‘‘(I) the present value of the rea-
sonably expected pre-tax profit from 
the transaction is substantial in rela-
tion to the present value of the ex-
pected net tax benefits that would be 
allowed if the transaction were re-
spected, and 
‘‘(II) the reasonably expected 
pre-tax profit from the transaction ex-
ceeds a risk-free rate of return. 
‘‘(C) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
and foreign taxes shall be taken into account as 
expenses in determining pre-tax profit under 
subparagraph (B)(ii). 
‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH 
TAX-INDIFFERENT PARTIES.— 
‘‘(A) SPECIAL
RULES
FOR
FINANCING 
TRANSACTIONS.—The form of a transaction 
which is in substance the borrowing of money 
or the acquisition of financial capital directly or 
indirectly from a tax-indifferent party shall not 
be respected if the present value of the deduc-
tions to be claimed with respect to the trans-
action is substantially in excess of the present 
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value of the anticipated economic returns of the 
person lending the money or providing the fi-
nancial capital. A public offering shall be treat-
ed as a borrowing, or an acquisition of financial 
capital, from a tax-indifferent party if it is rea-
sonably expected that at least 50 percent of the 
offering will be placed with tax-indifferent par-
ties. 
‘‘(B) ARTIFICIAL INCOME SHIFTING AND 
BASIS
ADJUSTMENTS.—The form of a trans-
action with a tax-indifferent party shall not be 
respected if— 
‘‘(i) it results in an allocation of in-
come or gain to the tax-indifferent party in 
excess of such party’s economic income or 
gain, or 
‘‘(ii) it results in a basis adjustment 
or shifting of basis on account of over-
stating the income or gain of the tax-indif-
ferent party. 
‘‘(3) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection— 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 
The term ‘economic substance doctrine’ means 
the common law doctrine under which tax bene-
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fits under subtitle A with respect to a trans-
action are not allowable if the transaction does 
not have economic substance or lacks a business 
purpose. 
‘‘(B) 
TAX-INDIFFERENT
PARTY.—The 
term ‘tax-indifferent party’ means any person 
or entity not subject to tax imposed by subtitle 
A. A person shall be treated as a tax-indifferent 
party with respect to a transaction if the items 
taken into account with respect to the trans-
action have no substantial impact on such per-
son’s liability under subtitle A. 
‘‘(C) SUBSTANTIAL NONTAX PURPOSE.—In 
applying subclause (II) of paragraph (1)(B)(i), 
a purpose of achieving a financial accounting 
benefit shall not be taken into account in deter-
mining whether a transaction has a substantial 
nontax purpose if the origin of such financial 
accounting benefit is a reduction of income tax. 
‘‘(D) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, this subsection shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
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‘‘(E) TREATMENT OF LESSORS.—In apply-
ing subclause (I) of paragraph (1)(B)(ii) to the 
lessor of tangible property subject to a lease, 
the expected net tax benefits shall not include 
the benefits of depreciation, or any tax credit, 
with respect to the leased property and sub-
clause (II) of paragraph (1)(B)(ii) shall be dis-
regarded in determining whether any of such 
benefits are allowable. 
‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF-
FECTED.—Except as specifically provided in this 
subsection, the provisions of this subsection shall not 
be construed as altering or supplanting any other 
rule of law, and the requirements of this subsection 
shall be construed as being in addition to any such 
other rule of law. 
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section. Such regulations may include exemptions 
from the application of this subsection.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions entered into after 
the date of the enactment of this Act. 
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SEC. 102. MODIFICATION OF PENALTY FOR FAILING TO DIS-
CLOSE REPORTABLE TRANSACTION. 
(a) INCREASE IN PENALTY FOR LARGE ENTITIES 
AND HIGH NET WORTH INDIVIDUALS.— 
(1) IN
GENERAL.—Subsection (b) of section 
6707A is amended to read as follows: 
‘‘(b) AMOUNT OF PENALTY.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the amount of the penalty under sub-
section (a) shall be— 
‘‘(A) $10,000 in the case of a natural per-
son who is not a high net worth individual, 
‘‘(B) $100,000 in the case of a large entity 
or a high net worth individual, and 
‘‘(C) $50,000 in any other case. 
‘‘(2) LISTED
TRANSACTION.—The amount of 
the penalty under subsection (a) with respect to a 
listed transaction shall be— 
‘‘(A) $100,000 in the case of a natural 
person who is not a high net worth individual, 
and 
‘‘(B) $200,000 in any other case.’’. 
(2) LARGE ENTITIES AND HIGH NET WORTH IN-
DIVIDUALS
DEFINED.—Subsection (c) of section 
6707A is amended by adding at the end the fol-
lowing new paragraphs: 
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‘‘(3) LARGE ENTITY.—The term ‘large entity’ 
means, with respect to any taxable year, a person 
(other than a natural person) with gross receipts in 
excess of $10,000,000 for the taxable year in which 
the reportable transaction occurs or the preceding 
taxable year. Rules similar to the rules of paragraph 
(2) and subparagraphs (B), (C), and (D) of para-
graph (3) of section 448(c) shall apply for purposes 
of this subparagraph. 
‘‘(4) HIGH
NET
WORTH
INDIVIDUAL.—The 
term ‘high net worth individual’ means, with respect 
to a reportable transaction, a natural person whose 
net worth exceeds $2,000,000 immediately before 
the transaction.’’. 
(b) RESTRICTION OF AUTHORITY TO RESCIND PEN-
ALTY.—Paragraph (1) of section 6707A(d) is amended by 
striking ‘‘and’’ at the end of subparagraph (A), by redesig-
nating subparagraph (B) as subparagraph (E), and by in-
serting after subparagraph (A) the following new subpara-
graphs: 
‘‘(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, 
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‘‘(D) imposing the penalty would be 
against equity and good conscience, and’’. 
(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. 103. PENALTY FOR UNDERSTATEMENTS ATTRIB-
UTABLE TO TRANSACTIONS LACKING ECO-
NOMIC SUBSTANCE, ETC. 
(a) IN GENERAL.—Subchapter A of chapter 68 is 
amended by inserting after section 6662A the following 
new section: 
‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB-
UTABLE TO TRANSACTIONS LACKING ECO-
NOMIC SUBSTANCE, ETC. 
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 
noneconomic substance transaction understatement for 
any taxable year, there shall be added to the tax an 
amount equal to 40 percent of the amount of such under-
statement. 
‘‘(b) REDUCTION
OF PENALTY
FOR DISCLOSED 
TRANSACTIONS.—Subsection (a) shall be applied by sub-
stituting ‘20 percent’ for ‘40 percent’ with respect to the 
portion of any noneconomic substance transaction under-
statement with respect to which the relevant facts affect-
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ing the tax treatment of the item are adequately disclosed 
in the return or a statement attached to the return. 
‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN-
DERSTATEMENT.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘noneconomic 
substance transaction understatement’ means any 
amount which would be an understatement under 
section 6662A(b)(1) if section 6662A were applied 
by taking into account items attributable to non-
economic substance transactions rather than items 
to which section 6662A would apply without regard 
to this paragraph. 
‘‘(2) 
NONECONOMIC
SUBSTANCE
TRANS-
ACTION.—The term ‘noneconomic substance trans-
action’ means any transaction if— 
‘‘(A) there is a lack of economic substance 
(within the meaning of section 7701(p)(1)) for 
the transaction giving rise to the claimed tax 
benefit or the transaction was not respected 
under section 7701(p)(2), or 
‘‘(B) the transaction fails to meet the re-
quirements of any similar rule of law. 
‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN-
ALTY.— 
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‘‘(1) IN GENERAL.—If the 1st letter of pro-
posed deficiency which allows the taxpayer an oppor-
tunity for administrative review in the Internal Rev-
enue Service Office of Appeals has been sent with 
respect to a penalty to which this section applies, 
only the Commissioner of Internal Revenue may 
compromise all or any portion of such penalty. 
‘‘(2) APPLICABLE RULES.—The rules of para-
graphs (3), (4), and (5) of section 6707A(d) shall 
apply for purposes of paragraph (1). 
‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex-
cept as otherwise provided in this part, the penalty im-
posed by this section shall be in addition to any other pen-
alty imposed by this title. 
‘‘(f) CROSS REFERENCES.— 
‘‘(1) For coordination of penalty with under-
statements under section 6662 and other special 
rules, see section 6662A(e). 
‘‘(2) For reporting of penalty imposed under 
this section to the Securities and Exchange Commis-
sion, see section 6707A(e).’’. 
(b) COORDINATION WITH OTHER UNDERSTATE-
MENTS AND PENALTIES.— 
(1) Subparagraph (A) of section 6662(d)(2) is 
amended by inserting ‘‘and without regard to items 
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with respect to which a penalty is imposed by section 
6662B’’ before the period at the end. 
(2) Subsection (e) of section 6662A is amend-
ed— 
(A) in paragraph (1), by inserting ‘‘and 
noneconomic substance transaction understate-
ments’’ after ‘‘reportable transaction under-
statements’’ each place it appears, 
(B) in paragraph (2)(A) and (3), by insert-
ing ‘‘and noneconomic substance transaction 
understatement’’ after ‘‘reportable transaction 
understatement’’, 
(C) in paragraph (2)(B), by inserting 
‘‘6662B or’’ before ‘‘6663’’, 
(D) in paragraph (2)(C)(i), by inserting 
‘‘or section 6662B’’ before the period at the 
end, and 
(E) in paragraph (2)(C)(ii), by inserting 
‘‘and section 6662B’’ after ‘‘This section’’, and 
(F) by adding at the end the following new 
paragraph: 
‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION 
UNDERSTATEMENT.—For purposes of this sub-
section, the term ‘noneconomic substance trans-
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action understatement’ has the meaning given such 
term by section 6662B(c).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part II of subchapter A of chapter 68 is amended by 
inserting after the item relating to section 6662A the fol-
lowing new item: 
‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking 
economic substance, etc.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions entered into after 
the date of the enactment of this Act. Sections 
6662(d)(2)(A) and 6662A(e) of the Internal Revenue 
Code of 1986 shall apply to such transactions to the extent 
such sections relate to such amendments. 
SEC. 104. REQUIRED DISCLOSURE BY MATERIAL ADVISORS 
NOT SUBJECT TO CLAIM OF CONFIDEN-
TIALITY. 
(a) IN GENERAL.—Paragraph (1) of section 6112(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.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect as if included in the amend-
ments made by section 142 of the Deficit Reduction Act 
of 1984. 
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SEC. 105. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY 
INCOME TAX RETURN PREPARER. 
(a) STANDARDS CONFORMED TO TAXPAYER STAND-
ARDS.—Section 6694(a) (relating to understatements due 
to unrealistic positions) is amended— 
(1) by striking ‘‘realistic possibility of being 
sustained on its merits’’ in paragraph (1) and in-
serting ‘‘reasonable belief that the tax treatment in 
such position was more likely than not the proper 
treatment’’, 
(2) by striking ‘‘or was frivolous’’ in paragraph 
(3) and inserting ‘‘or there was no reasonable basis 
for the tax treatment of such position’’, and 
(3) by striking ‘‘Unrealistic’’ in the heading and 
inserting ‘‘Improper’’. 
(b) AMOUNT OF PENALTY.—Section 6694 is amend-
ed— 
(1) by striking ‘‘$250’’ in subsection (a) and in-
serting ‘‘$1,000’’, and 
(2) by striking ‘‘$1,000’’ in subsection (b) and 
inserting ‘‘$5,000’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to documents prepared after the 
date of the enactment of this Act. 
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SEC. 106. FRIVOLOUS TAX SUBMISSIONS. 
(a) CIVIL PENALTIES.—Section 6702 is amended to 
read as follows: 
‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 
‘‘(a) CIVIL PENALTY
FOR FRIVOLOUS TAX RE-
TURNS.—A person shall pay a penalty of $5,000 if— 
‘‘(1) such person files what purports to be a re-
turn of a tax imposed by this title but which— 
‘‘(A) does not contain information on 
which the substantial correctness of the self-as-
sessment may be judged, or 
‘‘(B) contains information that on its face 
indicates that the self-assessment is substan-
tially incorrect; and 
‘‘(2) the conduct referred to in paragraph (1)— 
‘‘(A) is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c), or 
‘‘(B) reflects a desire to delay or impede 
the administration of Federal tax laws. 
‘‘(b) CIVIL PENALTY
FOR SPECIFIED FRIVOLOUS 
SUBMISSIONS.— 
‘‘(1) IMPOSITION OF PENALTY.—Except as pro-
vided in paragraph (3), any person who submits a 
specified frivolous submission shall pay a penalty of 
$5,000. 
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‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For 
purposes of this section— 
‘‘(A) 
SPECIFIED
FRIVOLOUS
SUBMIS-
SION.—The term ‘specified frivolous submis-
sion’ means a specified submission if any por-
tion of such submission— 
‘‘(i) is based on a position which the 
Secretary has identified as frivolous under 
subsection (c), or 
‘‘(ii) reflects a desire to delay or im-
pede the administration of Federal tax 
laws. 
‘‘(B) SPECIFIED SUBMISSION.—The term 
‘specified submission’ means— 
‘‘(i) a request for a hearing under— 
‘‘(I) section 6320 (relating to no-
tice and opportunity for hearing upon 
filing of notice of lien), or 
‘‘(II) section 6330 (relating to 
notice and opportunity for hearing be-
fore levy), and 
‘‘(ii) an application under— 
‘‘(I) section 6159 (relating to 
agreements for payment of tax liabil-
ity in installments), 
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‘‘(II) section 7122 (relating to 
compromises), or 
‘‘(III) section 7811 (relating to 
taxpayer assistance orders). 
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with no-
tice that a submission is a specified frivolous sub-
mission and such person withdraws such submission 
within 30 days after such notice, the penalty im-
posed under paragraph (1) shall not apply with re-
spect to such submission. 
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of po-
sitions which the Secretary has identified as being frivo-
lous for purposes of this subsection. The Secretary shall 
not include in such list any position that the Secretary 
determines 
meets 
the 
requirement 
of 
section 
6662(d)(2)(B)(ii)(II). 
‘‘(d) REDUCTION OF PENALTY.—The Secretary may 
reduce the amount of any penalty imposed under this sec-
tion if the Secretary determines that such reduction would 
promote compliance with and administration of the Fed-
eral tax laws. 
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‘‘(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 
HEARINGS BEFORE LEVY.— 
(1) FRIVOLOUS
REQUESTS
DISREGARDED.— 
Section 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 re-
quirement 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.’’. 
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS 
ISSUES AT HEARING.—Section 6330(c)(4) is amend-
ed— 
(A) by striking ‘‘(A)’’ and inserting 
‘‘(A)(i)’’; 
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 
(C) by striking the period at the end of the 
first sentence and inserting ‘‘; or’’; and 
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(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 sub-
section (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 
HEARINGS 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 
requested 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: 
‘‘(f) 
FRIVOLOUS
SUBMISSIONS, 
ETC.—Notwith-
standing any other provision of this section, if the Sec-
retary determines that any portion of an application for 
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an offer-in-compromise or installment agreement sub-
mitted under this section or section 6159 meets the re-
quirement 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 pre-
scribes a list under section 6702(c) of the Internal Rev-
enue Code of 1986, as amended by subsection (a). 
SEC. 107. DENIAL OF DEDUCTION FOR INTEREST ON UN-
DERPAYMENTS ATTRIBUTABLE TO NONDIS-
CLOSED REPORTABLE AND NONECONOMIC 
SUBSTANCE TRANSACTIONS. 
(a) IN GENERAL.—Subsection (m) of section 163 is 
amended to read as follows: 
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE 
TO NONDISCLOSED REPORTABLE TRANSACTIONS
AND 
NONECONOMIC SUBSTANCE TRANSACTIONS.—No deduc-
tion shall be allowed under this chapter for any interest 
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paid or accrued under section 6601 on any underpayment 
of tax which is attributable to— 
‘‘(1) the portion of any reportable transaction 
understatement (as defined in section 6662A(b)) 
with respect to which the requirement of section 
6664(d)(2)(A) is not met, or 
‘‘(2) any noneconomic substance transaction 
understatement (as defined in section 6662B(c)).’’ 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after the date of 
the enactment of this Act in taxable years ending after 
such date. 
TITLE II—OTHER PROVISIONS 
SEC. 201. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269. 
(a) IN GENERAL.—Subsection (a) of section 269 (re-
lating to acquisitions made to evade or avoid income tax) 
is amended to read as follows: 
‘‘(a) IN GENERAL.—If— 
‘‘(1)(A) any person acquires stock in a corpora-
tion, or 
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis 
of such property, in the hands of the acquiring cor-
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poration, is determined by reference to the basis in 
the hands of the transferor corporation, and 
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal 
income tax by securing the benefit of a deduction, 
credit, or other allowance, 
then the Secretary may disallow such deduction, credit, 
or other allowance.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to stock and property acquired 
after the date of the enactment of this Act. 
SEC. 202. MODIFICATIONS OF CERTAIN RULES RELATING 
TO CONTROLLED FOREIGN CORPORATIONS. 
(a) LIMITATION ON EXCEPTION FROM PFIC RULES 
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED 
FOREIGN
CORPORATIONS.—Paragraph (2) of section 
1297(e) (relating to passive investment company) is 
amended by adding at the end the following flush sen-
tence: 
‘‘Such term shall not include any period if there is 
only a remote likelihood of an inclusion in gross in-
come under section 951(a)(1)(A)(i) of subpart F in-
come of such corporation for such period.’’. 
(b) DETERMINATION OF PRO RATA SHARE OF SUB-
PART F INCOME.—Subsection (a) of section 951 (relating 
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to amounts included in gross income of United States 
shareholders) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) SPECIAL RULES FOR DETERMINING PRO 
RATA SHARE OF SUBPART F INCOME.—The pro rata 
share under paragraph (2) shall be determined by 
disregarding— 
‘‘(A) any rights lacking substantial eco-
nomic effect, and 
‘‘(B) stock owned by a shareholder who is 
a tax-indifferent party (as defined in section 
7701(m)(3)) if the amount which would (but 
for this paragraph) be allocated to such share-
holder does not reflect such shareholder’s eco-
nomic share of the earnings and profits of the 
corporation.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years on controlled for-
eign corporation beginning after the date of the enactment 
of this Act and to taxable years of United States share-
holder in which or with which such taxable years of con-
trolled foreign corporations end. 
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SEC. 203. BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVI-
DENDS. 
(a) IN GENERAL.—Section 1059 (relating to cor-
porate shareholder’s basis in stock reduced by nontaxed 
portion of extraordinary dividends) is amended by redesig-
nating subsection (g) as subsection (h) and by inserting 
after subsection (f) the following new subsection: 
‘‘(g) BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVIDENDS.—The 
basis of stock in a corporation (for purposes of deter-
mining loss) shall be reduced by the nontaxed portion of 
any dividend received with respect to such stock if this 
section does not otherwise apply to such dividend.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to dividends received after the date 
of the enactment of this Act. 
Æ 
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