I 
111TH CONGRESS 
1ST SESSION H. R. 1265 
To restrict the use of offshore tax havens and abusive tax shelters to 
inappropriately avoid Federal taxation, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 3, 2009 
Mr. DOGGETT (for himself, Mr. LARSON of Connecticut, Mr. VAN HOLLEN, 
Ms. BERKLEY, Mr. BLUMENAUER, Mr. DAVIS of Illinois, Mr. HIGGINS, 
Mr. LEVIN, Mr. LEWIS of Georgia, Mr. MCDERMOTT, Mr. NEAL of Mas-
sachusetts, Mr. PASCRELL, Ms. LINDA T. SA´NCHEZ of California, Mr. 
STARK, Mr. YARMUTH, Ms. DELAURO, Mr. GEORGE MILLER of Cali-
fornia, Mr. ABERCROMBIE, Mr. ANDREWS, Mr. BISHOP of New York, Mr. 
CLEAVER, Mr. CONYERS, Mr. COSTELLO, Mr. CUMMINGS, Mr. DEFAZIO, 
Mr. ELLISON, Mr. FARR, Mr. FATTAH, Mr. FILNER, Mr. GENE GREEN 
of Texas, Mr. GRIJALVA, Mr. HARE, Mr. HINCHEY, Ms. EDDIE BERNICE 
JOHNSON of Texas, Mr. JOHNSON of Georgia, Ms. KAPTUR, Ms. LEE of 
California, Mr. LOEBSACK, Mr. LYNCH, Mr. MARKEY of Massachusetts, 
Mr. MCGOVERN, Ms. MOORE of Wisconsin, Mr. MORAN of Virginia, Mr. 
NADLER of New York, Mr. PAYNE, Mr. RUSH, Ms. SCHAKOWSKY, Mr. 
SESTAK, Mr. SHERMAN, Ms. SLAUGHTER, Mr. STUPAK, Ms. SUTTON, 
Mr. TIERNEY, Ms. WATSON, Mr. WELCH, Mr. HOLT, and Ms. JACKSON- 
LEE of Texas) introduced the following bill; which was referred to the 
Committee on Ways and Means, and in addition to the Committees on 
Financial Services and the Judiciary, for a period to be subsequently de-
termined by the Speaker, in each case for consideration of such provisions 
as fall within the jurisdiction of the committee concerned 
A BILL 
To restrict the use of offshore tax havens and abusive tax 
shelters to inappropriately avoid Federal taxation, and 
for other purposes. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Stop Tax Haven Abuse Act’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; etc. 
TITLE I—DETERRING THE USE OF TAX HAVENS FOR TAX 
EVASION 
Sec. 101. Establishing presumptions for entities and transactions involving off-
shore secrecy jurisdictions. 
Sec. 102. Authorizing special measures against foreign jurisdictions, financial 
institutions, and others that impede United States tax enforce-
ment. 
Sec. 103. Treatment of foreign corporations managed and controlled in the 
United States as domestic corporations. 
Sec. 104. Allowing more time for investigations involving offshore secrecy juris-
dictions. 
Sec. 105. Reporting United States beneficial owners of foreign owned financial 
accounts. 
Sec. 106. Preventing misuse of foreign trusts for tax evasion. 
Sec. 107. Limitation on legal opinion protection from penalties with respect to 
transactions involving offshore secrecy jurisdictions. 
Sec. 108. Closing the offshore dividend tax loophole. 
Sec. 109. Reporting of activities with respect to passive foreign investment com-
panies. 
TITLE II—OTHER MEASURES TO COMBAT TAX HAVEN AND TAX 
SHELTER ABUSES 
Sec. 201. Penalty for failing to disclose offshore holdings. 
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Sec. 202. Deadline for anti-money laundering rule for hedge funds and private 
equity funds. 
Sec. 203. Anti-money laundering requirements for formation agents. 
Sec. 204. Strengthening summons in cases involving offshore secrecy jurisdic-
tions. 
Sec. 205. Improving enforcement of foreign financial account reporting. 
TITLE III—COMBATING TAX SHELTER PROMOTERS 
Sec. 301. Penalty for promoting abusive tax shelters. 
Sec. 302. Penalty for aiding and abetting the understatement of tax liability. 
Sec. 303. Tax planning inventions not patentable. 
Sec. 304. Prohibited fee arrangement. 
Sec. 305. Preventing tax shelter activities by financial institutions. 
Sec. 306. Information sharing for enforcement purposes. 
Sec. 307. Disclosure of information to Congress. 
Sec. 308. Tax opinion standards for tax practitioners. 
Sec. 309. Denial of deduction for certain fines, penalties, and other amounts. 
TITLE IV—REQUIRING ECONOMIC SUBSTANCE 
Sec. 401. Clarification of economic substance doctrine. 
Sec. 402. Penalty for understatements attributable to transactions lacking eco-
nomic substance, etc. 
Sec. 403. Denial of deduction for interest on underpayments attributable to 
noneconomic substance transactions. 
TITLE I—DETERRING THE USE 
OF TAX HAVENS FOR TAX 
EVASION 
SEC. 101. ESTABLISHING PRESUMPTIONS FOR ENTITIES 
AND TRANSACTIONS INVOLVING OFFSHORE 
SECRECY JURISDICTIONS. 
(a) PRESUMPTIONS FOR INTERNAL REVENUE CODE 
OF 1986.— 
(1) IN GENERAL.—Chapter 76 is amended by 
inserting after section 7491 the following new sub-
chapter: 
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‘‘Subchapter F—Presumptions for Certain 
Legal Proceedings 
‘‘Sec. 7492. Presumptions pertaining to entities and transactions involving off-
shore secrecy jurisdictions. 
‘‘SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND 
TRANSACTIONS INVOLVING OFFSHORE SE-
CRECY JURISDICTIONS. 
‘‘(a) CONTROL.—For purposes of any United States 
civil judicial or administrative proceeding to determine or 
collect tax, there shall be a rebuttable presumption that 
a United States person (other than an entity with shares 
regularly traded on an established securities market) who 
directly or indirectly formed, transferred assets to, was a 
beneficiary of, had a beneficial interest in, or received 
money or property or the use thereof from an entity, in-
cluding a trust, corporation, limited liability company, 
partnership, or foundation (other than an entity with 
shares regularly traded on an established securities mar-
ket), formed, domiciled, or operating in an offshore se-
crecy jurisdiction, exercised control over such entity. The 
presumption of control created by this subsection shall not 
be applied to prevent the Secretary from determining or 
arguing the absence of control. 
‘‘(b) TRANSFERS OF INCOME.—For purposes of any 
United States civil judicial or administrative proceeding 
to determine or collect tax, there shall be a rebuttable pre-
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sumption that any amount or thing of value received by 
a United States person (other than an entity with shares 
regularly traded on an established securities market) di-
rectly or indirectly from an account or entity (other than 
an entity with shares regularly traded on an established 
securities market) in an offshore secrecy jurisdiction, con-
stitutes income of such person taxable in the year of re-
ceipt, and any amount or thing of value paid or trans-
ferred by or on behalf of a United States person (other 
than an entity with shares regularly traded on an estab-
lished securities market) directly or indirectly to an ac-
count or entity (other than an entity with shares regularly 
traded on an established securities market) in any such 
jurisdiction represents previously unreported income of 
such person taxable in the year of the transfer. 
‘‘(c) REBUTTING
THE PRESUMPTIONS.—The pre-
sumptions established in this section may be rebutted only 
by clear and convincing evidence, including detailed docu-
mentary, testimonial, and transactional evidence, estab-
lishing that— 
‘‘(1) in subsection (a), such taxpayer exercised 
no control, directly or indirectly, over such entity at 
the time in question, and 
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‘‘(2) in subsection (b), such amounts or things 
of value did not represent income related to such 
United States person. 
Any court having jurisdiction of a civil proceeding in which 
control of such an offshore entity or the income character 
of such receipts or amounts transferred is an issue shall 
prohibit the introduction by the taxpayer of any foreign 
based document that is not authenticated in open court 
by a person with knowledge of such document, or any 
other evidence supplied by a person outside the jurisdic-
tion of a United States court, unless such person appears 
before the court.’’. 
(2) The table of subchapters for chapter 76 is 
amended by inserting after the item relating to sub-
chapter E the following new item: 
‘‘SUBCHAPTER F—PRESUMPTIONS FOR CERTAIN LEGAL PROCEEDINGS’’. 
(b) DEFINITION OF OFFSHORE SECRECY JURISDIC-
TION.—Section 7701(a) is amended by adding at the end 
the following new paragraph: 
‘‘(50) OFFSHORE SECRECY JURISDICTION.— 
‘‘(A) IN GENERAL.—The term ‘offshore se-
crecy jurisdiction’ means any foreign jurisdic-
tion which is listed by the Secretary as an off-
shore secrecy jurisdiction for purposes of this 
title. 
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‘‘(B) DETERMINATION OF JURISDICTIONS 
ON LIST.—A jurisdiction shall be listed under 
paragraph (A) if the Secretary determines that 
such jurisdiction has corporate, business, bank, 
or tax secrecy rules and practices which, in the 
judgment of the Secretary, unreasonably re-
strict the ability of the United States to obtain 
information relevant to the enforcement of this 
title, unless the Secretary also determines that 
such country has effective information exchange 
practices. 
‘‘(C) 
SECRECY
OR
CONFIDENTIALITY 
RULES AND PRACTICES.—For purposes of sub-
paragraph (B), corporate, business, bank, or 
tax secrecy or confidentiality rules and practices 
include both formal laws and regulations and 
informal government or business practices hav-
ing the effect of inhibiting access of law en-
forcement and tax administration authorities to 
beneficial ownership and other financial infor-
mation. 
‘‘(D) 
INEFFECTIVE
INFORMATION
EX-
CHANGE PRACTICES.—For purposes of subpara-
graph (B), a jurisdiction shall be deemed to 
have ineffective information exchange practices 
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unless the Secretary determines, on an annual 
basis, that— 
‘‘(i) such jurisdiction has in effect a 
treaty or other information exchange 
agreement with the United States that 
provides for the prompt, obligatory, and 
automatic exchange of such information as 
is forseeably relevant for carrying out the 
provisions of the treaty or agreement or 
the administration or enforcement of this 
title, 
‘‘(ii) during the 12-month period pre-
ceding the annual determination, the ex-
change of information between the United 
States and such jurisdiction was in prac-
tice adequate to prevent evasion or avoid-
ance of United States income tax by 
United States persons and to enable the 
United States effectively to enforce this 
title, and 
‘‘(iii) during the 12-month period pre-
ceding the annual determination, such ju-
risdiction was not identified by an inter-
governmental group or organization of 
which the United States is a member as 
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uncooperative with international tax en-
forcement or information exchange and the 
United States concurs in such identifica-
tion. 
‘‘(E) INITIAL LIST OF OFFSHORE SECRECY 
JURISDICTIONS.—For purposes of this para-
graph, each of the following foreign jurisdic-
tions, which have been previously and publicly 
identified by the Internal Revenue Service as 
secrecy jurisdictions in Federal court pro-
ceedings, shall be deemed listed by the Sec-
retary as an offshore secrecy jurisdiction unless 
delisted by the Secretary under subparagraph 
(F)(ii): 
‘‘(i) Anguilla. 
‘‘(ii) Antigua and Barbuda. 
‘‘(iii) Aruba. 
‘‘(iv) Bahamas. 
‘‘(v) Barbados. 
‘‘(vi) Belize. 
‘‘(vii) Bermuda. 
‘‘(viii) British Virgin Islands. 
‘‘(ix) Cayman Islands. 
‘‘(x) Cook Islands. 
‘‘(xi) Costa Rica. 
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‘‘(xii) Cyprus. 
‘‘(xiii) Dominica. 
‘‘(xiv) Gibraltar. 
‘‘(xv) Grenada. 
‘‘(xvi) Guernsey/Sark/Alderney. 
‘‘(xvii) Hong Kong. 
‘‘(xviii) Isle of Man. 
‘‘(xix) Jersey. 
‘‘(xx) Latvia. 
‘‘(xxi) Liechtenstein. 
‘‘(xxii) Luxembourg. 
‘‘(xxiii) Malta. 
‘‘(xxiv) Nauru. 
‘‘(xxv) Netherlands Antilles. 
‘‘(xxvi) Panama. 
‘‘(xxvii) Samoa. 
‘‘(xxviii) St. Kitts and Nevis. 
‘‘(xxix) St. Lucia. 
‘‘(xxx) St. Vincent and the Grena-
dines. 
‘‘(xxxi) Singapore. 
‘‘(xxxii) Switzerland. 
‘‘(xxxiii) Turks and Caicos. 
‘‘(xxxiv) Vanuatu. 
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‘‘(F) MODIFICATIONS TO LIST.—The Sec-
retary— 
‘‘(i) shall add to the list under para-
graph (A) jurisdictions which meet the re-
quirements of paragraph (B), and 
‘‘(ii) may remove from such list only 
those jurisdictions which do not meet the 
requirements of paragraph (B).’’. 
(c) PRESUMPTIONS
FOR SECURITIES LAW PUR-
POSES.—Section 21 of the Securities Exchange Act of 
1934 (15 U.S.C. 78u) is amended by adding at the end 
the following the following new subsection: 
‘‘(j) PRESUMPTIONS PERTAINING TO CONTROL AND 
BENEFICIAL OWNERSHIP.— 
‘‘(1) CONTROL.—For purposes of any civil judi-
cial or administrative proceeding under this title, 
there shall be a rebuttable presumption that a 
United States person (other than an entity with 
shares regularly traded on an established securities 
market) who directly or indirectly formed, trans-
ferred assets to, was a beneficiary of, had a bene-
ficial interest in, or received money or property or 
the use thereof from an entity, including a trust, 
corporation, limited liability company, partnership, 
or foundation (other than an entity with shares reg-
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ularly traded on an established securities market), 
formed, domiciled, or operating in an offshore se-
crecy jurisdiction (as defined in section 7701(a)(50) 
of the Internal Revenue Code of 1986), exercised 
control over such entity. The presumption of control 
created by this paragraph shall not be applied to 
prevent the Commission from determining or argu-
ing the absence of control. 
‘‘(2) BENEFICIAL OWNERSHIP.—For purposes 
of any civil judicial or administrative proceeding 
under this title, there shall be a rebuttable presump-
tion that securities that are nominally owned by an 
entity, including a trust, corporation, limited liability 
company, partnership, or foundation (other than an 
entity with shares regularly traded on an established 
securities market), formed, domiciled, or operating 
in an offshore secrecy jurisdiction (as so defined), 
are beneficially owned by any United States person 
(other than an entity with shares regularly traded on 
an established securities market) who directly or in-
directly exercised control over such entity. The pre-
sumption of beneficial ownership created by this 
paragraph shall not be applied to prevent the Com-
mission from determining or arguing the absence of 
beneficial ownership.’’. 
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(d) PRESUMPTION FOR REPORTING PURPOSES RE-
LATING
TO FOREIGN FINANCIAL ACCOUNTS.—Section 
5314 of title 31, United States Code, is amended by add-
ing at the end the following: 
‘‘(d) REBUTTABLE PRESUMPTION.—For purposes of 
this section, there shall be a rebuttable presumption that 
any account with a financial institution formed, domiciled, 
or operating in an offshore secrecy jurisdiction (as defined 
in section 7701(a)(50) of the Internal Revenue Code of 
1986) contains funds in an amount that is at least suffi-
cient to require a report prescribed by regulations under 
this section.’’. 
(e) REGULATORY
AUTHORITY
AND
EFFECTIVE 
DATE.— 
(1) REGULATORY AUTHORITY.—Not later than 
180 days after the date of the enactment of this Act, 
the Secretary of the Treasury and the Chairman of 
the Securities and Exchange Commission shall each 
adopt regulations or other guidance necessary to im-
plement the amendments made by this section. The 
Secretary and the Chairman may by regulation or 
guidance provide that the presumption of control 
shall not extend to particular classes of transactions, 
such as corporate reorganizations or transactions 
below a specified dollar threshold, if either deter-
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mines that applying such amendments to such trans-
actions is not necessary to carry out the purposes of 
such amendments. 
(2) EFFECTIVE DATE.—The amendments made 
by this section shall take effect on the date of the 
enactment of this Act. 
SEC. 102. AUTHORIZING SPECIAL MEASURES AGAINST FOR-
EIGN JURISDICTIONS, FINANCIAL INSTITU-
TIONS, AND OTHERS THAT IMPEDE UNITED 
STATES TAX ENFORCEMENT. 
Section 5318A of title 31, United States Code, is 
amended— 
(1) by striking the section heading and insert-
ing the following: 
‘‘§ 5318A. Special measures for jurisdictions, financial 
institutions, or international transactions 
that are of primary money laundering 
concern or impede United States tax en-
forcement’’; 
(2) in subsection (a), by striking the subsection 
heading and inserting the following: 
‘‘(a) SPECIAL MEASURES TO COUNTER MONEY 
LAUNDERING AND EFFORTS TO IMPEDE UNITED STATES 
TAX ENFORCEMENT.—’’; 
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(3) in subsection (c), by striking the subsection 
heading and inserting the following: 
‘‘(c) CONSULTATIONS
AND INFORMATION TO BE 
CONSIDERED IN FINDING JURISDICTIONS, INSTITUTIONS, 
TYPES OF ACCOUNTS, OR TRANSACTIONS TO BE OF PRI-
MARY MONEY LAUNDERING CONCERN OR TO BE IMPED-
ING UNITED STATES TAX ENFORCEMENT.—’’; 
(4) in subsection (a)(1), by inserting ‘‘or is im-
peding United States tax enforcement’’ after ‘‘pri-
mary money laundering concern’’; 
(5) in subsection (a)(4)— 
(A) in subparagraph (A)— 
(i) by inserting ‘‘in matters involving 
money laundering,’’ before ‘‘shall consult’’; 
and 
(ii) by striking ‘‘and’’ at the end; 
(B) by redesignating subparagraph (B) as 
subparagraph (C); and 
(C) by inserting after subparagraph (A) 
the following: 
‘‘(B) in matters involving United States 
tax enforcement, shall consult with the Commis-
sioner of the Internal Revenue Service, the Sec-
retary of State, the Attorney General of the 
United States, and in the sole discretion of the 
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Secretary, such other agencies and interested 
parties as the Secretary may find to be appro-
priate; and’’; 
(6) in each of paragraphs (1)(A), (2), (3), and 
(4) of subsection (b), by inserting ‘‘or to be imped-
ing United States tax enforcement’’ after ‘‘primary 
money laundering concern’’ each place that term ap-
pears; 
(7) in subsection (b), by striking paragraph (5) 
and inserting the following: 
‘‘(5) PROHIBITIONS OR CONDITIONS ON OPEN-
ING OR MAINTAINING CERTAIN CORRESPONDENT OR 
PAYABLE-THROUGH
ACCOUNTS
OR
AUTHORIZING 
CERTAIN PAYMENT CARDS.—If the Secretary finds a 
jurisdiction outside of the United States, 1 or more 
financial institutions operating outside of the United 
States, or 1 or more classes of transactions within 
or involving a jurisdiction outside of the United 
States to be of primary money laundering concern or 
to be impeding United States tax enforcement, the 
Secretary, in consultation with the Secretary of 
State, the Attorney General of the United States, 
and the Chairman of the Board of Governors of the 
Federal Reserve System, may prohibit, or impose 
conditions upon— 
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‘‘(A) the opening or maintaining in the 
United States of a correspondent account or 
payable-through account; or 
‘‘(B) the authorization, approval, or use in 
the United States of a credit card, charge card, 
debit card, or similar credit or debit financial 
instrument by any domestic financial institu-
tion, financial agency, or credit card company 
or association, for or on behalf of a foreign 
banking institution, if such correspondent ac-
count, payable-through account, credit card, 
charge card, debit card, or similar credit or 
debit financial instrument, involves any such ju-
risdiction or institution, or if any such trans-
action may be conducted through such cor-
respondent account, payable-through account, 
credit card, charge card, debit card, or similar 
credit or debit financial instrument.’’; and 
(8) in subsection (c)(1), by inserting ‘‘or is im-
peding United States tax enforcement’’ after ‘‘pri-
mary money laundering concern’’; 
(9) in subsection (c)(2)(A)— 
(A) in clause (ii), by striking ‘‘bank secrecy 
or special regulatory advantages’’ and inserting 
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‘‘bank, tax, corporate, trust, or financial secrecy 
or regulatory advantages’’; 
(B) in clause (iii), by striking ‘‘supervisory 
and counter-money’’ and inserting ‘‘supervisory, 
international tax enforcement, and counter- 
money’’; 
(C) in clause (v), by striking ‘‘banking or 
secrecy’’ and inserting ‘‘banking, tax, or se-
crecy’’; and 
(D) in clause (vi), by inserting ‘‘, tax trea-
ty, or tax information exchange agreement’’ 
after ‘‘treaty’’; 
(10) in subsection (c)(2)(B)— 
(A) in clause (i), by inserting ‘‘or tax eva-
sion’’ after ‘‘money laundering’’; and 
(B) in clause (iii), by inserting ‘‘, tax eva-
sion,’’ after ‘‘money laundering’’; and 
(11) in subsection (d), by inserting ‘‘involving 
money laundering, and shall notify, in writing, the 
Committee on Finance of the Senate and the Com-
mittee on Ways and Means of the House of Rep-
resentatives of any such action involving United 
States tax enforcement’’ after ‘‘such action’’. 
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‘‘(iii) the Secretary grants a waiver to 
such corporation under this subparagraph. 
‘‘(C) EXCEPTION
FROM
GROSS
ASSETS 
TEST.—Subparagraph (A)(ii) shall not apply to 
a corporation which is a controlled foreign cor-
poration (as defined in section 957) and which 
is a member of an affiliated group (as defined 
section 1504, but determined without regard to 
section 1504(b)(3)) the common parent of 
which— 
‘‘(i) is a domestic corporation (deter-
mined without regard to this subsection), 
and 
‘‘(ii) has substantial assets (other 
than cash and cash equivalents and other 
than stock of foreign subsidiaries) held for 
use in the active conduct of a trade or 
business in the United States. 
‘‘(3) MANAGEMENT AND CONTROL.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
prescribe regulations for purposes of deter-
mining cases in which the management and 
control of a corporation is to be treated as oc-
curring primarily within the United States. 
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‘‘(B) EXECUTIVE OFFICERS AND SENIOR 
MANAGEMENT.—Such regulations shall provide 
that— 
‘‘(i) the management and control of a 
corporation shall be treated as occurring 
primarily within the United States if sub-
stantially all of the executive officers and 
senior management of the corporation who 
exercise day-to-day responsibility for mak-
ing decisions involving strategic, financial, 
and operational policies of the corporation 
are located primarily within the United 
States, and 
‘‘(ii) individuals who are not executive 
officers and senior management of the cor-
poration (including individuals who are of-
ficers or employees of other corporations in 
the same chain of corporations as the cor-
poration) shall be treated as executive offi-
cers and senior management if such indi-
viduals exercise the day-to day responsibil-
ities of the corporation described in clause 
(i). 
‘‘(C) CORPORATIONS PRIMARILY HOLDING 
INVESTMENT
ASSETS.—Such regulations shall 
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also provide that the management and control 
of a corporation shall be treated as occurring 
primarily within the United States if— 
‘‘(i) the assets of such corporation (di-
rectly or indirectly) consist primarily of as-
sets being managed on behalf of investors, 
and 
‘‘(ii) decisions about how to invest the 
assets are made in the United States.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning on or 
after the date which is 2 years after the date of the enact-
ment of this Act. 
SEC. 104. ALLOWING MORE TIME FOR INVESTIGATIONS IN-
VOLVING 
OFFSHORE 
SECRECY 
JURISDIC-
TIONS. 
(a) IN GENERAL.—Section 6501(c) is amended by 
adding at the end the following new paragraph: 
‘‘(11) RETURNS
INVOLVING
OFFSHORE
SE-
CRECY JURISDICTIONS.—In the case of a return for 
a year in which the taxpayer directly or indirectly 
formed, owned, transferred assets to, was a bene-
ficiary of, had a beneficial interest in, or received 
money or property or the use thereof from a finan-
cial account or an entity (other than an entity with 
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shares regularly traded on an established securities 
market), including a trust, corporation, limited li-
ability company, partnership, or foundation formed, 
located, domiciled or operating in an offshore secrecy 
jurisdiction, the tax may be assessed, or a pro-
ceeding in court for the collection of such tax may 
be begun without assessment, at any time within 6 
years after the return was filed.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to— 
(1) returns filed after the date of the enactment 
of this Act, and 
(2) returns filed on or before such date if the 
period specified in section 6501 of the Internal Rev-
enue Code of 1986 (determined without regard to 
the amendments made by subsection (a)) for assess-
ment of such taxes has not expired as of such date. 
SEC. 105. REPORTING UNITED STATES BENEFICIAL OWN-
ERS OF FOREIGN OWNED FINANCIAL AC-
COUNTS. 
(a) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 is amended by inserting after sec-
tion 6045B the following new sections: 
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‘‘SEC. 6045C. RETURNS REGARDING UNITED STATES BENE-
FICIAL OWNERS OF FOREIGN OWNED FINAN-
CIAL ACCOUNTS. 
‘‘(a) REQUIREMENT OF RETURN.—If— 
‘‘(1) any withholding agent under sections 1441 
and 1442 has the control, receipt, custody, disposal, 
or payment of any amount constituting gross income 
from sources within the United States of any foreign 
entity, including a trust, corporation, limited liability 
company, partnership, or foundation (other than an 
entity with shares regularly traded on an established 
securities market), and 
‘‘(2) such withholding agent determines for pur-
poses of titles 14, 18, or 31 of the United States 
Code that a United States person has any beneficial 
interest in the foreign entity or in the account in 
such entity’s name (hereafter in this section referred 
to as ‘United States beneficial owner’), 
then the withholding agent shall make a return according 
to the forms or regulations prescribed by the Secretary. 
‘‘(b) REQUIRED INFORMATION.—For purposes of 
subsection (a) the information required to be included on 
the return shall include— 
‘‘(1) the name, address, and, if known, the tax-
payer identification number of the United States 
beneficial owner, 
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‘‘(2) the known facts pertaining to the relation-
ship of such United States beneficial owner to the 
foreign entity and the account, 
‘‘(3) the gross amount of income from sources 
within the United States (including gross proceeds 
from brokerage transactions), and 
‘‘(4) such other information as the Secretary 
may by forms or regulations provide. 
‘‘(c) STATEMENTS TO BE FURNISHED TO BENE-
FICIAL OWNERS WITH RESPECT TO WHOM INFORMATION 
IS REQUIRED TO BE REPORTED.—A withholding agent 
required to make a return under subsection (a) shall fur-
nish to each United States beneficial owner whose name 
is required to be set forth in such return a statement 
showing— 
‘‘(1) the name, address, and telephone number 
of the information contact of the person required to 
make such return, and 
‘‘(2) the information required to be shown on 
such return with respect to such United States bene-
ficial owner. 
The written statement required under the preceding sen-
tence shall be furnished to the United States beneficial 
owner on or before January 31 of the year following the 
calendar year for which the return under subsection (a) 
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was required to be made. In the event the person filing 
such return does not have a current address for the United 
States beneficial owner, such written statement may be 
mailed to the address of the foreign entity. 
‘‘SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS RE-
GARDING ESTABLISHMENT OF ACCOUNTS 
AND CREATION OF ENTITIES IN OFFSHORE 
SECRECY JURISDICTIONS. 
‘‘(a) REQUIREMENT OF RETURN.—Any financial in-
stitution directly or indirectly— 
‘‘(1) opening a bank, brokerage, or other finan-
cial account, or 
‘‘(2) forming or acquiring an entity, including a 
trust, corporation, limited liability company, partner-
ship, or foundation (other than an entity with shares 
regularly traded on an established securities mar-
ket), 
in an offshore secrecy jurisdiction at the direction of, on 
behalf of, or for the benefit of a United States person shall 
make a return according to the forms or regulations pre-
scribed by the Secretary. 
‘‘(b) REQUIRED INFORMATION.—For purposes of 
subsection (a) the information required to be included on 
the return shall include— 
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‘‘(1) the name, address, and taxpayer identifica-
tion number of such United States person, 
‘‘(2) the name and address of the financial in-
stitution at which a financial account is opened, the 
type of account, the account number, the name 
under which the account was opened, and the 
amount of the initial deposit, 
‘‘(3) the name and address of an entity formed 
or acquired, the type of entity, and the name and 
address of any company formation agent or other 
professional employed to form or acquire the entity, 
and 
‘‘(4) such other information as the Secretary 
may by forms or regulations provide. 
‘‘(c) STATEMENTS TO BE FURNISHED TO UNITED 
STATES PERSONS WITH RESPECT TO WHOM INFORMA-
TION IS REQUIRED TO BE REPORTED.—A financial insti-
tution required to make a return under subsection (a) 
shall furnish to each United States person whose name 
is required to be set forth in such return a statement 
showing— 
‘‘(1) the name, address, and telephone number 
of the information contact of the person required to 
make such return, and 
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‘‘(2) the information required to be shown on 
such return with respect to such United States per-
son. 
The written statement required under the preceding sen-
tence shall be furnished to such United States person on 
or before January 31 of the year following the calendar 
year for which the return under subsection (a) was re-
quired to be made. 
‘‘(d) EXEMPTION.—The Secretary may by regula-
tions exempt any class of United States persons or any 
class of accounts or entities from the requirements of this 
section if the Secretary determines that applying this sec-
tion to such persons, accounts, or entities is not necessary 
to carry out the purposes of this section.’’. 
(b) PENALTIES.— 
(1) 
RETURNS.—Section 
6724(d)(1)(B) 
is 
amended by redesignating clauses (v) through (xxiii) 
as clauses (vii) through (xxv), respectively, and by 
inserting after clause (iv) the following new clauses: 
‘‘(v) section 6045C(a) (relating to re-
turns regarding United States beneficial 
owners of foreign owned financial ac-
counts), 
‘‘(vi) section 6045D(a) (relating to re-
turns by financial institutions regarding 
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establishment of accounts and creation of 
entities in offshore secrecy jurisdictions),’’. 
(2) PAYEE STATEMENTS.—Section 6724(d)(2) 
is amended by redesignating subparagraphs (K) 
through (FF) as subparagraphs (M) through (HH), 
respectively, and by inserting after subparagraph (J) 
the following new subparagraphs: 
‘‘(K) section 6045C(c) (relating to returns 
regarding United States beneficial owners of 
foreign owned financial accounts), 
‘‘(L) section 6045D(c) (relating to returns 
by financial institutions regarding establish-
ment of accounts and creation of entities in off-
shore secrecy jurisdictions),’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for such subpart is amended by inserting after the item 
relating to section 6045B the following new items: 
‘‘Sec. 6045C. Returns regarding United States beneficial owners of foreign 
owned financial accounts. 
‘‘Sec. 6045D. Returns by financial institutions regarding establishment of ac-
counts and creation of entities in offshore secrecy jurisdic-
tions.’’. 
(d) ADDITIONAL PENALTIES.— 
(1) ADDITIONAL PENALTIES ON BANKS.—Sec-
tion 5239(b)(1) of the Revised Statutes (12 U.S.C. 
93(b)(1)) is amended by inserting ‘‘or any of the 
provisions of section 6045D of the Internal Revenue 
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Code of 1986,’’ after ‘‘any regulation issued pursu-
ant to,’’. 
(2) ADDITIONAL
PENALTIES
ON
SECURITIES 
FIRMS.—Section 21(d)(3)(A) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is 
amended by inserting ‘‘any of the provisions of sec-
tion 6045D of the Internal Revenue Code of 1986,’’ 
after ‘‘the rules or regulations thereunder,’’. 
(e) REGULATORY
AUTHORITY
AND
EFFECTIVE 
DATE.— 
(1) REGULATORY AUTHORITY.—Not later than 
180 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall adopt regula-
tions, forms, or other guidance necessary to imple-
ment this section. 
(2) EFFECTIVE DATE.—Section 6045C of the 
Internal Revenue Code of 1986 (as added by this 
section) and the amendment made by subsection 
(d)(1) shall take effect with respect to amounts paid 
into foreign owned accounts after December 31 of 
the year of the date of the enactment of this Act. 
Section 6045D of such Code (as so added) and the 
amendment made by subsection (d)(2) shall take ef-
fect with respect to accounts opened or entities 
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formed or acquired after December 31 of the year 
of the date of the enactment of this Act. 
SEC. 106. PREVENTING MISUSE OF FOREIGN TRUSTS FOR 
TAX EVASION. 
(a) ATTRIBUTION OF TRUST PROTECTOR POWERS 
TO GRANTORS.—Section 672 is amended by redesignating 
subsection (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) GRANTOR TREATED AS HOLDING ANY POWER 
OR INTEREST OF TRUST PROTECTOR OR ENFORCER.— 
For purposes of this subpart, a grantor shall be treated 
as holding any power or interest held by any trust pro-
tector or trust enforcer or similar person appointed to ad-
vise, influence, oversee, or veto the actions of the trustee.’’. 
(b) TREATMENT OF UNITED STATES RECIPIENTS OF 
FOREIGN TRUST ASSETS AS TRUST BENEFICIARIES.— 
Section 679 is amended by redesignating subsections (c) 
and (d) as subsections (d) and (e), respectively, and by 
inserting after subsection (b) the following new subsection: 
‘‘(c) CERTAIN UNITED STATES PERSONS TREATED 
AS BENEFICIARIES.—Any United States person receiving 
from a foreign trust cash or other property, or receiving 
the use thereof, shall be treated as a beneficiary of such 
trust regardless of whether such person is a named bene-
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ficiary, except to the extent that such person paid fair 
market value for the benefit received.’’. 
(c) TREATMENT OF FOREIGN TRUST TRANSFERS OF 
REAL ESTATE, ARTWORK, OR JEWELRY CONSISTENTLY 
WITH TRANSFERS OF SECURITIES.—Section 643(i)(1) is 
amended by striking ‘‘or marketable securities’’ and in-
serting ‘‘or other property, including real estate, market-
able securities, artwork, jewelry, and other personal prop-
erty,’’. 
(d) TREATMENT OF TRUSTS WITH FUTURE OR CON-
TINGENT
UNITED
STATES
BENEFICIARIES.—Section 
679(a)(1) is amended— 
(1) by inserting ‘‘or for any subsequent year’’ 
after ‘‘such year’’, and 
(2) by inserting ‘‘(including a contingent bene-
ficiary)’’ after ‘‘beneficiary’’. 
SEC. 107. LIMITATION ON LEGAL OPINION PROTECTION 
FROM PENALTIES WITH RESPECT TO TRANS-
ACTIONS INVOLVING OFFSHORE SECRECY 
JURISDICTIONS. 
(a) IN GENERAL.—Section 6664 is amended by add-
ing at the end the following new subsection: 
‘‘(e) CERTAIN OPINIONS MAY NOT BE RELIED 
UPON.—For purposes of this part, an opinion of a tax 
advisor may not be relied upon to establish that there was 
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reasonable cause for any portion of an underpayment, or 
that the taxpayer acted in good faith with respect to such 
portion, if such portion is attributable to a transaction any 
part of which involves an entity or financial account in 
an offshore secrecy jurisdiction.’’. 
(b) REGULATORY AUTHORITY.—The Secretary of the 
Treasury may by regulation or guidance provide that sub-
section (e) of section 6664 of the Internal Revenue Code 
of 1986, as added by subsection (a), does not apply to 
legal opinions that express a confidence level that substan-
tially exceeds the ‘‘more likely than not’’ confidence level; 
or that such subsection does not apply to classes of trans-
actions, such as corporate reorganizations, where the Sec-
retary determines that applying such subsection to such 
transactions is not necessary to carry out the purposes of 
such subsection. 
SEC. 108. CLOSING THE OFFSHORE DIVIDEND TAX LOOP-
HOLE. 
(a) IN GENERAL.—Section 871 is amended by redes-
ignating subsection (l) as subsection (m) and by inserting 
after subsection (k) the following new subsection: 
‘‘(l) TREATMENT OF DIVIDEND EQUIVALENTS AND 
SUBSTITUTE DIVIDEND PAYMENTS.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion and section 881— 
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‘‘(A) the term ‘dividend’ shall include divi-
dend equivalents and substitute dividends, 
‘‘(B) a dividend equivalent with respect to 
the stock of one or more domestic corporations 
shall be treated as sourced within the United 
States, and 
‘‘(C) a substitute dividend payment shall 
be sourced in the same manner as a dividend 
distribution with respect to the transferred se-
curity to which the substitute dividend relates. 
‘‘(2) DIVIDEND EQUIVALENT.—For purposes of 
this subsection— 
‘‘(A) IN
GENERAL.—The term ‘dividend 
equivalent’ includes any payment that is made 
pursuant to a notional principal contract and is 
contingent upon, or is referenced to, the pay-
ment of a dividend on stock or the payment of 
a dividend on property that is substantially 
similar or related to stock (determined in a 
manner similar to the manner under section 
246(c)(4)(C)). 
‘‘(B) NOTIONAL PRINCIPAL CONTRACT.— 
For purposes of subparagraph (A), the term 
‘notional principal contract’ means a financial 
instrument that provides for the payment of 
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amounts by 1 party to another at specified in-
tervals calculated by reference to a specified 
index upon a notional principal amount in ex-
change for specified consideration or a promise 
to pay similar amounts. 
‘‘(3) SUBSTITUTE DIVIDEND.—For purposes of 
this subsection— 
‘‘(A) IN GENERAL.—The term ‘substitute 
dividend’ means a payment, made to the trans-
feror of a security in a securities lending trans-
action or a sale-repurchase transaction, of an 
amount equivalent to a dividend distribution 
which the owner of the transferred security is 
entitled to receive during the term of the trans-
action. 
‘‘(B) 
SECURITIES
LENDING
TRANS-
ACTION.—For purposes of subparagraph (A), 
the term ‘securities lending transaction’ means 
a transfer of 1 or more securities that is de-
scribed in section 1058(a) or a substantially 
similar transaction. 
‘‘(C) SALE-REPURCHASE TRANSACTION.— 
For purposes of subparagraph (A), the term 
‘sale-repurchase transaction’ means an agree-
ment under which a person transfers a security 
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in exchange for cash and simultaneously agrees 
to receive substantially identical securities from 
the transferee in the future in exchange for 
cash. 
‘‘(4) COORDINATION
WITH
TAX
TREATIES.— 
The meaning of the term ‘dividend’ in any income 
tax convention shall be construed to include dividend 
equivalents and substitute dividends in accordance 
with this section. 
‘‘(5) PREVENTION OF OVER-WITHHOLDING.—In 
the case of any dividend equivalent or substitute div-
idend that is subject to withholding under this sec-
tion or section 881, the Secretary may by regulation 
reduce such withholding, but only to the extent that 
the taxpayer can establish that the dividend for 
which the payment to be withheld upon is a dividend 
equivalent or a substitute dividend that was pre-
viously withheld upon under this section or under 
section 881.’’. 
(b) REGULATIONS.— 
(1) PROPOSED RULE.—Not later than 90 days 
after the date of the enactment of this Act, the Sec-
retary of the Treasury (or the Secretary’s designee) 
shall issue proposed regulations relating to section 
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871(l) of the Internal Revenue Code of 1986 (as 
added by this section). 
(2) FINAL
RULE.—Not later than 150 days 
after the date of the enactment of this Act, the Sec-
retary of the Treasury (or the Secretary’s designee) 
shall issue final regulations relating to such section. 
(3) MATTERS
INCLUDED.—The regulations 
issued pursuant to this subsection shall require the 
imposition of withholding— 
(A) in cases where dividend equivalent pay-
ments under notional principal contracts are 
netted with other payments under the same in-
strument, 
(B) in cases where fees and other pay-
ments are netted to disguise the characteriza-
tion of a payment as a substitute dividend, and 
(C) in cases where option or forward con-
tracts (or similar arrangements) achieve the 
same or substantially similar economic results 
as the notional principal contracts covered 
under section 871(l) of such Code. 
(c) QUALIFIED INTERMEDIARIES.—The Secretary of 
the Treasury (or the Secretary’s designee) shall ensure 
that any qualified intermediary withholding agreement 
that the United States enters into or renews after the date 
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of the enactment of this Act with a foreign financial insti-
tution or foreign branch of a United States financial insti-
tution conforms with the amendments made by this sec-
tion to ensure appropriate withholding related to dividend 
equivalents and substitute dividends. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments made on or after the 
date that is 90 days after the date of the enactment of 
this Act. 
(e) RULE OF CONSTRUCTION.—Nothing in this sec-
tion or the amendments made by this section shall be con-
strued to limit the authority of the Commissioner of the 
Internal Revenue Service to collect taxes, interest, and 
penalties on dividend equivalent or substitute dividend 
payments (as defined in section 871(l) of the Internal Rev-
enue Code of 1986) made prior to the date of the enact-
ment of this Act in connection with swap agreements, 
stock loan transactions, or other financial transactions in-
volving nonresident aliens or foreign corporations. 
SEC. 109. REPORTING OF ACTIVITIES WITH RESPECT TO 
PASSIVE FOREIGN INVESTMENT COMPANIES. 
(a) IN GENERAL.—Section 1298 is amended by re-
designating subsection (f) as subsection (g) and by insert-
ing after subsection (e) the following new subsection: 
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‘‘(f) REPORTING REQUIREMENT.—Each person who 
is a shareholder of, or who directly or indirectly forms, 
transfers assets to, is a beneficiary of, has a beneficial in-
terest in, or receives money or property or the use thereof 
from, a passive foreign investment company shall file a 
report containing such information as the Secretary may 
require.’’. 
(b) CONFORMING AMENDMENT.—Subsection (e) of 
section 1291 is amended by striking ‘‘, (d), and (f)’’ and 
inserting ‘‘and (d)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section take effect on the date of the enactment of 
this Act. 
TITLE II—OTHER MEASURES TO 
COMBAT TAX HAVEN AND TAX 
SHELTER ABUSES 
SEC. 201. PENALTY FOR FAILING TO DISCLOSE OFFSHORE 
HOLDINGS. 
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 
21(d)(3)(B) of the Securities Exchange Act of 1934 (15 
U.S.C. 78u(d)(3)(B)) is amended by adding at the end 
the following: 
‘‘(iv) 
FOURTH
TIER.—Notwithstanding 
clauses (i), (ii), and (iii), the amount of the 
penalty for each such violation shall not exceed 
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$1,000,000 for any person if the violation de-
scribed in subparagraph (A) involved a knowing 
failure to disclose any holding or transaction in-
volving equity or debt instruments of an issuer 
and known by such person to involve a foreign 
entity, including any trust, corporation, limited 
liability company, partnership, or foundation 
that is directly or indirectly controlled by such 
person, and which would have been otherwise 
subject to disclosure by such person under this 
title.’’. 
(b) SECURITIES ACT OF 1933.—Section 20(d)(2) of 
the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is 
amended by adding at the end the following: 
‘‘(D) 
FOURTH
TIER.—Notwithstanding 
subparagraphs (A), (B), and (C), the amount of 
penalty for each such violation shall not exceed 
$1,000,000 for any person, if the violation de-
scribed in paragraph (1) involved a knowing 
failure to disclose any holding or transaction in-
volving equity or debt instruments of an issuer 
and known by such person to involve a foreign 
entity, including any trust, corporation, limited 
liability company, partnership, or foundation, 
directly or indirectly controlled by such person, 
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and which would have been otherwise subject to 
disclosure by such person under this title.’’. 
(c) INVESTMENT COMPANY ACT OF 1940.—Section 
9(d)(2) of the Investment Company Act of 1940 (15 
U.S.C. 80a–9(d)(2)) is amended by adding at the end the 
following: 
‘‘(D) 
FOURTH
TIER.—Notwithstanding 
subparagraphs (A), (B), and (C), the amount of 
penalty for each such violation shall not exceed 
$1,000,000 for any person, if the violation de-
scribed in paragraph (1) involved a knowing 
failure to disclose any holding or transaction in-
volving equity or debt instruments of an issuer 
and known by such person to involve a foreign 
entity, including any trust, corporation, limited 
liability company, partnership, or foundation, 
directly or indirectly controlled by such person, 
and which would have been otherwise subject to 
disclosure by such person under this title.’’. 
(d) INVESTMENT ADVISERS ACT OF 1940.—Section 
203(i)(2) of the Investment Advisers Act of 1940 (15 
U.S.C. 80b–3(i)(2)) is amended by adding at the end the 
following: 
‘‘(D) 
FOURTH
TIER.—Notwithstanding 
subparagraphs (A), (B), and (C), the amount of 
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penalty for each such violation shall not exceed 
$1,000,000 for any person, if the violation de-
scribed in paragraph (1) involved a knowing 
failure to disclose any holding or transaction in-
volving equity or debt instruments of an issuer 
and known by such person to involve a foreign 
entity, including any trust, corporation, limited 
liability company, partnership, or foundation, 
directly or indirectly controlled by such person, 
and which would have been otherwise subject to 
disclosure by such person under this title.’’. 
SEC. 202. DEADLINE FOR ANTI-MONEY LAUNDERING RULE 
FOR HEDGE FUNDS AND PRIVATE EQUITY 
FUNDS. 
(a) IN GENERAL.— 
(1) PROPOSED RULE.—Not later than 90 days 
after the date of the enactment of this Act, the Sec-
retary of the Treasury, in consultation with the 
Chairman of the Securities and Exchange Commis-
sion and the Chairman of the Commodity Futures 
Trading Commission, shall publish a proposed rule 
in the Federal Register requiring unregistered in-
vestment companies, including hedge funds or pri-
vate equity funds, to establish anti-money laundering 
programs and submit suspicious activity reports 
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under subsections (g) and (h) of section 5318 of title 
31, United States Code. 
(2) FINAL
RULE.—Not later than 180 days 
after the date of the enactment of this Act, the Sec-
retary of the Treasury shall publish a final rule in 
the Federal Register on the matter described in 
paragraph (1). 
(b) CONTENTS.—The final rule published under this 
section— 
(1) shall require, at a minimum, that to safe-
guard against terrorist financing and money laun-
dering, 
all 
unregistered 
investment 
companies 
shall— 
(A) use risk-based due diligence policies, 
procedures, and controls that are reasonably de-
signed to ascertain the identity of any foreign 
person (including the nominal and beneficial 
owner or beneficiary of a foreign corporation, 
partnership, trust, or other foreign entity) plan-
ning to supply or supplying funds to be invested 
with the advice or assistance of that unregis-
tered investment company; and 
(B) be subject to section 5318(k)(2) of 
title 31, United States Code; and 
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(2) may incorporate aspects of the proposed 
rule for unregistered investment companies pub-
lished in the Federal Register on September 26, 
2002 (67 Fed. Reg. 60617) (relating to anti-money 
laundering programs). 
(c) DEFINITIONS.—In this section— 
(1) the terms ‘‘investment company’’ and 
‘‘issuer’’ have the same meanings as in section 2 of 
the Investment Company Act of 1940 (15 U.S.C. 
80a–2); and 
(2) the term ‘‘unregistered investment com-
pany’’ means an issuer that would be an investment 
company, but for the exclusion under paragraph (1) 
or (7) of section 3(c) of the Investment Company 
Act of 1940 (15 U.S.C. 80a–3(c)). 
SEC. 203. ANTI-MONEY LAUNDERING REQUIREMENTS FOR 
FORMATION AGENTS. 
(a) ANTI-MONEY LAUNDERING OBLIGATIONS
FOR 
FORMATION AGENTS.—Section 5312(a)(2) of title 31, 
United States Code, is amended, by— 
(1) in subparagraph (Y), by striking ‘‘or’’ at 
the end; 
(2) by redesignating subparagraph (Z) as sub-
paragraph (AA); and 
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(3) by inserting after subparagraph (Y) the fol-
lowing: 
‘‘(Z) persons involved in forming new cor-
porations, limited liability companies, partner-
ships, trusts, or other legal entities; or’’. 
(b) DEADLINE
FOR
ANTI-MONEY
LAUNDERING 
RULE FOR FORMATION AGENTS.—Not later than 90 days 
after the date of the enactment of this Act, after con-
sulting with the Attorney General of the United States, 
the Commissioner of the Internal Revenue Service, and 
Chairman of the Securities and Exchange Commission, 
the Secretary of the Treasury shall publish a proposed rule 
in the Federal Register requiring persons described in sec-
tion 5312(a)(2)(Z) of title 31, United States Code, as 
added by this section, to establish anti-money laundering 
programs under subsection (h) of section 5318 of that 
title. The Secretary shall publish such rule in final form 
in the Federal Register not later than 180 days after the 
date of the enactment of this Act. 
SEC. 204. STRENGTHENING SUMMONS IN CASES INVOLVING 
OFFSHORE SECRECY JURISDICTIONS. 
(a) IN GENERAL.—Subsection (f) of section 7609 is 
amended to read as follows: 
‘‘(f) ADDITIONAL REQUIREMENT IN THE CASE OF A 
JOHN DOE SUMMONS.— 
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‘‘(1) GENERAL RULE.—Any summons described 
in subsection (c)(1) which does not identify the per-
son with respect to whose liability the summons is 
issued may be served only after a court proceeding 
in which the Secretary establishes that— 
‘‘(A) the summons relates to the investiga-
tion of a particular person or ascertainable 
group or class of persons, 
‘‘(B) there is a reasonable basis for believ-
ing that such person or group or class of per-
sons may fail or may have failed to comply with 
any provision of any internal revenue law, and 
‘‘(C) the information sought to be obtained 
from the examination of the records or testi-
mony (and the identity of the person or persons 
with respect to whose liability the summons is 
issued) is not readily available from other 
sources. 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any summons which specifies that it is lim-
ited to information regarding a United States cor-
respondent 
account 
(as 
defined 
in 
section 
5318A(e)(1)(B) of title 31, United States Code) or 
a United States payable-through account (as defined 
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in section 5318A(e)(1)(C) of such title) of a finan-
cial institution in an offshore secrecy jurisdiction. 
‘‘(3) PRESUMPTION IN CASES INVOLVING OFF-
SHORE SECRECY JURISDICTIONS.—For purposes of 
this section, in any case in which the particular per-
son or ascertainable group or class of persons have 
financial accounts in or transactions related to off-
shore secrecy jurisdictions, there shall be a presump-
tion that there is a reasonable basis for believing 
that such person or group or class of persons may 
fail or may have failed to comply with provisions of 
internal revenue law. 
‘‘(4) PROJECT JOHN DOE SUMMONSES.— 
‘‘(A) IN
GENERAL.—Notwithstanding the 
requirements of paragraph (1), the Secretary 
may issue a summons described in paragraph 
(1) if the summons— 
‘‘(i) relates to a project which is ap-
proved under subparagraph (B), 
‘‘(ii) is issued to a person who is a 
member of the group or class established 
under subparagraph (B)(i), and 
‘‘(iii) is issued within 3 years of the 
date on which such project was approved 
under subparagraph (B). 
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‘‘(B) APPROVAL OF PROJECTS.—A project 
may only be approved under this subparagraph 
after a court proceeding in which the Secretary 
establishes that— 
‘‘(i) any summons issues with respect 
to the project will be issued to a member 
of an ascertainable group or class of per-
sons, and 
‘‘(ii) any summons issued with respect 
to such project will meet the requirements 
of subparagraphs (A), (B), and (C) of 
paragraph (1). 
‘‘(C) EXTENSION.—Upon application of 
the Secretary, the court may extend the time 
for issuing such summonses under subpara-
graph (A)(i) for additional 3-year periods, but 
only if the court continues to exercise oversight 
of such project under subparagraph (D). 
‘‘(D) ONGOING COURT OVERSIGHT.—Dur-
ing any period in which the Secretary is author-
ized to issue summonses in relation to a project 
approved under subparagraph (B) (including 
during any extension under subparagraph (C)), 
the Secretary shall report annually to the court 
on the use of such authority, provide copies of 
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all summonses with such report, and comply 
with the court’s direction with respect to the 
issuance of any John Doe summons under such 
project.’’. 
(b) JURISDICTION OF COURT.— 
(1) IN
GENERAL.—Paragraph (1) of section 
7609(h) is amended by inserting after the first sen-
tence the following new sentence: ‘‘Any United 
States district court in which a member of the group 
or class to which a summons may be issued resides 
or is found shall have jurisdiction to hear and deter-
mine the approval of a project under subsection 
(f)(4)(B).’’. 
(2) CONFORMING AMENDMENT.—The first sen-
tence of section 7609(h)(1) is amended by striking 
‘‘(f)’’ and inserting ‘‘(f)(1)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to summonses issued after the date 
of the enactment of this Act. 
(d) GAO REPORT.—Not later than the date which 
is 5 years after the date of the enactment of this Act, 
the Comptroller General of the United States shall issue 
a report on the implementation of section 7609(f)(4) of 
the Internal Revenue Code of 1986, as added by this sec-
tion. 
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SEC. 205. IMPROVING ENFORCEMENT OF FOREIGN FINAN-
CIAL ACCOUNT REPORTING. 
(a) CLARIFYING THE CONNECTION OF FOREIGN FI-
NANCIAL ACCOUNT REPORTING
TO TAX ADMINISTRA-
TION.—Paragraph (4) of section 6103(b) (relating to tax 
administration) is amended by adding at the end the fol-
lowing new sentence: 
‘‘For purposes of clause (i), section 5314 of title 31, 
United States Code, and sections 5321 and 5322 of 
such title (as such sections pertain to such section 
5314), shall be considered to be an internal revenue 
law.’’. 
(b) SIMPLIFYING THE CALCULATION OF FOREIGN 
FINANCIAL ACCOUNT REPORTING PENALTIES.—Section 
5321(a)(5)(D)(ii) of title 31, United States Code, is 
amended by striking ‘‘the balance in the account at the 
time of the violation’’ and inserting ‘‘the highest balance 
in the account during the reporting period to which the 
violation relates’’. 
(c) CLARIFYING THE USE OF SUSPICIOUS ACTIVITY 
REPORTS UNDER THE BANK SECRECY ACT FOR CIVIL 
TAX LAW ENFORCEMENT.—Section 5319 of title 31, 
United States Code, is amended by inserting ‘‘the civil and 
criminal enforcement divisions of the Internal Revenue 
Service,’’ after ‘‘including’’. 
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TITLE III—COMBATING TAX 
SHELTER PROMOTERS 
SEC. 301. PENALTY FOR PROMOTING ABUSIVE TAX SHEL-
TERS. 
(a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL-
TERS.—Section 6700 (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-
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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) CONFORMING AMENDMENT.—Section 6700(a) is 
amended by striking the last sentence. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to activities after the date of the 
enactment of this Act. 
SEC. 302. PENALTY FOR AIDING AND ABETTING THE UN-
DERSTATEMENT OF TAX LIABILITY. 
(a) IN GENERAL.—Section 6701(a) (relating to impo-
sition of penalty) is amended— 
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(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 (relating to penalties for aiding and abetting under-
statement 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-
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‘‘(2) 
NONECONOMIC
SUBSTANCE
TRANS-
ACTION.—The term ‘noneconomic substance trans-
action’ means any transaction if there is a lack of 
economic substance (within the meaning of section 
7701(p)(1)(B)) for the transaction giving rise to the 
claimed benefit. 
‘‘(d) RULES APPLICABLE TO ASSERTION, COM-
PROMISE, AND COLLECTION OF PENALTY.— 
‘‘(1) IN GENERAL.—Only the Chief Counsel for 
the Internal Revenue Service may assert a penalty 
imposed under this section or may compromise all or 
any portion of such penalty. The Chief Counsel may 
delegate the authority under this paragraph only to 
an individual holding the position of chief of a 
branch within the Office of the Chief Counsel for the 
Internal Revenue Service. 
‘‘(2) SPECIFIC REQUIREMENTS.— 
‘‘(A) ASSERTION OF PENALTY.—The Chief 
Counsel for the Internal Revenue Service (or 
the Chief Counsel’s delegate under paragraph 
(1)) shall not assert a penalty imposed under 
this section unless, before the assertion of the 
penalty, the taxpayer is provided— 
‘‘(i) a notice of intent to assert the 
penalty, and 
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