 
(b) CLERICAL AMENDMENT.—The item relating to 
section 6707 in the table of sections for part I of sub-
chapter B of chapter 68 of such Code is amended by strik-
ing ‘‘regarding tax shelters’’ and inserting ‘‘on potentially 
abusive tax shelter or listed transaction’’.
(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. 5. PENALTY FOR FAILING TO MAINTAIN CLIENT LIST. 
(a) IN GENERAL.—Subsection (a) of section 6708 of 
the Internal Revenue Code of 1986 (relating to failure to 
maintain lists of investors in potentially abusive tax shel-
ters) 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 fail-
ure after such 20th day. If such person makes avail-
able an incomplete list upon such request, such per-
son shall pay a penalty of $100 per each omitted 
name for each day of such omission after such 20th 
day. 
‘‘(2) GOOD
CAUSE
EXCEPTION.—No penalty 
shall be imposed by paragraph (1) with respect to 
the failure on any day if, in the judgment of the 
Secretary, such failure is due to good cause.’’.
(b) PENALTY NOT DEDUCTIBLE.—Section 6708 of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(c) PENALTY NOT DEDUCTIBLE.—The payment of 
any penalty imposed under this section or the payment 
of any amount to settle or avoid the imposition of such 
penalty shall not be considered an ordinary and necessary 
expense in carrying on a trade or business for purposes 
of this title and shall not be deductible by the person who 
is subject to such penalty or who makes such payment.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to requests made by the Secretary 
of the Treasury after the date of the enactment of this 
Act. 
SEC. 6. PENALTY FOR FAILING TO DISCLOSE POTENTIALLY 
ABUSIVE TAX SHELTER. 
(a) IN GENERAL.—Part I of subchapter B of chapter 
68 of the Internal Revenue Code of 1986 (relating to as-
sessable penalties) is amended by inserting after section 
6707 the following new section: 
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE POTEN-
TIALLY ABUSIVE TAX SHELTER INFORMA-
TION WITH RETURN OR STATEMENT. 
‘‘(a) IMPOSITION
OF PENALTY.—Any person who 
fails to include on any return or statement any informa-
tion with respect to a potentially abusive tax shelter which 
is required under section 6011 to be included with such 
return or statement shall pay a penalty in the amount de-
termined under subsection (b). 
‘‘(b) AMOUNT OF PENALTY.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amount of the penalty under 
subsection (a) shall be $50,000. 
‘‘(2) LISTED
TRANSACTION.—Except as pro-
vided in paragraph 3, the amount of the penalty 
under subsection (a) with respect to a listed trans-
action shall be $100,000. 
‘‘(3) INCREASE IN PENALTY FOR INTENTIONAL 
NONDISCLOSURE.—In the case of an intentional fail-
ure by any person under subsection (a), the penalty 
under paragraph (1) shall be $100,000 and the pen-
alty under paragraph (2) shall be $200,000. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) POTENTIALLY ABUSIVE TAX SHELTER.— 
The term ‘potentially abusive tax shelter’ means any 
transaction with respect to which information is re-
quired to be included with a return or statement, be-
cause the Secretary has determined by regulation or 
otherwise that such transaction has a potential for 
tax avoidance or evasion.
‘‘(2) LISTED
TRANSACTION.—Except as pro-
vided in regulations, the term ‘listed transaction’ 
means a potentially abusive tax shelter which is the 
same as, or substantially similar to, a transaction 
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 a 
penalty imposed by this section with respect to any 
violation if— 
‘‘(A) the violation is with respect to a po-
tentially abusive tax shelter other than a listed 
transaction, 
‘‘(B) the person on whom the penalty is 
imposed 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.
‘‘(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 
Commissioner, 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. 
A copy of such opinion shall be provided upon writ-
ten request to the Committee on Ways and Means
of the House of Representatives, the Committee on 
Finance of the Senate, the Joint Committee on Tax-
ation, or the General Accounting Office. 
‘‘(5) REPORT.—The Commissioner shall each 
year report to the Committee on Ways and Means 
of 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 re-
scinded 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 Ex-
change Act of 1934 or is required to be consolidated 
with another 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 
section 6662A with respect to any potentially
abusive tax shelter at a rate prescribed under 
section 6662A(c), or 
‘‘(C) is required to pay a penalty under 
section 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 
Secretary shall specify. Failure to make a disclosure in 
accordance with the preceding sentence shall be treated 
as a failure to which the penalty under subsection (b)(2) 
applies. 
‘‘(f) PENALTY
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalty imposed by this section shall be in 
addition to any other penalty provided by law. 
‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of 
any penalty imposed under this section or the payment 
of any amount to settle or avoid the imposition of such 
penalty shall not be considered an ordinary and necessary 
expense in carrying on a trade or business for purposes 
of this title and shall not be deductible by the person who 
is subject to such penalty or who makes such payment.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 of such 
Code is amended by inserting after the item relating to 
section 6707 the following:
‘‘Sec. 6707A. Penalty for failure to include potentially abusive tax 
shelter information with return or statement.’’. 
(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. 
SEC. 7. IMPROVED DISCLOSURE OF POTENTIALLY ABUSIVE 
TAX SHELTERS. 
(a) IN GENERAL.—Section 6111 of the Internal Rev-
enue Code of 1986 (relating to registration of tax shelters) 
is amended to read as follows: 
‘‘SEC. 6111. DISCLOSURE OF POTENTIALLY ABUSIVE TAX 
SHELTERS. 
‘‘(a) IN GENERAL.—Each material advisor with re-
spect to any potentially abusive tax shelter shall make a 
return (in such form as the Secretary may prescribe) set-
ting forth— 
‘‘(1) information identifying and describing 
such shelter, 
‘‘(2) information describing any potential tax 
benefits expected to result from the shelter, and 
‘‘(3) such other information as the Secretary 
may prescribe. 
Such return shall be filed not later than the date which 
is 30 days before the date on which the first sale of such
shelter occurs or on any other date specified by the Sec-
retary. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) MATERIAL ADVISOR.— 
‘‘(A) IN
GENERAL.—The term ‘material 
advisor’ means any person— 
‘‘(i) who provides any material aid, 
assistance, or advice with respect to de-
signing, organizing, managing, promoting, 
selling, implementing, or carrying out any 
potentially abusive tax shelter, 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— 
‘‘(i) $50,000 in the case of a poten-
tially abusive tax shelter substantially all 
of the tax benefits from which are provided 
to natural persons, and 
‘‘(ii) $100,000 in any other case. 
‘‘(2) POTENTIALLY ABUSIVE TAX SHELTER.— 
The term ‘potentially abusive tax shelter’ has the 
meaning given to such term by section 6707A(c).
‘‘(c) REGULATIONS.—The Secretary may prescribe 
regulations 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 re-
quired 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 of 
such Code is amended to read as follows: 
‘‘Sec. 6111. Disclosure of potentially abusive tax shelters.’’. 
(2)(A) So much of section 6112 of such Code 
as precedes subsection (c) thereof is amended to 
read as follows: 
‘‘SEC. 6112. MATERIAL ADVISORS OF POTENTIALLY ABU-
SIVE TAX SHELTERS MUST KEEP CLIENT 
LISTS. 
‘‘(a) IN GENERAL.—Each material advisor (as de-
fined in section 6111) with respect to any potentially abu-
sive tax shelter (as defined in section 6707A(c)) shall 
maintain, in such manner as the Secretary may by regula-
tions prescribe, a list—
‘‘(1) identifying each person with respect to 
whom such advisor acted as such a material advisor 
with respect to such shelter, 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 of such Code is amended by 
redesignating subsection (c) as subsection (b). 
(C) Section 6112(b) of such Code, as redesig-
nated by subparagraph (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 of 
such Code is amended to read as follows: 
‘‘Sec. 6112. Material advisors of potentially abusive tax shelters 
must keep client lists.’’. 
(3)(A) The heading for section 6708 of such 
Code is amended to read as follows:
‘‘SEC. 6708. FAILURE TO MAINTAIN CLIENT LISTS WITH RE-
SPECT TO POTENTIALLY ABUSIVE TAX SHEL-
TERS.’’. 
(B) The item relating to section 6708 in the 
table of sections for part I of subchapter B of chap-
ter 68 of such Code is amended to read as follows: 
‘‘Sec. 6708. Failure to maintain client lists with respect to poten-
tially abusive tax shelters.’’. 
(c) REQUIRED DISCLOSURE NOT SUBJECT TO CLAIM 
OF CONFIDENTIALITY.—Section 6112(b)(1) of such Code, 
as redesignated by subsection (b)(2)(B), is amended by 
adding at the end the following new flush sentence: 
‘‘For purposes of this section, the identity of any 
person 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 ma-
terial 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. 
(2) NO CLAIM OF CONFIDENTIALITY AGAINST 
DISCLOSURE.—The amendment made by subsection 
(c) shall take effect as if included in the amend-
ments made by section 142 of the Deficit Reduction 
Act of 1984. 
SEC. 8. EXTENSION OF STATUTE OF LIMITATIONS FOR UN-
DISCLOSED TAX SHELTER. 
(a) IN GENERAL.—Section 6501(c) of the Internal 
Revenue Code of 1986 (relating to exceptions) is amended 
by adding at the end the following new paragraph: 
‘‘(10) 
POTENTIALLY
ABUSIVE
TAX
SHEL-
TERS.—If a taxpayer fails to include on any return 
or statement for any taxable year any information 
with respect to a potentially abusive tax shelter (as 
defined in section 6707A(c)) which is required under 
section 6011 to be included with such return or 
statement, the time for assessment of any tax im-
posed by this title with respect to such transaction 
shall not expire before the date which is 2 years 
after the earlier of— 
‘‘(A) the date on which the Secretary is 
furnished the information so required; or 
‘‘(B) the date that a material advisor (as 
defined in section 6111) meets the requirements 
of section 6112 with respect to a request by the 
Secretary under section 6112(b) relating to 
such transaction with respect to such tax-
payer.’’.