†
686
HR 3 PP
through the end of the paragraph and inserting ‘‘(14), (15),
or (16) of section 142(a), and’’.
(d) EFFECTIVE DATE.—The amendments made by this
section apply to bonds issued after the date of the enactment
of this Act.
SEC. 5309. TAX TREATMENT OF STATE OWNERSHIP OF RAIL-
ROAD REAL ESTATE INVESTMENT TRUST.
(a) IN GENERAL.—If a State owns all of the out-
standing stock of a corporation—
(1) which is a real estate investment trust on the
date of the enactment of this Act,
(2) which is a non-operating class III railroad,
and
(3) substantially all of the activities of which
consist of the ownership, leasing, and operation by
such corporation of facilities, equipment, and other
property used by the corporation or other persons for
railroad transportation and for economic development
purposes for the benefit of the State and its citizens,
then, to the extent such activities are of a type which are
an essential governmental function within the meaning of
section 115 of the Internal Revenue Code of 1986, income
derived from such activities by the corporation shall be
treated as accruing to the State for purposes of section 115
of such Code.
†
687
HR 3 PP
(b) GAIN OR LOSS NOT RECOGNIZED ON CONVER-
SION.—Notwithstanding section 337(d) of the Internal Rev-
enue Code of 1986—
(1) no gain or loss shall be recognized under sec-
tion 336 or 337 of such Code, and
(2) no change in basis of the property of such
corporation shall occur,
because of any change of status of a corporation to a tax-
exempt entity by reason of the application of subsection (a).
(c) TAX-EXEMPT FINANCING.—
(1) IN GENERAL.—Any obligation issued by a
corporation described in subsection (a) at least 95
percent of the net proceeds (as defined in section
150(a) of the Internal Revenue Code of 1986) of which
are to be used to provide for the acquisition, construc-
tion, or improvement of railroad transportation in-
frastructure (including railroad terminal facilities)—
(A) shall be treated as a State or local bond
(within the meaning of section 103(c) of such
Code), and
(B) shall not be treated as a private activ-
ity bond (within the meaning of section
103(b)(1) of such Code) solely by reason of the
ownership or use of such railroad transportation
infrastructure by the corporation.
†
688
HR 3 PP
(2) NO
INFERENCE.—Except as provided in
paragraph (1), nothing in this subsection shall be
construed to affect the treatment of the private use of
proceeds or property financed with obligations issued
by the corporation for purposes of section 103 of the
Internal Revenue Code of 1986 and part IV of sub-
chapter B of such Code.
(d) DEFINITIONS.—For purposes of this section:
(1) REAL
ESTATE
INVESTMENT
TRUST.—The
term ‘‘real estate investment trust’’ has the meaning
given such term by section 856(a) of the Internal Rev-
enue Code of 1986.
(2) NON-OPERATING CLASS III RAILROAD.—The
term ‘‘non-operating class III railroad’’ has the
meaning given such term by part A of subtitle IV of
title 49, United States Code (49 U.S.C. 10101 et seq.),
and the regulations thereunder.
(3) STATE.—The term ‘‘State’’ includes—
(A) the District of Columbia and any pos-
session of the United States, and
(B) any authority, agency, or public cor-
poration of a State.
(e) APPLICABILITY.—
(1) IN GENERAL.—Except as provided in para-
graph (2), this section shall apply on and after the
†
689
HR 3 PP
date on which a State becomes the owner of all of the
outstanding stock of a corporation described in sub-
section (a) through action of such corporation’s board
of directors.
(2) EXCEPTION.—This section shall not apply to
any State which—
(A) becomes the owner of all of the voting
stock of a corporation described in subsection (a)
after December 31, 2003, or
(B) becomes the owner of all of the out-
standing stock of a corporation described in sub-
section (a) after December 31, 2006.
SEC. 5310. INCENTIVES FOR THE INSTALLATION OF ALTER-
NATIVE FUEL REFUELING STATIONS.
(a) IN GENERAL.—Subpart B of part IV of subchapter
A of chapter 1 (relating to foreign tax credit, etc.) is amend-
ed by adding at the end the following new section:
‘‘SEC. 30B. ALTERNATIVE FUEL VEHICLE REFUELING PROP-
ERTY CREDIT.
‘‘(a) CREDIT ALLOWED.—There shall be allowed as a
credit against the tax imposed by this chapter for the tax-
able year an amount equal to 50 percent of the cost of any
qualified alternative fuel vehicle refueling property placed
in service by the taxpayer during the taxable year.
†
690
HR 3 PP
‘‘(b) LIMITATION.—The credit allowed under sub-
section (a) with respect to any alternative fuel vehicle re-
fueling property shall not exceed—
‘‘(1) $30,000 in the case of a property of a char-
acter subject to an allowance for depreciation, and
‘‘(2) $1,000 in any other case.
‘‘(c) QUALIFIED ALTERNATIVE FUEL VEHICLE RE-
FUELING PROPERTY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘qualified alternative fuel vehicle
refueling property’ has the meaning given to such
term by section 179A(d), but only with respect to any
fuel at least 85 percent of the volume of which consists
of ethanol, natural gas, compressed natural gas, lique-
fied natural gas, and hydrogen.
‘‘(2) RESIDENTIAL PROPERTY.—In the case of
any property installed on property which is used as
the principal residence (within the meaning of section
121) of the taxpayer, paragraph (1) of section
179A(d) shall not apply.
‘‘(d) APPLICATION WITH OTHER CREDITS.—The cred-
it allowed under subsection (a) for any taxable year shall
not exceed the excess (if any) of—
†
691
HR 3 PP
‘‘(1) the regular tax for the taxable year reduced
by the sum of the credits allowable under subpart A
and sections 27, 29, and 30, over
‘‘(2) the tentative minimum tax for the taxable
year.
‘‘(e) CARRYFORWARD ALLOWED.—
‘‘(1) IN GENERAL.—If the credit amount allow-
able under subsection (a) for a taxable year exceeds
the amount of the limitation under subsection (d) for
such taxable year, such excess shall be allowed as a
credit carryforward for each of the 20 taxable years
following the unused credit year.
‘‘(2) RULES.—Rules similar to the rules of sec-
tion 39 shall apply with respect to the credit
carryforward under paragraph (1).
‘‘(f) SPECIAL RULES.—For purposes of this section—
‘‘(1) BASIS REDUCTION.—The basis of any prop-
erty shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
‘‘(2) NO DOUBLE BENEFIT.—No deduction shall
be allowed under section 179A with respect to any
property with respect to which a credit is allowed
under subsection (a).
‘‘(3) PROPERTY USED BY TAX-EXEMPT ENTITY.—
In the case of any qualified alternative fuel vehicle re-
†
692
HR 3 PP
fueling property the use of which is described in para-
graph (3) or (4) of section 50(b) and which is not
subject to a lease, the person who sold such property
to the person or entity using such property shall be
treated as the taxpayer that placed such property in
service, but only if such person clearly discloses to
such person or entity in a document the amount of
any credit allowable under subsection (a) with respect
to such property (determined without regard to sub-
section (d)).
‘‘(4) PROPERTY USED OUTSIDE UNITED STATES,
ETC., NOT QUALIFIED.—No credit shall be allowable
under subsection (a) with respect to any property re-
ferred to in section 50(b)(1) or with respect to the
portion of the cost of any property taken into account
under section 179.
‘‘(5) ELECTION NOT TO TAKE CREDIT.—No credit
shall be allowed under subsection (a) for any property
if the taxpayer elects not to have this section apply
to such property.
‘‘(6) RECAPTURE RULES.—Rules similar to the
rules of section 179A(e)(4) shall apply.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as necessary to carry out the provisions
of this section.
†
693
HR 3 PP
‘‘(h) TERMINATION.—This section shall not apply to
any property placed in service after December 31, 2009.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (30), by striking the
period at the end of paragraph (31) and inserting ‘‘,
and’’, and by adding at the end the following new
paragraph:
‘‘(32) 
to 
the 
extent 
provided 
in 
section
30B(f)(1).’’.
(2) Section 55(c)(2) is amended by inserting
‘‘30B(d),’’ after ‘‘30(b)(3),’’.
(3) Section 6501(m) is amended by inserting
‘‘30B(f)(5),’’ after ‘‘30(d)(4),’’.
(4) The table of sections for subpart B of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 30A the following
new item:
‘‘Sec. 30B Alternative fuel vehicle refueling property credit.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
†
694
HR 3 PP
SEC. 5311. MODIFICATION OF RECAPTURE RULES FOR AM-
ORTIZABLE SECTION 197 INTANGIBLES.
(a) IN GENERAL.—Subsection (b) of section 1245 is
amended by adding at the end the following new paragraph:
‘‘(9) DISPOSITION OF AMORTIZABLE SECTION 197
INTANGIBLES.—
‘‘(A) IN GENERAL.—If a taxpayer disposes
of more than 1 amortizable section 197 intan-
gible (as defined in section 197(c)) in a trans-
action or a series of related transactions, all such
amortizable 197 intangibles shall be treated as 1
section 1245 property for purposes of this sec-
tion.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to any amortizable section 197 intan-
gible (as so defined) with respect to which the
adjusted basis exceeds the fair market value.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to dispositions of property after the date
of the enactment of this Act.
SEC. 5312. DIESEL FUEL TAX EVASION REPORT.
Not later than 360 days after the date of the enactment
of this Act, the Commissioner of the Internal Revenue shall
report to the Committees on Finance and Environment and
Public Works of the Senate and the Committees on Ways
and Means and Transportation and Infrastructure of the
†
695
HR 3 PP
House of Representatives on the availability of new tech-
nologies that can be employed to enhance collections of the
excise tax on diesel fuel and the plans of the Internal Rev-
enue Service to employ such technologies.
Subtitle D—Fuels-related Technical
Corrections
SEC. 5401. FUELS-RELATED TECHNICAL CORRECTIONS.
(a) AMENDMENTS RELATED TO SECTION 301 OF THE
AMERICAN JOBS CREATION ACT OF 2004.—Section 6427 is
amended—
(1) by striking subsection (f), and
(2) by striking subsection (o) and redesignating
subsection (p) as subsection (o).
(b) AMENDMENTS RELATED TO SECTION 853 OF THE
AMERICAN JOBS CREATION ACT OF 2004.—
(1) Subparagraph (C) of section 4081(a)(2) is
amended by striking ‘‘for use in commercial avia-
tion’’ and inserting ‘‘for use in commercial aviation
by a person registered for such use under section
4101’’.
(2) So much of paragraph (2) of section 4081(d)
as precedes subparagraph (A) is amended to read as
follows:
†
696
HR 3 PP
‘‘(2) AVIATION FUELS.—The rates of tax speci-
fied in clauses (ii) and (iv) of subsection (a)(2)(A)
shall be 4.3 cents per gallon—’’.
(3) Section 6421(f)(2) is amended—
(A) by striking ‘‘noncommercial aviation
(as defined in section 4041(c)(2))’’ in subpara-
graph (A) and inserting ‘‘aviation which is not
commercial aviation (as defined in section
4083(b))’’, and
(B) by striking ‘‘aviation which is not non-
commercial aviation’’ in subparagraph (B) and
inserting ‘‘commercial aviation’’.
(c) AMENDMENT RELATED TO SECTION 9005 OF THE
TRANSPORTATION EQUITY ACT FOR THE 21ST CENTURY.—
The last sentence of paragraph (2) of section 9504(b) is
amended by striking ‘‘subparagraph (B)’’, and inserting
‘‘subparagraph (C)’’.
(d) EFFECTIVE DATES.—
(1) AMERICAN JOBS CREATION ACT OF 2004.—
The amendments made by subsections (a) and (b)
shall take effect as if included in the provisions of the
American Jobs Creation Act of 2004 to which they re-
late.
(2) TRANSPORTATION EQUITY ACT FOR THE 21ST
CENTURY.—The amendment made by subsection (c)
†
697
HR 3 PP
shall take effect as if included in the provision of the
Transportation Equity Act for the 21st Century to
which it relates.
Subtitle E—Revenue Offset
Provisions
PART I—GENERAL PROVISIONS
SEC. 5501. TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT INSTRUMENTS.
(a) IN GENERAL.—Section 1275(d) (relating to regula-
tion authority) is amended—
(1) by striking ‘‘The Secretary’’ and inserting
the following:
‘‘(1) IN GENERAL.—The Secretary’’, and
(2) by adding at the end the following new para-
graph:
‘‘(2) TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT.—
‘‘(A) IN GENERAL.—In the case of a debt in-
strument which—
‘‘(i) is convertible into stock of the
issuing corporation, into stock or debt of a
related party (within the meaning of section
267(b) or 707(b)(1)), or into cash or other
property in an amount equal to the approx-
imate value of such stock or debt, and
†
698
HR 3 PP
‘‘(ii) provides for contingent payments,
any regulations which require original issue dis-
count to be determined by reference to the com-
parable yield of a noncontingent fixed-rate debt
instrument shall be applied as if the regulations
require that such comparable yield be determined
by reference to a noncontingent fixed-rate debt
instrument which is convertible into stock.
‘‘(B) SPECIAL RULE.—For purposes of sub-
paragraph (A), the comparable yield shall be de-
termined without taking into account the yield
resulting from the conversion of a debt instru-
ment into stock.’’.
(b) CROSS REFERENCE.—Section 163(e)(6) (relating
to cross references) is amended by adding at the end the
following:
‘‘For the treatment of contingent payment con-
vertible debt, see section 1275(d)(2).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to debt instruments issued on or after
the date of the enactment of this Act.
SEC. 5502. FRIVOLOUS TAX SUBMISSIONS.
(a) CIVIL PENALTIES.—Section 6702 is amended to
read as follows:
†
699
HR 3 PP
‘‘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-assessment
may be judged, or
‘‘(B) contains information that on its face
indicates that the self-assessment is substantially
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 SUB-
MISSIONS.—
‘‘(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.
‘‘(2) SPECIFIED
FRIVOLOUS
SUBMISSION.—For
purposes of this section—
†
700
HR 3 PP
‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—
The term ‘specified frivolous submission’ means
a specified submission if any portion 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 no-
tice and opportunity for hearing before
levy), and
‘‘(ii) an application under—
‘‘(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
‘‘(II) section 7122 (relating to
compromises), or
†
701
HR 3 PP
‘‘(III) section 7811 (relating to
taxpayer assistance orders).
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with notice
that a submission is a specified frivolous submission
and such person withdraws such submission within
30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such
submission.
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of posi-
tions which the Secretary has identified as being frivolous
for purposes of this subsection. The Secretary shall not in-
clude in such list any position that the Secretary deter-
mines 
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 Federal
tax laws.
‘‘(e) PENALTIES
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalties imposed by this section shall be in
addition to any other penalty provided by law.’’.
†
702
HR 3 PP
(b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS BEFORE LEVY.—
(1) FRIVOLOUS REQUESTS DISREGARDED.—Sec-
tion 6330 (relating to notice and opportunity for
hearing before levy) is amended by adding at the end
the following new subsection:
‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—
Notwithstanding any other provision of this section, if the
Secretary determines that any portion of a request for a
hearing under this section or section 6320 meets the require-
ment of clause (i) or (ii) of section 6702(b)(2)(A), then the
Secretary may treat such portion as if it were never sub-
mitted and such portion shall not be subject to any further
administrative or judicial review.’’.
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS
ISSUES
AT
HEARING.—Section 
6330(c)(4) 
is
amended—
(A) by striking ‘‘(A)’’ and inserting
‘‘(A)(i)’’;
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;
(C) by striking the period at the end of the
first sentence and inserting ‘‘; or’’; and
(D) by inserting after subparagraph (A)(ii)
(as so redesignated) the following:
†
703
HR 3 PP
‘‘(B) the issue meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A).’’.
(3) 
STATEMENT
OF
GROUNDS.—Section
6330(b)(1) is amended by striking ‘‘under subsection
(a)(3)(B)’’ and inserting ‘‘in writing under subsection
(a)(3)(B) and states the grounds for the requested
hearing’’.
(c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is
amended—
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under
subsection (a)(3)(B) and states the grounds for the re-
quested hearing’’, and
(2) in subsection (c), by striking ‘‘and (e)’’ and
inserting ‘‘(e), and (g)’’.
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end
the following new subsection:
‘‘(e) 
FRIVOLOUS
SUBMISSIONS, 
ETC.—Notwith-
standing any other provision of this section, if the Secretary
determines that any portion of an application for an offer-
in-compromise or installment agreement submitted under
this section or section 6159 meets the requirement of clause
†
704
HR 3 PP
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative
or judicial review.’’.
(e) CLERICAL AMENDMENT.—The table of sections for
part I of subchapter B of chapter 68 is amended by striking
the item relating to section 6702 and inserting the following
new item:
‘‘Sec. 6702. Frivolous tax submissions.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to submissions made and issues raised
after the date on which the Secretary first prescribes a list
under section 6702(c) of the Internal Revenue Code of 1986,
as amended by subsection (a).
SEC. 5503. INCREASE IN CERTAIN CRIMINAL PENALTIES.
(a) IN GENERAL.—Section 7206 (relating to fraud and
false statements) is amended—
(1) by striking ‘‘Any person who—’’ and insert-
ing ‘‘(a) IN GENERAL.—Any person who—’’, and
(2) by adding at the end the following new sub-
section:
‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN-
DERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—
If any portion of any underpayment (as defined in section
6664(a)) or overpayment (as defined in section 6401(a)) of
tax required to be shown on a return is attributable to
†
705
HR 3 PP
fraudulent action described in subsection (a), the applicable
dollar amount under subsection (a) shall in no event be less
than an amount equal to such portion. A rule similar to
the rule under section 6663(b) shall apply for purposes of
determining the portion so attributable.’’.
(b) INCREASE IN PENALTIES.—
(1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec-
tion 7201 is amended—
(A) by striking ‘‘$100,000’’ and inserting
‘‘$500,000’’,
(B) by striking ‘‘$500,000’’ and inserting
‘‘$1,000,000’’, and
(C) by striking ‘‘5 years’’ and inserting ‘‘10
years’’.
(2) WILLFUL FAILURE TO FILE RETURN, SUPPLY
INFORMATION, 
OR
PAY
TAX.—Section 
7203 
is
amended—
(A) in the first sentence—
(i) by striking ‘‘Any person’’ and in-
serting the following:
‘‘(a) IN GENERAL.—Any person’’, and
(ii) by striking ‘‘$25,000’’ and insert-
ing ‘‘$50,000’’,
(B) in the third sentence, by striking ‘‘sec-
tion’’ and inserting ‘‘subsection’’, and
†
706
HR 3 PP
(C) by adding at the end the following new
subsection:
‘‘(b) AGGRAVATED FAILURE TO FILE.—
‘‘(1) IN GENERAL.—In the case of any failure de-
scribed in paragraph (2), the first sentence of sub-
section (a) shall be applied by substituting—
‘‘(A) ‘felony’ for ‘misdemeanor’,
‘‘(B) ‘$500,000 ($1,000,000’ for ‘$25,000
($100,000’, and
‘‘(C) ‘10 years’ for ‘1 year’.
‘‘(2) FAILURE DESCRIBED.—A failure described
in this paragraph is a failure to make a return de-
scribed in subsection (a) for a period of 3 or more
consecutive taxable years and the aggregated tax li-
ability for such period is at least $100,000.’’.
(3) FRAUD
AND
FALSE
STATEMENTS.—Section
7206(a) (as redesignated by subsection (a)) is
amended—
(A) by striking ‘‘$100,000’’ and inserting
‘‘$500,000’’,
(B) by striking ‘‘$500,000’’ and inserting
‘‘$1,000,000’’, and
(C) by striking ‘‘3 years’’ and inserting ‘‘5
years’’.
†
707
HR 3 PP
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to actions, and failures to act, occurring
after the date of the enactment of this Act.
SEC. 5504. DOUBLING OF CERTAIN PENALTIES, FINES, AND
INTEREST ON UNDERPAYMENTS RELATED TO
CERTAIN OFFSHORE FINANCIAL ARRANGE-
MENTS.
(a) DETERMINATION OF PENALTY.—
(1) IN
GENERAL.—Notwithstanding any other
provision of law, in the case of an applicable
taxpayer—
(A) the determination as to whether any in-
terest or applicable penalty is to be imposed with
respect to any arrangement described in para-
graph (2), or to any underpayment of Federal
income tax attributable to items arising in con-
nection with any such arrangement, shall be
made without regard to the rules of subsections
(b), (c), and (d) of section 6664 of the Internal
Revenue Code of 1986, and
(B) if any such interest or applicable pen-
alty is imposed, the amount of such interest or
penalty shall be equal to twice that determined
without regard to this section.
†
708
HR 3 PP
(2) APPLICABLE
TAXPAYER.—For purposes of
this subsection—
(A) IN
GENERAL.—The term ‘‘applicable
taxpayer’’ means a taxpayer which—
(i) has underreported its United States
income tax liability with respect to any
item which directly or indirectly involves—
(I) any financial arrangement
which in any manner relies on the use
of offshore payment mechanisms (in-
cluding credit, debit, or charge cards)
issued by banks or other entities in for-
eign jurisdictions, or
(II) any offshore financial ar-
rangement (including any arrange-
ment with foreign banks, financial in-
stitutions, corporations, partnerships,
trusts, or other entities), and
(ii) has not signed a closing agreement
pursuant to the Voluntary Offshore Compli-
ance Initiative established by the Depart-
ment of the Treasury under Revenue Proce-
dure 2003-11 or voluntarily disclosed its
participation in such arrangement by noti-
fying the Internal Revenue Service of such
†
709
HR 3 PP
arrangement prior to the issue being raised
by the Internal Revenue Service during an
examination.
(B) AUTHORITY TO WAIVE.—The Secretary
of the Treasury or the Secretary’s delegate may
waive the application of paragraph (1) to any
taxpayer if the Secretary or the Secretary’s dele-
gate determines that the use of such offshore pay-
ment mechanisms is incidental to the trans-
action and, in addition, in the case of a trade
or business, such use is conducted in the ordi-
nary course of the trade or business of the tax-
payer.
(C) ISSUES RAISED.—For purposes of sub-
paragraph (A)(ii), an item shall be treated as an
issue raised during an examination if the indi-
vidual examining the return—
(i) communicates to the taxpayer
knowledge about the specific item, or
(ii) has made a request to the taxpayer
for information and the taxpayer could not
make a complete response to that request
without giving the examiner knowledge of
the specific item.