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SEC. 422. TERMINATION OF INSTALLMENT AGREEMENTS.
(a) IN GENERAL.—Section 6159(b)(4) (relating to fail-
ure to pay an installment or any other tax liability when
due or to provide requested financial information) is
amended by striking ‘‘or’’ at the end of subparagraph (B),
by redesignating subparagraph (C) as subparagraph (E),
and by inserting after subparagraph (B) the following:
‘‘(C) to make a Federal tax deposit under
section 6302 at the time such deposit is required
to be made,
‘‘(D) to file a return of tax imposed under
this title by its due date (including extensions),
or’’.
(b) CONFORMING AMENDMENT.—The heading for sec-
tion 6159(b)(4) is amended by striking ‘‘FAILURE TO PAY
AN INSTALLMENT OR ANY OTHER TAX LIABILITY WHEN DUE
OR TO PROVIDE REQUESTED FINANCIAL INFORMATION’’ and
inserting ‘‘FAILURE TO MAKE PAYMENTS OR DEPOSITS OR
FILE RETURNS WHEN DUE OR TO PROVIDE REQUESTED FI-
NANCIAL INFORMATION’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to failures occurring on or after the date
of the enactment of this Act.
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SEC. 423. PARTIAL PAYMENTS REQUIRED WITH SUBMIS-
SION OF OFFERS-IN-COMPROMISE.
(a) IN GENERAL.—Section 7122 (relating to com-
promises), as amended by this Act, is amended by redesig-
nating subsections (c), (d), and (e) as subsections (d), (e),
and (f), respectively, and by inserting after subsection (b)
the following new subsection:
‘‘(c) RULES
FOR SUBMISSION
OF OFFERS-IN-COM-
PROMISE.—
‘‘(1) PARTIAL PAYMENT REQUIRED WITH SUB-
MISSION.—
‘‘(A) LUMP-SUM OFFERS.—
‘‘(i) IN GENERAL.—The submission of
any lump-sum offer-in-compromise shall be
accompanied by the payment of 20 percent
of amount of such offer.
‘‘(ii) 
LUMP-SUM
OFFER-IN-COM-
PROMISE.—For purposes of this section, the
term ‘lump-sum offer-in-compromise’ means
any offer of payments made in 5 or fewer
installments.
‘‘(B) PERIODIC
PAYMENT
OFFERS.—The
submission of any periodic payment offer-in-
compromise shall be accompanied by the pay-
ment of the amount of the first proposed install-
ment and each proposed installment due during
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the period such offer is being evaluated for ac-
ceptance and has not been rejected by the Sec-
retary. Any failure to make a payment required
under the preceding sentence shall be deemed a
withdrawal of the offer-in-compromise.
‘‘(2) RULES OF APPLICATION.—
‘‘(A) USE OF PAYMENT.—The application of
any payment made under this subsection to the
assessed tax or other amounts imposed under this
title with respect to such tax may be specified by
the taxpayer.
‘‘(B) NO USER FEE IMPOSED.—Any user fee
which would otherwise be imposed under this sec-
tion shall not be imposed on any offer-in-com-
promise accompanied by a payment required
under this subsection.
‘‘(C) WAIVER
AUTHORITY.—The Secretary
may issue regulations waiving any payment re-
quired under paragraph (1) in a manner con-
sistent with the practices established in accord-
ance with the requirements under subsection
(d)(3).’’.
(b) ADDITIONAL RULES RELATING TO TREATMENT OF
OFFERS.—
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(1) UNPROCESSABLE
OFFER
IF
PAYMENT
RE-
QUIREMENTS ARE NOT MET.—Paragraph (3) of sec-
tion 7122(d) (relating to standards for evaluation of
offers), as redesignated by subsection (a), is amended
by striking ‘‘; and’’ at the end of subparagraph (A)
and inserting a comma, by striking the period at the
end of subparagraph (B) and inserting ‘‘, and’’, and
by adding at the end the following new subparagraph:
‘‘(C) any offer-in-compromise which does
not meet the requirements of subsection (c) shall
be returned to the taxpayer as unprocessable.’’.
(2) DEEMED ACCEPTANCE OF OFFER NOT RE-
JECTED WITHIN CERTAIN PERIOD.—Section 7122, as
amended by subsection (a), is amended by adding at
the end the following new subsection:
‘‘(g) DEEMED ACCEPTANCE OF OFFER NOT REJECTED
WITHIN CERTAIN PERIOD.—Any offer-in-compromise sub-
mitted under this section shall be deemed to be accepted by
the Secretary if such offer is not rejected by the Secretary
before the date which is 24 months after the date of the sub-
mission of such offer. For purposes of the preceding sen-
tence, any period during which any tax liability which is
the subject of such offer-in-compromise is in dispute in any
judicial proceeding shall not be taken in to account in deter-
mining the expiration of the 24-month period.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to offers-in-compromise submitted on
and after the date which is 60 days after the date of the
enactment of this Act.
Subtitle D—Penalties and Fines
SEC. 431. INCREASE IN CRIMINAL MONETARY PENALTY LIM-
ITATION FOR THE UNDERPAYMENT OR OVER-
PAYMENT OF TAX DUE TO FRAUD.
(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
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.—
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(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
(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—
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‘‘(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.’’.
(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’’.
(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. 432. DOUBLING OF CERTAIN PENALTIES, FINES, AND
INTEREST ON UNDERPAYMENTS RELATED TO
CERTAIN OFFSHORE FINANCIAL ARRANGE-
MENTS.
(a) DETERMINATION OF PENALTY.—
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(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.
(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
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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 neither signed a closing agree-
ment pursuant to the Voluntary Offshore
Compliance Initiative established by the De-
partment of the Treasury under Revenue
Procedure 2003–11 nor voluntarily dis-
closed its participation in such arrange-
ment by notifying the Internal Revenue
Service of such 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-
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action and, in addition, in the case of a trade
or business, such use is conducted in the ordi-
nary course of the type of trade or business of the
taxpayer.
(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.
(b) APPLICABLE PENALTY.—For purposes of this sec-
tion, the term ‘‘applicable penalty’’ means any penalty, ad-
dition to tax, or fine imposed under chapter 68 of the Inter-
nal Revenue Code of 1986.
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to interest, penalties, additions to tax, and fines
with respect to any taxable year if, as of the date of the
enactment of this Act, the assessment of any tax, penalty,
or interest with respect to such taxable year is not prevented
by the operation of any law or rule of law.
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SEC. 433. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN-
ALTIES, AND OTHER AMOUNTS.
(a) IN GENERAL.—Subsection (f) of section 162 (relat-
ing to trade or business expenses) is amended to read as
follows:
‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no deduction otherwise allowable shall be
allowed under this chapter for any amount paid or
incurred (whether by suit, agreement, or otherwise)
to, or at the direction of, a government or entity de-
scribed in paragraph (4) in relation to the violation
of any law or the investigation or inquiry by such
government or entity into the potential violation of
any law.
‘‘(2) EXCEPTION
FOR
AMOUNTS
CONSTITUTING
RESTITUTION OR PAID TO COME INTO COMPLIANCE
WITH LAW.—Paragraph (1) shall not apply to any
amount which—
‘‘(A) the taxpayer establishes—
‘‘(i) constitutes restitution (including
remediation of property) for damage or
harm caused by or which may be caused by
the violation of any law or the potential
violation of any law, or
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‘‘(ii) is paid to come into compliance
with any law which was violated or in-
volved in the investigation or inquiry, and
‘‘(B) is identified as restitution or as an
amount paid to come into compliance with the
law, as the case may be, in the court order or
settlement agreement.
Identification pursuant to subparagraph (B) alone
shall not satisfy the requirement under subparagraph
(A). This paragraph shall not apply to any amount
paid or incurred as reimbursement to the government
or entity for the costs of any investigation or litiga-
tion.
‘‘(3) EXCEPTION
FOR
AMOUNTS
PAID
OR
IN-
CURRED
AS
THE
RESULT
OF
CERTAIN
COURT
OR-
DERS.—Paragraph (1) shall not apply to any
amount paid or incurred by order of a court in a suit
in which no government or entity described in para-
graph (4) is a party.
‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY
ENTITIES.—An entity is described in this paragraph
if it is—
‘‘(A) a nongovernmental entity which exer-
cises self-regulatory powers (including imposing
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sanctions) in connection with a qualified board
or exchange (as defined in section 1256(g)(7)), or
‘‘(B) to the extent provided in regulations,
a nongovernmental entity which exercises self-
regulatory powers (including imposing sanc-
tions) as part of performing an essential govern-
mental function.
‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph
(1) shall not apply to any amount paid or incurred
as taxes due.’’.
(b) REPORTING OF DEDUCTIBLE AMOUNTS.—
(1) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61, as amended by this Act, is
amended by inserting after section 6050U the fol-
lowing new section:
‘‘SEC. 6050V. INFORMATION WITH RESPECT TO CERTAIN
FINES, PENALTIES, AND OTHER AMOUNTS.
‘‘(a) REQUIREMENT OF REPORTING.—
‘‘(1) IN GENERAL.—The appropriate official of
any government or entity which is described in sec-
tion 162(f)(4) which is involved in a suit or agree-
ment described in paragraph (2) shall make a return
in such form as determined by the Secretary setting
forth—
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‘‘(A) the amount required to be paid as a
result of the suit or agreement to which para-
graph (1) of section 162(f) applies,
‘‘(B) any amount required to be paid as a
result of the suit or agreement which constitutes
restitution or remediation of property, and
‘‘(C) any amount required to be paid as a
result of the suit or agreement for the purpose of
coming into compliance with any law which was
violated or involved in the investigation or in-
quiry.
‘‘(2) SUIT OR AGREEMENT DESCRIBED.—
‘‘(A) IN GENERAL.—A suit or agreement is
described in this paragraph if—
‘‘(i) it is—
‘‘(I) a suit with respect to a viola-
tion of any law over which the govern-
ment or entity has authority and with
respect to which there has been a court
order, or
‘‘(II) an agreement which is en-
tered into with respect to a violation of
any law over which the government or
entity has authority, or with respect to
an investigation or inquiry by the gov-
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ernment or entity into the potential
violation of any law over which such
government or entity has authority,
and
‘‘(ii) the aggregate amount involved in
all court orders and agreements with respect
to the violation, investigation, or inquiry is
$600 or more.
‘‘(B) ADJUSTMENT OF REPORTING THRESH-
OLD.—The Secretary may adjust the $600
amount in subparagraph (A)(ii) as necessary in
order to ensure the efficient administration of the
internal revenue laws.
‘‘(3) TIME
OF
FILING.—The return required
under this subsection shall be filed not later than—
‘‘(A) 30 days after the date on which a
court order is issued with respect to the suit or
the date the agreement is entered into, as the
case may be, or
‘‘(B) the date specified Secretary.
‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVIDUALS
INVOLVED IN THE SETTLEMENT.—Every person required to
make a return under subsection (a) shall furnish to each
person who is a party to the suit or agreement a written
statement showing—
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‘‘(1) the name of the government or entity, and
‘‘(2) the information supplied to the Secretary
under subsection (a)(1).
The written statement required under the preceding sen-
tence shall be furnished to the person at the same time the
government or entity provides the Secretary with the infor-
mation required under subsection (a).
‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For purposes
of this section, the term ‘appropriate official’ means the offi-
cer or employee having control of the suit, investigation,
or inquiry or the person appropriately designated for pur-
poses of this section.’’.
(2) CONFORMING AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of
chapter 61, as amended by this Act, is amended by
inserting after the item relating to section 6050U the
following new item:
‘‘Sec. 6050V. Information with respect to certain fines, penalties, and other
amounts.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred on or after
the date of the enactment of this Act, except that such
amendments shall not apply to amounts paid or incurred
under any binding order or agreement entered into before
such date. Such exception shall not apply to an order or
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agreement requiring court approval unless the approval
was obtained before such date.
SEC. 434. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) DISALLOWANCE OF DEDUCTION.—
(1) IN
GENERAL.—Section 162(g) (relating to
treble damage payments under the antitrust laws) is
amended—
(A) by redesignating paragraphs (1) and
(2) as subparagraphs (A) and (B), respectively,
(B) by striking ‘‘If’’ and inserting:
‘‘(1) TREBLE DAMAGES.—If’’, and
(C) by adding at the end the following new
paragraph:
‘‘(2) PUNITIVE DAMAGES.—No deduction shall be
allowed under this chapter for any amount paid or
incurred for punitive damages in connection with
any judgment in, or settlement of, any action. This
paragraph shall not apply to punitive damages de-
scribed in section 104(c).’’.
(2) CONFORMING AMENDMENT.—The heading for
section 162(g) is amended by inserting ‘‘OR PUNITIVE
DAMAGES’’ after ‘‘LAWS’’.
(b) INCLUSION IN INCOME OF PUNITIVE DAMAGES
PAID BY INSURER OR OTHERWISE.—
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(1) IN GENERAL.—Part II of subchapter B of
chapter 1 (relating to items specifically included in
gross income) is amended by adding at the end the
following new section:
‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR-
ANCE OR OTHERWISE.
‘‘Gross income shall include any amount paid to or
on behalf of a taxpayer as insurance or otherwise by reason
of the taxpayer’s liability (or agreement) to pay punitive
damages.’’.
(2) REPORTING REQUIREMENTS.—Section 6041
(relating to information at source) is amended by
adding at the end the following new subsection:
‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES COM-
PENSATION.—This section shall apply to payments by a
person to or on behalf of another person as insurance or
otherwise by reason of the other person’s liability (or agree-
ment) to pay punitive damages.’’.
(3) CONFORMING AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to damages paid or incurred on or after
the date of the enactment of this Act.
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SEC. 435. INCREASE IN PENALTY FOR BAD CHECKS AND
MONEY ORDERS.
(a) IN GENERAL.—Section 6657 (relating to bad
checks) is amended—
(1) by striking ‘‘$750’’ and inserting ‘‘$2,000’’,
and
(2) by striking ‘‘$15’’ and inserting ‘‘$40’’.
(b) EFFECTIVE DATE.—The amendments made by this
section apply to checks or money orders received after the
date of the enactment of this Act.
Subtitle E—Provisions To
Discourage Expatriation
SEC. 441. TAX TREATMENT OF INVERTED ENTITIES.
(a) IN GENERAL.—Section 7874 is amended—
(1) by striking ‘‘March 4, 2003’’ in subsection
(a)(2)(B)(i) and in the matter following subsection
(a)(2)(B)(iii) and inserting ‘‘March 20, 2002’’,
(2) by striking ‘‘at least 60 percent’’ in sub-
section (a)(2)(B)(ii) and inserting ‘‘more than 50
percent’’,
(3) by striking ‘‘80 percent’’ in subsection (b)
and inserting ‘‘at least 80 percent’’,
(4) by striking ‘‘60 percent’’ in subsection (b)
and inserting ‘‘more than 50 percent’’,
(5) by adding at the end of subsection (a)(2) the
following new sentence: ‘‘Except as provided in regu-
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lations, an acquisition of properties of a domestic cor-
poration shall not be treated as described in subpara-
graph (B) if none of the corporation’s stock was read-
ily tradeable on an established securities market at
any time during the 4-year period ending on the date
of the acquisition.’’, and
(6) by redesignating subsection (g) as subsection
(h) and by inserting after subsection (f) the following
new subsection:
‘‘(g) SPECIAL RULES APPLICABLE TO EXPATRIATED
ENTITIES.—
‘‘(1) INCREASES
IN
ACCURACY-RELATED
PEN-
ALTIES.—In the case of any underpayment of tax of
an expatriated entity—
‘‘(A) section 6662(a) shall be applied with
respect to such underpayment by substituting ‘30
percent’ for ‘20 percent’, and
‘‘(B) if such underpayment is attributable
to one or more gross valuation understatements,
the increase in the rate of penalty under section
6662(h) shall be to 50 percent rather than 40
percent.
‘‘(2) MODIFICATIONS OF LIMITATION ON INTER-
EST DEDUCTION.—In the case of an expatriated enti-
ty, section 163(j) shall be applied—
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‘‘(A) without regard to paragraph (2)(A)(ii)
thereof, and
‘‘(B) by substituting ‘25 percent’ for ‘50
percent’ each place it appears in paragraph
(2)(B) thereof.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after March 20,
2002.
SEC. 442. REVISION OF TAX RULES ON EXPATRIATION OF
INDIVIDUALS.
(a) IN GENERAL.—Subpart A of part II of subchapter
N of chapter 1 is amended by inserting after section 877
the following new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) 
GENERAL
RULES.—For 
purposes 
of 
this
subtitle—
‘‘(1) MARK TO MARKET.—Except as provided in
subsections (d) and (f), all property of a covered expa-
triate to whom this section applies shall be treated as
sold on the day before the expatriation date for its
fair market value.
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the
case of any sale under paragraph (1)—
‘‘(A) notwithstanding any other provision of
this title, any gain arising from such sale shall
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be taken into account for the taxable year of the
sale, and
‘‘(B) any loss arising from such sale shall
be taken into account for the taxable year of the
sale to the extent otherwise provided by this title,
except that section 1091 shall not apply to any
such loss.
Proper adjustment shall be made in the amount of
any gain or loss subsequently realized for gain or loss
taken into account under the preceding sentence.
‘‘(3) EXCLUSION FOR CERTAIN GAIN.—
‘‘(A) IN GENERAL.—The amount which, but
for this paragraph, would be includible in the
gross income of any individual by reason of this
section shall be reduced (but not below zero) by
$600,000. For purposes of this paragraph, allo-
cable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same
manner as an amount required to be includible
in gross income.
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of an
expatriation date occurring in any calendar
year after 2005, the $600,000 amount under
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subparagraph (A) shall be increased by an
amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjustment
determined under section 1(f)(3) for
such calendar year, determined by sub-
stituting ‘calendar year 2004’ for ‘cal-
endar year 1992’ in subparagraph (B)
thereof.
‘‘(ii) 
ROUNDING
RULES.—If 
any
amount after adjustment under clause (i) is
not a multiple of $1,000, such amount shall
be rounded to the next lower multiple of
$1,000.
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If a covered expatriate
elects the application of this paragraph—
‘‘(i) this section (other than this para-
graph and subsection (i)) shall not apply to
the expatriate, but
‘‘(ii) in the case of property to which
this section would apply but for such elec-
tion, the expatriate shall be subject to tax
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under this title in the same manner as if
the individual were a United States citizen.
‘‘(B) REQUIREMENTS.—Subparagraph (A)
shall not apply to an individual unless the
individual—
‘‘(i) provides security for payment of
tax in such form and manner, and in such
amount, as the Secretary may require,
‘‘(ii) consents to the waiver of any
right of the individual under any treaty of
the United States which would preclude as-
sessment or collection of any tax which may
be imposed by reason of this paragraph,
and
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe.
‘‘(C) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to
which this section would apply but for the elec-
tion and, once made, shall be irrevocable. Such
election shall also apply to property the basis of
which is determined in whole or in part by ref-
erence to the property with respect to which the
election was made.
‘‘(b) ELECTION TO DEFER TAX.—
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‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty treated as sold by reason of subsection (a), the
payment of the additional tax attributable to such
property shall be postponed until the due date of the
return for the taxable year in which such property is
disposed of (or, in the case of property disposed of in
a transaction in which gain is not recognized in
whole or in part, until such other date as the Sec-
retary may prescribe).
‘‘(2) DETERMINATION OF TAX WITH RESPECT TO
PROPERTY.—For purposes of paragraph (1), the addi-
tional tax attributable to any property is an amount
which bears the same ratio to the additional tax im-
posed by this chapter for the taxable year solely by
reason of subsection (a) as the gain taken into ac-
count under subsection (a) with respect to such prop-
erty bears to the total gain taken into account under
subsection (a) with respect to all property to which
subsection (a) applies.
‘‘(3) TERMINATION OF POSTPONEMENT.—No tax
may be postponed under this subsection later than the
due date for the return of tax imposed by this chapter
for the taxable year which includes the date of death
of the expatriate (or, if earlier, the time that the secu-
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rity provided with respect to the property fails to
meet the requirements of paragraph (4), unless the
taxpayer corrects such failure within the time speci-
fied by the Secretary).
‘‘(4) SECURITY.—
‘‘(A) IN
GENERAL.—No election may be
made under paragraph (1) with respect to any
property unless adequate security is provided to
the Secretary with respect to such property.
‘‘(B) ADEQUATE SECURITY.—For purposes
of subparagraph (A), security with respect to
any property shall be treated as adequate secu-
rity if—
‘‘(i) it is a bond in an amount equal
to the deferred tax amount under paragraph
(2) for the property, or
‘‘(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election
may be made under paragraph (1) unless the tax-
payer consents to the waiver of any right under any
treaty of the United States which would preclude as-
sessment or collection of any tax imposed by reason
of this section.
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‘‘(6) ELECTIONS.—An election under paragraph
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may
be made under paragraph (1) with respect to an in-
terest in a trust with respect to which gain is re-
quired to be recognized under subsection (f)(1).
‘‘(7) INTEREST.—For purposes of section 6601—
‘‘(A) the last date for the payment of tax
shall be determined without regard to the election
under this subsection, and
‘‘(B) section 6621(a)(2) shall be applied by
substituting ‘5 percentage points’ for ‘3 percent-
age points’ in subparagraph (B) thereof.
‘‘(c) COVERED EXPATRIATE.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘covered expatriate’ means an ex-
patriate.
‘‘(2) EXCEPTIONS.—An individual shall not be
treated as a covered expatriate if—
‘‘(A) the individual—
‘‘(i) became at birth a citizen of the
United States and a citizen of another
country and, as of the expatriation date,
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continues to be a citizen of, and is taxed as
a resident of, such other country, and
‘‘(ii) has not been a resident of the
United States (as defined in section
7701(b)(1)(A)(ii)) during the 5 taxable
years ending with the taxable year during
which the expatriation date occurs, or
‘‘(B)(i) the individual’s relinquishment of
United States citizenship occurs before such indi-
vidual attains age 181⁄2, and
‘‘(ii) the individual has been a resident of
the United States (as so defined) for not more
than 5 taxable years before the date of relin-
quishment.
‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN-
SION PLANS.—
‘‘(1) EXEMPT PROPERTY.—This section shall not
apply to the following:
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other
than stock of a United States real property hold-
ing corporation which does not, on the day before
the expatriation date, meet the requirements of
section 897(c)(2).
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‘‘(B) SPECIFIED PROPERTY.—Any property
or interest in property not described in subpara-
graph (A) which the Secretary specifies in regu-
lations.
‘‘(2) SPECIAL RULES FOR CERTAIN RETIREMENT
PLANS.—
‘‘(A) IN GENERAL.—If a covered expatriate
holds on the day before the expatriation date any
interest in a retirement plan to which this para-
graph applies—
‘‘(i) such interest shall not be treated
as sold for purposes of subsection (a)(1), but
‘‘(ii) an amount equal to the present
value of the expatriate’s nonforfeitable ac-
crued benefit shall be treated as having been
received by such individual on such date as
a distribution under the plan.
‘‘(B) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS.—In the case of any distribution on
or after the expatriation date to or on behalf of
the covered expatriate from a plan from which
the expatriate was treated as receiving a dis-
tribution under subparagraph (A), the amount
otherwise includible in gross income by reason of
the subsequent distribution shall be reduced by