[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2498 Reported in Senate (RS)]






                                                       Calendar No. 466
107th CONGRESS
  2d Session
                                S. 2498

                          [Report No. 107-189]

    To amend the Internal Revenue Code of 1986 to require adequate 
disclosure of transactions which have a potential for tax avoidance or 
                    evasion, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 9, 2002

 Mr. Baucus (for himself, Mr. Grassley, and Mr. Lieberman) introduced 
the following bill; which was read twice and referred to the Committee 
                               on Finance

                             June 28, 2002

               Reported by Mr. Baucus, with an amendment
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 to require adequate 
disclosure of transactions which have a potential for tax avoidance or 
                    evasion, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

<DELETED>SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
              CONTENTS.</DELETED>

<DELETED>    (a) Short Title.--This Act may be cited as the ``Tax 
Shelter Transparency Act''.</DELETED>
<DELETED>    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment 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 
provision of the Internal Revenue Code of 1986.</DELETED>
<DELETED>    (c) Table of Contents.--</DELETED>

<DELETED>Sec. 1. Short title; amendment of 1986 code; table of 
                            contents.
             <DELETED>TITLE I--TAXPAYER-RELATED PROVISIONS

<DELETED>Sec. 101. Penalty for failing to disclose reportable 
                            transaction.
<DELETED>Sec. 102. Increase in accuracy-related penalties for listed 
                            transactions and other reportable 
                            transactions having a tax avoidance 
                            purpose.
<DELETED>Sec. 103. Modifications of substantial understatement penalty 
                            for nonreportable transactions.
<DELETED>Sec. 104. Tax shelter exception to confidentiality privileges 
                            relating to taxpayer communications.
      <DELETED>TITLE II--PROMOTER AND PREPARER RELATED PROVISIONS

  <DELETED>Subtitle A--Provisions Relating To Reportable Transactions

<DELETED>Sec. 201. Disclosure of reportable transactions.
<DELETED>Sec. 202. Modifications to penalty for failure to register tax 
                            shelters.
<DELETED>Sec. 203. Modification of penalty for failure to maintain 
                            lists of investors.
<DELETED>Sec. 204. Modification of actions to enjoin specified conduct 
                            related to tax shelters and reportable 
                            transactions.
                 <DELETED>Subtitle B--Other Provisions

<DELETED>Sec. 211. Understatement of taxpayer's liability by income tax 
                            return preparer.
<DELETED>Sec. 212. Report on effectiveness of penalty on failure to 
                            report interests in foreign financial 
                            accounts.
<DELETED>Sec. 213. Frivolous tax submissions.
<DELETED>Sec. 214. Regulation of individuals practicing before the 
                            Department of Treasury.
<DELETED>Sec. 215. Penalty on promoters of tax shelters.

        <DELETED>TITLE I--TAXPAYER-RELATED PROVISIONS</DELETED>

<DELETED>SEC. 101. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
              TRANSACTION.</DELETED>

<DELETED>    (a) In General.--Part I of subchapter B of chapter 68 
(relating to assessable penalties) is amended by inserting after 
section 6707 the following new section:</DELETED>

<DELETED>``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE 
              TRANSACTION INFORMATION WITH RETURN OR 
              STATEMENT.</DELETED>

<DELETED>    ``(a) Imposition of Penalty.--Any person who fails to 
include with any return or statement any information required to be 
included under subchapter A of chapter 61 with respect to a reportable 
transaction shall pay a penalty in the amount determined under 
subsection (b).</DELETED>
<DELETED>    ``(b) Amount of Penalty.--</DELETED>
        <DELETED>    ``(1) In general.--Except as provided in 
        paragraphs (2) and (3), the amount of the penalty under 
        subsection (a) shall be $50,000.</DELETED>
        <DELETED>    ``(2) Listed transaction.--The amount of the 
        penalty under subsection (a) with respect to a listed 
        transaction shall be $100,000.</DELETED>
        <DELETED>    ``(3) Increase in penalty for large entities and 
        high net worth individuals.--</DELETED>
                <DELETED>    ``(A) In general.--In the case of a 
                failure under subsection (a) by--</DELETED>
                        <DELETED>    ``(i) a large entity, or</DELETED>
                        <DELETED>    ``(ii) a high net worth 
                        individual,</DELETED>
                <DELETED>the penalty under paragraph (1) or (2) shall 
                be twice the amount determined without regard to this 
                paragraph.</DELETED>
                <DELETED>    ``(B) Large entity.--For purposes of 
                subparagraph (A), the term `large entity' means, with 
                respect to any taxable year, a person (other than a 
                natural person) with gross receipts for the taxable 
                year or the preceding taxable year in excess of 
                $10,000,000. Rules similar to the rules of paragraph 
                (2) and subparagraphs (B), (C), and (D) of paragraph 
                (3) of section 448(c) shall apply for purposes of this 
                subparagraph.</DELETED>
                <DELETED>    ``(C) High net worth individual.--The term 
                `high net worth individual' means a natural person 
                whose net worth exceeds $2,000,000.</DELETED>
<DELETED>    ``(c) Definitions.--For purposes of this section--
</DELETED>
        <DELETED>    ``(1) Reportable transaction.--The term 
        `reportable transaction' means any transaction with respect to 
        which information is required under subchapter A of chapter 61 
        to be included with a taxpayer's return or statement because, 
        as determined under regulations prescribed under section 6011, 
        such transaction is of a type which the Secretary determines as 
        having a potential for tax avoidance or evasion.</DELETED>
        <DELETED>    ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction--</DELETED>
                <DELETED>    ``(A) which is the same as, or similar to, 
                a transaction specifically identified by the Secretary 
                as a tax avoidance transaction for purposes of section 
                6011, or</DELETED>
                <DELETED>    ``(B) which is expected to produce a tax 
                result which is the same as, or similar to, the tax 
                result in a transaction which is so 
                specified.</DELETED>
<DELETED>    ``(d) Penalty Reported to SEC.--In the case of a person--
</DELETED>
        <DELETED>    ``(1) which is required to file periodic reports 
        under section 13 or 15(d) of the Securities Exchange Act of 
        1934 or is required to be consolidated with another person for 
        purposes of such reports, and</DELETED>
        <DELETED>    ``(2) which--</DELETED>
                <DELETED>    ``(A) is required to pay a penalty with 
                respect to a listed transaction under this section, 
                or</DELETED>
                <DELETED>    ``(B) is required to pay a penalty under 
                section 6662(a)(2) with respect to any reportable 
                transaction at a rate prescribed under section 
                6662(i)(3),</DELETED>
<DELETED>the requirement to pay such penalty shall be disclosed in such 
reports filed by such person for such periods as the Secretary shall 
specify. Failure to make a disclosure in accordance with the preceding 
sentence shall be treated as a failure to which the penalty under 
subsection (b)(2) applies.</DELETED>
<DELETED>    ``(e) Coordination With Other Penalties.--The penalty 
imposed by this section is in addition to any penalty imposed under 
section 6662.''</DELETED>
<DELETED>    (b) Conforming Amendment.--The table of sections for part 
I of subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:</DELETED>

                              <DELETED>``Sec. 6707A. Penalty for 
                                        failure to include reportable 
                                        transaction information with 
                                        return or statement.''
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to transactions entered into after the date of the 
enactment of this Act.</DELETED>

<DELETED>SEC. 102. INCREASE IN ACCURACY-RELATED PENALTIES FOR LISTED 
              TRANSACTIONS AND OTHER REPORTABLE TRANSACTIONS HAVING A 
              TAX AVOIDANCE PURPOSE.</DELETED>

<DELETED>    (a) Increase in Penalty.--Subsection (a) of section 6662 
(relating to imposition of penalty) is amended to read as 
follows:</DELETED>
<DELETED>    ``(a) Imposition of Penalty.--</DELETED>
        <DELETED>    ``(1) In general.--If this section applies to any 
        portion of an underpayment of tax required to be shown on a 
        return, there shall be added to the tax an amount equal to 20 
        percent of the portion of the underpayment to which this 
        section applies.</DELETED>
        <DELETED>    ``(2) Understatement of income tax attributable to 
        listed transactions or other reportable transactions having a 
        significant tax avoidance purpose.--If a taxpayer has a 
        reportable transaction income tax understatement (as defined in 
        subsection (i)) for any taxable year, there shall be added to 
        the tax an amount equal to 20 percent of the amount of the 
        understatement. Except as provided in subsection (i)(4)(B), 
        such understatement shall not be taken into account for 
        purposes of paragraph (1).''</DELETED>
<DELETED>    (b) Reportable Transaction Income Tax Understatement.--
Section 6662 (relating to imposition of accuracy-related penalty) is 
amended by adding at the end the following new subsection:</DELETED>
<DELETED>    ``(i) Understatement of Income Tax Attributable to Listed 
Transactions and Other Reportable Transactions Having a Significant Tax 
Avoidance Purpose.--</DELETED>
        <DELETED>    ``(1) Reportable transaction income tax 
        understatement.--For purposes of subsection (a)(2), the term 
        `reportable transaction income tax understatement' means the 
        sum of--</DELETED>
                <DELETED>    ``(A) the product of--</DELETED>
                        <DELETED>    ``(i) the amount of the increase 
                        (if any) in taxable income which results from a 
                        difference between the taxpayer's treatment of 
                        items to which this subsection applies (as 
                        shown on the taxpayer's return of tax) and the 
                        proper tax treatment of such items, 
                        and</DELETED>
                        <DELETED>    ``(ii) the highest rate of tax 
                        imposed by section 1 (section 11 in the case of 
                        a taxpayer which is a corporation), 
                        and</DELETED>
                <DELETED>    ``(B) the amount of the decrease (if any) 
                in the credits allowed against the tax imposed by 
                subtitle A which results from a difference between the 
                taxpayer's treatment of items to which this subsection 
                applies (as shown on the taxpayer's return of tax) and 
                the proper tax treatment of such items.</DELETED>
        <DELETED>For purposes of subparagraph (A), any reduction of the 
        excess of deductions allowed for the taxable year over gross 
        income for such year, and any reduction in the amount of 
        capital losses which would (without regard to section 1211) be 
        allowed for such year, shall be treated as an increase in 
        taxable income.</DELETED>
        <DELETED>    ``(2) Items to which subsection applies.--This 
        subsection shall apply to any item which is attributable to--
        </DELETED>
                <DELETED>    ``(A) any listed transaction, or</DELETED>
                <DELETED>    ``(B) any reportable transaction (other 
                than a listed transaction) if a significant purpose of 
                such transaction is the avoidance or evasion of Federal 
                income tax.</DELETED>
        <DELETED>    ``(3) Higher penalty for nondisclosed listed and 
        other avoidance transactions.--In the case of any portion of a 
        reportable transaction income tax understatement attributable 
        to a transaction to which section 6664(c)(1) does not apply by 
        reason of section 6664(c)(2)(A), the rate of tax under 
        subsection (a)(2) shall be increased by 5 percent (10 percent 
        in the case of a listed transaction).</DELETED>
        <DELETED>    ``(4) Definitions and special rules.--For purposes 
        of this subsection--</DELETED>
                <DELETED>    ``(A) Reportable and listed 
                transactions.--The terms `reportable transaction' and 
                `listed transaction' have the respective meanings given 
                to such terms by section 6707A(c).</DELETED>
                <DELETED>    ``(B) Coordination with determinations of 
                whether other understatements are substantial.--
                Reportable transaction income tax understatements shall 
                be taken into account under subsection (d)(1) in 
                determining whether any understatement (which is not a 
                reportable transaction income tax understatement) is a 
                substantial understatement.</DELETED>
                <DELETED>    ``(C) Special rule for amended returns.--
                Except as provided in regulations, in no event shall 
                any tax treatment included with an amendment or 
                supplement to a return of tax be taken into account in 
                determining the amount of any reportable transaction 
                income tax understatement if the amendment or 
                supplement is filed after the earlier of the date the 
                taxpayer is first contacted by the Secretary regarding 
                the examination of the return or such other date as is 
                specified by the Secretary.''</DELETED>
<DELETED>    (c) Reasonable Cause Exception.--Subsection (c) of section 
6664 (relating to reasonable cause exception) is amended by 
redesignating paragraphs (2) and (3) as paragraphs (4) and (5), 
respectively, and by inserting after paragraph (1) the following new 
paragraphs:</DELETED>
        <DELETED>    ``(2) Special rules for understatements 
        attributable to listed and certain other tax avoidance 
        transactions.--Paragraph (1) shall not apply to the portion of 
        any reportable transaction income tax understatement 
        attributable to an item referred to in section 6662(i)(2) 
        unless--</DELETED>
                <DELETED>    ``(A) the relevant facts affecting the tax 
                treatment of such item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,</DELETED>
                <DELETED>    ``(B) there is or was substantial 
                authority for such treatment, and</DELETED>
                <DELETED>    ``(C) the taxpayer reasonably believed 
                that such treatment was more likely than not the proper 
                treatment.</DELETED>
        <DELETED>    ``(3) Rules relating to reasonable belief.--For 
        purposes of paragraph (2)(C)--</DELETED>
                <DELETED>    ``(A) In general.--A taxpayer shall be 
                treated as having a reasonable belief with respect to 
                the tax treatment of an item only if such belief--
                </DELETED>
                        <DELETED>    ``(i) is based on the facts and 
                        law that exist at the time the return of tax 
                        which includes such tax treatment is filed, 
                        and</DELETED>
                        <DELETED>    ``(ii) relates solely to the 
                        taxpayer's chances of success on the merits of 
                        such treatment and does not take into account 
                        the possibility that a return will not be 
                        audited, such treatment will not be raised on 
                        audit, or such treatment will be resolved 
                        through settlement if it is raised.</DELETED>
                <DELETED>    ``(B) Certain opinions may not be relied 
                upon.--</DELETED>
                        <DELETED>    ``(i) In general.--An opinion of a 
                        tax advisor may not be relied upon to establish 
                        the reasonable belief of a taxpayer if--
                        </DELETED>
                                <DELETED>    ``(I) the tax advisor is 
                                described in clause (ii), or</DELETED>
                                <DELETED>    ``(II) the opinion is 
                                described in clause (iii).</DELETED>
                        <DELETED>    ``(ii) Disqualified tax 
                        advisors.--A tax advisor is described in this 
                        clause if the tax advisor is a material advisor 
                        (within the meaning of section 6111(b)(1)) 
                        who--</DELETED>
                                <DELETED>    ``(I) is compensated 
                                directly or indirectly by another 
                                material advisor with respect to the 
                                transaction,</DELETED>
                                <DELETED>    ``(II) has a contingent 
                                fee arrangement with respect to the 
                                transaction,</DELETED>
                                <DELETED>    ``(III) has any type of 
                                referral agreement or other similar 
                                agreement or understanding with another 
                                material advisor which relates to the 
                                transaction, or</DELETED>
                                <DELETED>    ``(IV) has any other 
                                characteristic which, as determined 
                                under regulations prescribed by the 
                                Secretary, is indicative of a potential 
                                conflict of interest or compromise of 
                                independence.</DELETED>
                        <DELETED>    ``(iii) Disqualified opinions.--An 
                        opinion is described in this clause if the 
                        opinion--</DELETED>
                                <DELETED>    ``(I) is based on 
                                unreasonable factual or legal 
                                assumptions (including assumptions as 
                                to future events),</DELETED>
                                <DELETED>    ``(II) unreasonably relies 
                                on representations, statements, 
                                findings, or agreements of the taxpayer 
                                or any other person,</DELETED>
                                <DELETED>    ``(III) does not identify 
                                and consider all relevant facts, 
                                or</DELETED>
                                <DELETED>    ``(IV) fails to meet any 
                                other requirement as the Secretary may 
                                prescribe.''</DELETED>
<DELETED>    (d) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Subparagraph (C) of section 461(i)(3) is 
        amended by striking ``section 6662(d)(2)(C)(iii)'' and 
        inserting ``section 1274(b)(3)(C)''.</DELETED>
        <DELETED>    (2) Paragraph (3) of section 1274(b) is amended--
        </DELETED>
                <DELETED>    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), 
                and</DELETED>
                <DELETED>    (B) by adding at the end the following new 
                subparagraph:</DELETED>
                <DELETED>    ``(C) Tax shelter.--For purposes of 
                subparagraph (B), the term `tax shelter' means--
                </DELETED>
                        <DELETED>    ``(i) a partnership or other 
                        entity,</DELETED>
                        <DELETED>    ``(ii) any investment plan or 
                        arrangement, or</DELETED>
                        <DELETED>    ``(iii) any other plan or 
                        arrangement,</DELETED>
                <DELETED>if a significant purpose of such partnership, 
                entity, plan, or arrangement is the avoidance or 
                evasion of Federal income tax.''</DELETED>
        <DELETED>    (3) Section 6662(d)(2) is amended by striking 
        subparagraphs (C) and (D).</DELETED>
        <DELETED>    (4) Subsection (b) of section 7525 is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.</DELETED>
<DELETED>    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after the date of the enactment of 
this Act.</DELETED>

<DELETED>SEC. 103. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY 
              FOR NONREPORTABLE TRANSACTIONS.</DELETED>

<DELETED>    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:</DELETED>
                <DELETED>    ``(B) Special rule for corporations.--In 
                the case of a corporation other than an S corporation 
                or a personal holding company (as defined in section 
                542), there is a substantial understatement of income 
                tax for any taxable year if the amount of the 
                understatement for the taxable year exceeds the lesser 
                of--</DELETED>
                        <DELETED>    ``(i) 10 percent of the tax 
                        required to be shown on the return for the 
                        taxable year, or</DELETED>
                        <DELETED>    ``(ii) $10,000,000.''</DELETED>
<DELETED>    (b) Reduction for Understatement of Taxpayer Due to 
Position of Taxpayer or Disclosed Item.--</DELETED>
        <DELETED>    (1) In general.--Section 6662(d)(2)(B)(i) 
        (relating to substantial authority) is amended to read as 
        follows:</DELETED>
                        <DELETED>    ``(i) the tax treatment of any 
                        item by the taxpayer if the taxpayer had 
                        reasonable belief that the tax treatment was 
                        more likely than not the proper treatment, 
                        or''.</DELETED>
        <DELETED>    (2) Conforming amendment.--Section 6662(d) is 
        amended by adding at the end the following new 
        paragraph:</DELETED>
        <DELETED>    ``(3) Secretarial list.--For purposes of this 
        subsection, section 6664(c)(2), and section 6694(a)(1), the 
        Secretary may prescribe a list of positions--</DELETED>
                <DELETED>    ``(A) for which the Secretary believes 
                there is not substantial authority or there is no 
                reasonable belief that the tax treatment is more likely 
                than not the proper tax treatment, and</DELETED>
                <DELETED>    ``(B) which affect a significant number of 
                taxpayers.</DELETED>
        <DELETED>Such list (and any revisions thereof) shall be 
        published in the Federal Register or the Internal Revenue 
        Bulletin.''</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the enactment 
of this Act.</DELETED>

<DELETED>SEC. 104. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
              RELATING TO TAXPAYER COMMUNICATIONS.</DELETED>

<DELETED>    (a) In General.--Section 7525(b) (relating to section not 
to apply to communications regarding corporate tax shelters) is amended 
to read as follows:</DELETED>
<DELETED>    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--</DELETED>
        <DELETED>    ``(1) between a federally authorized tax 
        practitioner and--</DELETED>
                <DELETED>    ``(A) any person,</DELETED>
                <DELETED>    ``(B) any director, officer, employee, 
                agent, or representative of the person, or</DELETED>
                <DELETED>    ``(C) any other person holding a capital 
                or profits interest in the person, and</DELETED>
        <DELETED>    ``(2) in connection with the promotion of the 
        direct or indirect participation of the person in any tax 
        shelter (as defined in section 1274(b)(3)(C)).''</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to communications made on or after the date of the 
enactment of this Act.</DELETED>

 <DELETED>TITLE II--PROMOTER AND PREPARER RELATED PROVISIONS</DELETED>

        <DELETED>Subtitle A--Provisions Relating To Reportable 
                         Transactions</DELETED>

<DELETED>SEC. 201. DISCLOSURE OF REPORTABLE TRANSACTIONS.</DELETED>

<DELETED>    (a) In General.--Section 6111 (relating to registration of 
tax shelters) is amended to read as follows:</DELETED>

<DELETED>``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.</DELETED>

<DELETED>    ``(a) In General.--Each material advisor with respect to 
any reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--</DELETED>
        <DELETED>    ``(1) information identifying and describing the 
        transaction,</DELETED>
        <DELETED>    ``(2) information describing the advice provided 
        by such advisor, including any potential tax benefits 
        represented to result from the transaction, and</DELETED>
        <DELETED>    ``(3) such other information as the Secretary may 
        prescribe.</DELETED>
<DELETED>Such return shall be filed on the first business day following 
the earliest date on which such advisor provides any material aid, 
assistance, or advice with respect to organizing, promoting, selling, 
implementing, or carrying out the transaction (or such later date as 
the Secretary may prescribe).</DELETED>
<DELETED>    ``(b) Definitions.--For purposes of this section--
</DELETED>
        <DELETED>    ``(1) Material advisor.--The term `material 
        advisor' means any person--</DELETED>
                <DELETED>    ``(A) who provides any material aid, 
                assistance, or advice with respect to organizing, 
                promoting, selling, implementing, or carrying out any 
                reportable transaction, and</DELETED>
                <DELETED>    ``(B) who directly or indirectly derives 
                gross income from such advice or assistance.</DELETED>
        <DELETED>    ``(2) Reportable transaction.--The term 
        `reportable transaction' has the meaning given to such term by 
        section 6707A(c).</DELETED>
<DELETED>    ``(c) Regulations.--The Secretary may prescribe 
regulations which provide--</DELETED>
        <DELETED>    ``(1) that only 1 person shall be required to meet 
        the requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such 
        requirements,</DELETED>
        <DELETED>    ``(2) exemptions from the requirements of this 
        section, and</DELETED>
        <DELETED>    ``(3) such rules as may be necessary or 
        appropriate to carry out the purposes of this 
        section.''</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) The item relating to section 6111 in the table 
        of sections for subchapter B of chapter 61 is amended to read 
        as follows:</DELETED>

                              <DELETED>``Sec. 6111. Disclosure of 
                                        reportable transactions.''
        <DELETED>    (2)(A) So much of section 6112 as precedes 
        subsection (c) thereof is amended to read as follows:</DELETED>

<DELETED>``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST 
              KEEP LISTS OF ADVISEES.</DELETED>

<DELETED>    ``(a) In General.--Each material advisor (as defined in 
section 6111) with respect to any reportable transaction (as defined in 
section 6707A(c)) shall maintain (in such manner as the Secretary may 
by regulations prescribe) a list--</DELETED>
        <DELETED>    ``(1) identifying each person with respect to whom 
        such advisor acted as such a material advisor with respect to 
        such transaction, and</DELETED>
        <DELETED>    ``(2) containing such other information as the 
        Secretary may by regulations require.''</DELETED>
        <DELETED>    (B) Section 6112 is amended by redesignating 
        subsection (c) as subsection (b).</DELETED>
        <DELETED>    (C) Section 6112(b)(1)(A), as redesignated by 
        subparagraph (B), is amending by inserting ``written'' before 
        ``request''.</DELETED>
        <DELETED>    (D) The item relating to section 6112 in the table 
        of sections for subchapter B of chapter 61 is amended to read 
        as follows:</DELETED>

                              <DELETED>``Sec. 6112. Material advisors 
                                        of reportable transactions must 
                                        keep lists of advisees.''
        <DELETED>    (3)(A) The heading for section 6708 is amended to 
        read as follows:</DELETED>

<DELETED>``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH 
              RESPECT TO REPORTABLE TRANSACTIONS.''</DELETED>

        <DELETED>    (B) The item relating to section 6708 in the table 
        of sections for part I of subchapter B of chapter 68 is amended 
        to read as follows:</DELETED>

                              <DELETED>``Sec. 6708. Failure to maintain 
                                        lists of advisees with respect 
                                        to reportable transactions.''
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to transactions entered into after the date of the 
enactment of this Act.</DELETED>

<DELETED>SEC. 202. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.</DELETED>

<DELETED>    (a) In General.--Section 6707 (relating to failure to 
furnish information regarding tax shelters) is amended to read as 
follows:</DELETED>

<DELETED>``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING 
              REPORTABLE TRANSACTIONS.</DELETED>

<DELETED>    ``(a) In General.--If a person who is required to file a 
return under section 6111(a) with respect to any reportable 
transaction--</DELETED>
        <DELETED>    ``(1) fails to file such return on or before the 
        date prescribed therefor, or</DELETED>
        <DELETED>    ``(2) files false or incomplete information with 
        the Secretary with respect to such transaction,</DELETED>
<DELETED>such person shall pay a penalty with respect to such return in 
the amount determined under subsection (b).</DELETED>
<DELETED>    ``(b) Amount of Penalty.--</DELETED>
        <DELETED>    ``(1) In general.--Except as provided in paragraph 
        (2), the penalty imposed under subsection (a) with respect to 
        any failure shall be $50,000.</DELETED>
        <DELETED>    ``(2) Listed transactions.--The penalty imposed 
        under subsection (a) with respect to any listed transaction 
        shall be an amount equal to the greater of--</DELETED>
                <DELETED>    ``(A) $200,000, or</DELETED>
                <DELETED>    ``(B) 50 percent of the fees paid to such 
                person with respect to aid, assistance, or advice which 
                is provided with respect to the reportable transaction 
                before the date the return is filed under section 
                6111.</DELETED>
        <DELETED>Subparagraph (B) shall be applied by substituting `75 
        percent' for `50 percent' in the case of an intentional failure 
        or act described in subsection (a).</DELETED>
<DELETED>    ``(c) Reportable and Listed Transactions.--The terms 
`reportable transaction' and `listed transaction' have the respective 
meanings given to such terms by section 6707A(c).''</DELETED>
<DELETED>    (b) Clerical Amendment.--The item relating to section 6707 
in the table of sections for part I of subchapter B of chapter 68 is 
amended by striking ``tax shelters'' and inserting ``reportable 
transactions''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to failures occurring after the date of the enactment of 
this Act.</DELETED>

<DELETED>SEC. 203. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN 
              LISTS OF INVESTORS.</DELETED>

<DELETED>    (a) In General.--Subsection (a) of section 6708 is amended 
to read as follows:</DELETED>
<DELETED>    ``(a) Imposition of Penalty.--</DELETED>
        <DELETED>    ``(1) In general.--If any person who is required 
        to maintain a list under section 6112(a) fails to make such 
        list available to the Secretary in accordance with section 
        6112(b)(1)(A) within 20 days after the date of the Secretary's 
        request, such person shall pay a penalty of $10,000 for each 
        day of such failure after such 20th day.</DELETED>
        <DELETED>    ``(2) Reasonable cause exception.--No penalty 
        shall be imposed by paragraph (1) with respect to the failure 
        on any day if such failure is due to reasonable 
        cause.''</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to failures occurring after the date of the enactment of 
this Act.</DELETED>

<DELETED>SEC. 204. MODIFICATION OF ACTIONS TO ENJOIN SPECIFIED CONDUCT 
              RELATED TO TAX SHELTERS AND REPORTABLE 
              TRANSACTIONS.</DELETED>

<DELETED>    (a) In General.--Section 7408 (relating to action to 
enjoin promoters of abusive tax shelters, etc.) is amended by 
redesignating subsection (c) as subsection (d) and by striking 
subsections (a) and (b) and inserting the following new 
subsections:</DELETED>
<DELETED>    ``(a) Authority To Seek Injunction.--A civil action in the 
name of the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.</DELETED>
<DELETED>    ``(b) Adjudication and Decree.--In any action under 
subsection (a), if the court finds--</DELETED>
        <DELETED>    ``(1) that the person has engaged in any specified 
        conduct, and</DELETED>
        <DELETED>    ``(2) that injunctive relief is appropriate to 
        prevent recurrence of such conduct,</DELETED>
<DELETED>the court may enjoin such person from engaging in such conduct 
or in any other activity subject to penalty under this title.</DELETED>
<DELETED>    ``(c) Specified Conduct.--For purposes of this section, 
the term `specified conduct' means any action, or failure to take 
action, subject to penalty under section 6700, 6701, 6707, or 
6708.''</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) The heading for section 7408 is amended to 
        read as follows:</DELETED>

<DELETED>``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.''</DELETED>

        <DELETED>    (2) The table of sections for subchapter A of 
        chapter 67 is amended by striking the item relating to section 
        7408 and inserting the following new item:</DELETED>

        <DELETED>``Sec. 7408. Actions to enjoin specified conduct 
                            related to tax shelters and reportable 
                            transactions.''
<DELETED>    (c) Effective Date.--The amendment made by this section 
shall take effect on the day after the date of the enactment of this 
Act.</DELETED>

            <DELETED>Subtitle B--Other Provisions</DELETED>

<DELETED>SEC. 211. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX 
              RETURN PREPARER.</DELETED>

<DELETED>    (a) Standards Conformed to Taxpayer Standards.--Section 
6694(a) (relating to understatements due to unrealistic positions) is 
amended--</DELETED>
        <DELETED>    (1) by striking ``realistic possibility of being 
        sustained on its merits'' in paragraph (1) and inserting 
        ``reasonable belief that the tax treatment in such position was 
        more likely than not the proper treatment'',</DELETED>
        <DELETED>    (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</DELETED>
        <DELETED>    (3) by striking ``Unrealistic'' in the heading and 
        inserting ``Improper''.</DELETED>
<DELETED>    (b) Amount of Penalty.--Section 6694 is amended--
</DELETED>
        <DELETED>    (1) by striking ``$250'' in subsection (a) and 
        inserting ``$1,000'', and</DELETED>
        <DELETED>    (2) by striking ``$1,000'' in subsection (b) and 
        inserting ``$5,000''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to documents prepared after the date of the enactment of 
this Act.</DELETED>

<DELETED>SEC. 212. REPORT ON EFFECTIVENESS OF PENALTY ON FAILURE TO 
              REPORT INTERESTS IN FOREIGN FINANCIAL ACCOUNTS.</DELETED>

<DELETED>    The Secretary of the Treasury or his delegate shall report 
each year to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate on--
</DELETED>
        <DELETED>    (1) the number of civil and criminal penalties 
        imposed on failures to meet the reporting and recordkeeping 
        requirements of section 5314 of title 31, United States Code, 
        with respect to interests held in foreign financial accounts, 
        and</DELETED>
        <DELETED>    (2) the average amount of monetary penalties so 
        imposed.</DELETED>
<DELETED>The Secretary shall include with such report an analysis of 
the effectiveness of such reporting and recordkeeping requirements in 
preventing the avoidance or evasion of Federal income taxes and any 
recommendations to improve such requirements and the enforcement of 
such requirements.</DELETED>

<DELETED>SEC. 213. FRIVOLOUS TAX SUBMISSIONS.</DELETED>

<DELETED>    (a) Civil Penalties.--Section 6702 is amended to read as 
follows:</DELETED>

<DELETED>``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.</DELETED>

<DELETED>    ``(a) Civil Penalty for Frivolous Tax Returns.--A person 
shall pay a penalty of $5,000 if--</DELETED>
        <DELETED>    ``(1) such person files what purports to be a 
        return of a tax imposed by this title but which--</DELETED>
                <DELETED>    ``(A) does not contain information on 
                which the substantial correctness of the self-
                assessment may be judged, or</DELETED>
                <DELETED>    ``(B) contains information that on its 
                face indicates that the self-assessment is 
                substantially incorrect; and</DELETED>
        <DELETED>    ``(2) the conduct referred to in paragraph (1)--
        </DELETED>
                <DELETED>    ``(A) is based on a position which the 
                Secretary has identified as frivolous under subsection 
                (c), or</DELETED>
                <DELETED>    ``(B) reflects a desire to delay or impede 
                the administration of Federal tax laws.</DELETED>
<DELETED>    ``(b) Civil Penalty for Specified Frivolous Submissions.--
</DELETED>
        <DELETED>    ``(1) Imposition of penalty.--Except as provided 
        in paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.</DELETED>
        <DELETED>    ``(2) Specified frivolous submission.--For 
        purposes of this section--</DELETED>
                <DELETED>    ``(A) Specified frivolous submission.--The 
                term `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                </DELETED>
                        <DELETED>    ``(i) is based on a position which 
                        the Secretary has identified as frivolous under 
                        subsection (c), or</DELETED>
                        <DELETED>    ``(ii) reflects a desire to delay 
                        or impede the administration of Federal tax 
                        laws.</DELETED>
                <DELETED>    ``(B) Specified submission.--The term 
                `specified submission' means--</DELETED>
                        <DELETED>    ``(i) a request for a hearing 
                        under--</DELETED>
                                <DELETED>    ``(I) section 6320 
                                (relating to notice and opportunity for 
                                hearing upon filing of notice of lien), 
                                or</DELETED>
                                <DELETED>    ``(II) section 6330 
                                (relating to notice and opportunity for 
                                hearing before levy), and</DELETED>
                        <DELETED>    ``(ii) an application under--
                        </DELETED>
                                <DELETED>    ``(I) section 7811 
                                (relating to taxpayer assistance 
                                orders),</DELETED>
                                <DELETED>    ``(II) section 6159 
                                (relating to agreements for payment of 
                                tax liability in installments), 
                                or</DELETED>
                                <DELETED>    ``(III) section 7122 
                                (relating to compromises).</DELETED>
        <DELETED>    ``(3) Opportunity to withdraw submission.--If the 
        Secretary provides a person with notice that a submission is a 
        specified frivolous submission and such person withdraws such 
        submission promptly after such notice, the penalty imposed 
        under paragraph (1) shall not apply with respect to such 
        submission.</DELETED>
<DELETED>    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous 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).</DELETED>
<DELETED>    ``(d) Reduction of Penalty.--The Secretary may reduce the 
amount of any penalty imposed under this section if the Secretary 
determines that such reduction would  promote compliance with and 
administration of the Federal tax laws.</DELETED>
<DELETED>    ``(e) Penalties in Addition to Other Penalties.--The 
penalties imposed by this section shall be in addition to any other 
penalty provided by law.''</DELETED>
<DELETED>    (b) Treatment of Frivolous Requests for Hearings Before 
Levy.--</DELETED>
        <DELETED>    (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:</DELETED>
<DELETED>    ``(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 requirement 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.''</DELETED>
        <DELETED>    (2) Preclusion from raising frivolous issues at 
        hearing.--Section 6330(c)(4) is amended--</DELETED>
                <DELETED>    (A) by striking ``(A)'' and inserting 
                ``(A)(i)'';</DELETED>
                <DELETED>    (B) by striking ``(B)'' and inserting 
                ``(ii)'';</DELETED>
                <DELETED>    (C) by striking the period at the end of 
                the first sentence and inserting ``; or''; 
                and</DELETED>
                <DELETED>    (D) by inserting after subparagraph 
                (A)(ii) (as so redesignated) the following:</DELETED>
                <DELETED>    ``(B) the issue meets the requirement of 
                clause (i) or (ii) of section 
                6702(b)(2)(A).''</DELETED>
        <DELETED>    (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''.</DELETED>
<DELETED>    (c) Treatment of Frivolous Requests for Hearings Upon 
Filing of Notice of Lien.--Section 6320 is amended--</DELETED>
        <DELETED>    (1) in subsection (b)(1), by striking ``under 
        subsection (a)(3)(B)'' and inserting ``in writing under 
        subsection (a)(3)(B) and states the grounds for the requested 
        hearing'', and</DELETED>
        <DELETED>    (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.</DELETED>
<DELETED>    (d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is amended by 
adding at the end the following new subsection:</DELETED>
<DELETED>    ``(e) Frivolous Submissions, etc.--Notwithstanding 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 (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.''</DELETED>
<DELETED>    (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:</DELETED>

                              <DELETED>``Sec. 6702. Frivolous tax 
                                        submissions.''
<DELETED>    (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).</DELETED>

<DELETED>SEC. 214. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
              DEPARTMENT OF TREASURY.</DELETED>

<DELETED>    (a) Censure; Imposition of Penalty.--</DELETED>
        <DELETED>    (1) In general.--Section 330(b) of title 31, 
        United States Code, is amended--</DELETED>
                <DELETED>    (A) by inserting ``, or censure,'' after 
                ``Department'', and</DELETED>
                <DELETED>    (B) by adding at the end the following new 
                flush sentence:</DELETED>
<DELETED>``The Secretary may impose a monetary penalty on any 
representative described in the preceding sentence. If the 
representative was acting on behalf of an employer or any firm or other 
entity in connection with the conduct giving rise to such penalty, the 
Secretary may impose a monetary penalty on such employer, firm, or 
entity if it knew, or reasonably should have known, of such conduct. 
Such penalty shall not exceed the gross income derived (or to be 
derived) from the conduct giving rise to the penalty and may be in 
addition to, or in lieu of, any suspension, disbarment, or 
censure.''</DELETED>
        <DELETED>    (2) Effective date.--The amendments made by this 
        subsection shall apply to actions taken after the date of the 
        enactment of this Act.</DELETED>
<DELETED>    (b) Tax Shelter Opinions, etc.--Section 330 of such title 
31 is amended by adding at the end the following new 
subsection:</DELETED>
<DELETED>    ``(d) Nothing in this section or in any other provision of 
law shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or 
evasion.''</DELETED>

<DELETED>SEC. 215. PENALTY ON PROMOTERS OF TAX SHELTERS.</DELETED>

<DELETED>    (a) Penalty on Promoting Abusive Tax Shelters.--Section 
6700(a) is amended by adding at the end the following new sentence: 
``Notwithstanding the first sentence, if an activity with respect to 
which a penalty imposed under this subsection involves a statement 
described in paragraph (2)(A), the amount of the penalty shall be equal 
to 50 percent of the gross income derived (or to be derived) from such 
activity by the person on which the penalty is imposed.''</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to activities after the date of the enactment of this 
Act.</DELETED>

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Tax Shelter 
Transparency Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment 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 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Section 1. Short title; amendment of 1986 Code; table of contents.

             TITLE I--TAX SHELTER TRANSPARENCY REQUIREMENTS

Sec. 101. Penalty for failing to disclose reportable transaction.
Sec. 102. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 103. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 104. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.

           TITLE II--PROMOTER AND PREPARER RELATED PROVISIONS

       Subtitle A--Provisions Relating to Reportable Transactions

Sec. 201. Disclosure of reportable transactions.
Sec. 202. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 203. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 204. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.

           Subtitle B--Other Promoter and Preparer Provisions

Sec. 211. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 212. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 213. Frivolous tax submissions.
Sec. 214. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 215. Penalty on promoters of tax shelters.

                      TITLE III--OTHER PROVISIONS

Sec. 301. Affirmation of consolidated return regulation authority.

             TITLE I--TAX SHELTER TRANSPARENCY REQUIREMENTS

SEC. 101. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6707 the 
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
              INFORMATION WITH RETURN OR STATEMENT.

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), 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 paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) 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.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction which is the same as, or similar to, a transaction 
        specifically identified by the Secretary as a tax avoidance 
        transaction for purposes of section 6011.
    ``(d) Authority to Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in his sole 
        discretion, may establish a procedure to determine if a penalty 
        should be referred to the Commissioner or the head of such 
        Office for a determination under paragraph (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) the reasons for the rescission, and
                    ``(B) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction, or
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in  accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under section 
6662.''
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which is after the 
date of the enactment of this Act.

SEC. 102. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
              WITH RESPECT TO REPORTABLE TRANSACTIONS.

    ``(a) Imposition of Penalty.--If a taxpayer has a reportable 
transaction understatement for any taxable year, there shall be added 
to the tax an amount equal to 20 percent of the amount of such 
understatement.
    ``(b) Reportable Transaction Understatement.--For purposes of this 
section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase (if any) 
                        in taxable income which results from a 
                        difference between the proper tax treatment of 
                        an item to which this section applies and the 
                        taxpayer's treatment of such item (as shown on 
                        the taxpayer's return of tax), and
                            ``(ii) the highest rate of tax imposed by 
                        section 1 (section 11 in the case of a taxpayer 
                        which is a corporation), and
                    ``(B) the amount of the decrease (if any) in the 
                aggregate amount of credits determined under subtitle A 
                which results from a difference between the taxpayer's 
                treatment of an item to which this section applies (as 
                shown on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the excess 
        of deductions allowed for the taxable year over gross income 
        for such year, and any reduction in the amount of capital 
        losses which would (without regard to section 1211) be allowed 
        for such year, shall be treated as an increase in taxable 
        income.
            ``(2) Items to which section applies.--This section shall 
        apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other than a 
                listed transaction) if a significant purpose of such 
                transaction is the avoidance or evasion of Federal 
                income tax.
    ``(c) Higher Penalties for Nondisclosed Listed and Other Avoidance 
Transactions.--If the requirement of section 6664(d)(2)(A) is not met 
with respect to any portion of any reportable transaction 
understatement, then subsection (a) shall be applied by substituting--
            ``(1) `30 percent' for `20 percent' if such understatement 
        is attributable to a listed transaction, and
            ``(2) `25 percent' for `20 percent' in the case of any 
        other understatement.
    ``(d) Definitions of Reportable and Listed Transactions.--For 
purposes of this section, the terms `reportable transaction' and 
`listed transaction' have the respective meanings given to such terms 
by section 6707A(c).
    ``(e) Special rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as defined 
        in section 6662(d)(2))--
                    ``(A) the amount of such understatement (determined 
                without regard to this paragraph) shall be increased by 
                the aggregate amount of reportable transaction 
                understatements for purposes of determining whether 
                such understatement is a substantial understatement 
                under section 6662(d)(1), but
                    ``(B) the addition to tax under section 6662(a) 
                shall apply only to the excess of the amount of the 
                substantial understatement (if any) after the 
                application of subparagraph (A) over the aggregate 
                amount of reportable transaction understatements.
            ``(2) Coordination with fraud penalty.--
                    ``(A) In general.--References to an underpayment in 
                section 6663 shall be treated as including references 
                to a reportable transaction understatement.
                    ``(B) No double penalty.--This section shall not 
                apply to any portion of an understatement on which a 
                penalty is imposed under section 6663.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any tax treatment included 
        with an amendment or supplement to a return of tax be taken 
        into account in determining the amount of any reportable 
        transaction understatement if the amendment or supplement is 
        filed after the earlier of the date the taxpayer is first 
        contacted by the Secretary regarding the examination of the 
        return or such other date as is specified by the Secretary.''
    (b) Determination of Other Understatements.--Subparagraph (A) of 
section 6662(d)(2) is amended by adding at the end the following flush 
sentence:
                ``The excess under the preceding sentence shall be 
                determined without regard to items to which section 
                6662A applies.''
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding at the 
        end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed under 
        section 6662A with respect to any portion of a reportable 
        transaction understatement if it is shown that there was a 
        reasonable cause for such portion and that the taxpayer acted 
        in good faith with respect to such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply to any 
        reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,
                    ``(B) there is or was substantial authority for 
                such treatment, and
                    ``(C) the taxpayer reasonably believed that such 
                treatment was more likely than not the proper 
                treatment.
        A taxpayer failing to adequately disclose in accordance with 
        section 6011 shall be treated as meeting the requirements of 
        subparagraph (A) if the penalty for such failure was rescinded 
        under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For purposes of 
        paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be treated as 
                having a reasonable belief with respect to the tax 
                treatment of an item only if such belief--
                            ``(i) is based on the facts and law that 
                        exist at the time the return of tax which 
                        includes such tax treatment is filed, and
                            ``(ii) relates solely to the taxpayer's 
                        chances of success on the merits of such 
                        treatment and does not take into account the 
                        possibility that a return will not be audited, 
                        such treatment will not be raised on audit, or 
                        such treatment will be resolved through 
                        settlement if it is raised.
                    ``(B) Certain opinions may not be relied upon.--
                            ``(i) In general.--An opinion of a tax 
                        advisor may not be relied upon to establish the 
                        reasonable belief of a taxpayer if--
                                    ``(I) the tax advisor is described 
                                in clause (ii), or
                                    ``(II) the opinion is described in 
                                clause (iii).
                            ``(ii) Disqualified tax advisors.--A tax 
                        advisor is described in this clause if the tax 
                        advisor is a material advisor (within the 
                        meaning of section 6111(b)(1)) who--
                                    ``(I) participates in the 
                                organization, management, promotion, or 
                                sale of the transaction or is related 
                                (within the meaning of section 267 or 
                                707) to any person who so participates,
                                    ``(II) is compensated by another 
                                material advisor with respect to the 
                                transaction,
                                    ``(III) has a fee arrangement with 
                                respect to the transaction which is 
                                contingent on all or part of the 
                                intended tax benefits from the 
                                transaction being sustained, or
                                    ``(IV) as determined under 
                                regulations prescribed by the 
                                Secretary, has a continuing financial 
                                interest with respect to the 
                                transaction.
                            ``(iii) Disqualified opinions.--For 
                        purposes of clause (i), an opinion is 
                        disqualified if the opinion--
                                    ``(I) is based on unreasonable 
                                factual or legal assumptions (including 
                                assumptions as to future events),
                                    ``(II) unreasonably relies on 
                                representations, statements, findings, 
                                or agreements of the taxpayer or any 
                                other person,
                                    ``(III) does not identify and 
                                consider all relevant facts, or
                                    ``(IV) fails to meet any other 
                                requirement as the Secretary may 
                                prescribe.''
            (2) Conforming amendment.--The heading for subsection (c) 
        of section 6664 is amended by inserting ``for Underpayments'' 
        after ``Exception''.
    (d) Conforming Amendments.--
            (1) Subparagraph (C) of section 461(i)(3) is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (2) Paragraph (3) of section 1274(b) is amended--
                    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Tax shelter.--For purposes of subparagraph 
                (B), the term `tax shelter' means--
                            ``(i) a partnership or other entity,
                            ``(ii) any investment plan or arrangement, 
                        or
                            ``(iii) any other plan or arrangement,
                if a significant purpose of such partnership, entity, 
                plan, or arrangement is the avoidance or evasion of 
                Federal income tax.''
            (3) Section 6662(d)(2) is amended by striking subparagraphs 
        (C) and (D).
            (4) Section 6664(c)(1) is amended by striking ``part'' and 
        inserting ``section 6662 or 6663''.
            (5) Subsection (b) of section 7525 is amended by striking 
        ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (6)(A) The heading for section 6662 is amended to read as 
        follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''

            (B) The table of sections for part II of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662 and inserting the following new items:

                              ``Sec. 6662. Imposition of accuracy-
                                        related penalty on 
                                        underpayments.
                              ``Sec. 6662A. Imposition of accuracy-
                                        related penalty on 
                                        understatements with respect to 
                                        reportable transactions.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 103. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:
                    ``(B) Special rule for corporations.--In the case 
                of a corporation other than an S corporation or a 
                personal holding company (as defined in section 542), 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax required to be 
                        shown on the return for the taxable year (or, 
                        if greater, $10,000), or
                            ``(ii) $10,000,000.''
    (b) Reduction for Understatement of Taxpayer Due to Position of 
Taxpayer or Disclosed Item.--
            (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
        substantial authority) is amended to read as follows:
                            ``(i) the tax treatment of any item by the 
                        taxpayer if the taxpayer had reasonable belief 
                        that the tax treatment was more likely than not 
                        the proper treatment, or''.
            (2) Conforming amendment.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--For purposes of this subsection, 
        section 6664(d)(2), and section 6694(a)(1), the Secretary may 
        prescribe a list of positions for which the Secretary believes 
        there is not substantial authority or there is no reasonable 
        belief that the tax treatment is more likely than not the 
        proper tax treatment. Such list (and any revisions thereof) 
        shall be published in the Federal Register or the Internal 
        Revenue Bulletin.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 104. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not to apply 
to communications regarding corporate tax shelters) is amended to read 
as follows:
    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--
            ``(1) between a federally authorized tax practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, agent, or 
                representative of the person, or
                    ``(C) any other person holding a capital or profits 
                interest in the person, and
            ``(2) in connection with the promotion of the direct or 
        indirect participation of the person in any tax shelter (as 
        defined in section 1274(b)(3)(C)).''
    (b) Effective Date.--The amendment made by this section shall apply 
to communications made on or after the date of the enactment of this 
Act.

           TITLE II--PROMOTER AND PREPARER RELATED PROVISIONS

       Subtitle A--Provisions Relating to Reportable Transactions

SEC. 201. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    ``(a) In General.--Each material advisor with respect to any 
reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--
            ``(1) information identifying and describing the 
        transaction,
            ``(2) information describing any potential tax benefits 
        expected to result from the transaction, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date specified by the 
Secretary.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Material advisor.--
                    ``(A) In general.--The term `material advisor' 
                means any person--
                            ``(i) who provides any material aid, 
                        assistance, or advice with respect to 
                        organizing, promoting, selling, implementing, 
                        or carrying out any reportable transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such advice or assistance.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6111. Disclosure of reportable 
                                        transactions.''
            (2)(A) So much of section 6112 as precedes subsection (c) 
        thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP 
              LISTS OF ADVISEES.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any reportable transaction (as defined in section 
6707A(c)) shall maintain, in such manner as the Secretary may by 
regulations prescribe, a list--
            ``(1) identifying each person with respect to whom such 
        advisor acted as such a material advisor with respect to such 
        transaction, and
            ``(2) containing such other information as the Secretary 
        may by regulations require.
This section shall apply without regard to whether a material advisor 
is required to file a return under section 6111 with regard to such 
transaction.''
            (B) Section 6112 is amended by redesignating subsection (c) 
        as subsection (b).
            (C) Section 6112(b), as redesignated by subparagraph (B), 
        is amended--
                    (i) by inserting ``written'' before ``request'' in 
                paragraph (1)(A), and
                    (ii) by striking ``shall prescribe'' in paragraph 
                (2) and inserting ``may prescribe''.
            (D) The item relating to section 6112 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6112. Material advisors of 
                                        reportable transactions must 
                                        keep lists of advisees.''
            (3)(A) The heading for section 6708 is amended to read as 
        follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO 
              REPORTABLE TRANSACTIONS.''

            (B) The item relating to section 6708 in the table of 
        sections for part I of subchapter B of chapter 68 is amended to 
        read as follows:

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions with respect to which material aid, assistance, 
or advice referred to in section 6111(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 (as added by this section) is provided after the 
date of the enactment of this Act.

SEC. 202. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

    (a) In General.--Section 6707 (relating to failure to furnish 
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
              TRANSACTIONS.

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the reportable 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Reportable and Listed Transactions.--The terms `reportable 
transaction' and `listed transaction' have the respective meanings 
given to such terms by section 6707A(c).
    ``(d) Rescission Authority.--The provisions of section 6707A(d) 
(relating to authority of Commissioner to rescind penalty) shall apply 
to any penalty imposed under this section.''
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 is amended 
by striking ``tax shelters'' and inserting ``reportable transactions''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns the due date for which is after the date of the 
enactment of this Act.

SEC. 203. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

    (a) In General.--Subsection (a) of section 6708 is amended to read 
as follows:
    ``(a) Imposition of Penalty.--
            ``(1) In general.--If any person who is required to 
        maintain a list under section 6112(a) fails to make such list 
        available to the Secretary in accordance with section 
        6112(b)(1)(A) within 20 business days after the date of the 
        Secretary's request, such person shall pay a penalty of $10,000 
        for each day of such failure after such 20th day.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed by paragraph (1) with respect to the failure on any day 
        if such failure is due to reasonable cause.''
    (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 204. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by redesignating 
subsection (c) as subsection (d) and by striking subsections (a) and 
(b) and inserting the following new subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the name of 
the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.
    ``(b) Adjudication and Decree.--In any action under subsection (a), 
if the court finds--
            ``(1) that the person has engaged in any specified conduct, 
        and
            ``(2) that injunctive relief is appropriate to prevent 
        recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in 
any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the term 
`specified conduct' means any action, or failure to take action, 
subject to penalty under section 6700, 6701, 6707, or 6708.''
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read as 
        follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX 
              SHELTERS AND REPORTABLE TRANSACTIONS.''

            (2) The table of sections for subchapter A of chapter 67 is 
        amended by striking the item relating to section 7408 and 
        inserting the following new item:

        ``Sec. 7408. Actions to enjoin specified conduct related to tax 
                            shelters and reportable transactions.''
    (c) Effective Date.--The amendment made by this section shall take 
effect on the day after the date of the enactment of this Act.

           Subtitle B--Other Promoter and Preparer Provisions

SEC. 211. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

    (a) Standards Conformed to Taxpayer Standards.--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 inserting ``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 amended--
            (1) by striking ``$250'' in subsection (a) and inserting 
        ``$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.

SEC. 212. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $5,000.
                            ``(ii) Reasonable cause exception.--No 
                        penalty shall be imposed under subparagraph (A) 
                        with respect to any violation if--
                                    ``(I) such violation was due to 
                                reasonable cause, and
                                    ``(II) the amount of the 
                                transaction or the balance in the 
                                account at the time of the transaction 
                                was properly reported.
                    ``(C) Willful violations.--In the case of any 
                person willfully violating, or willfully causing any 
                violation of, any provision of section 5314--
                            ``(i) the maximum penalty under 
                        subparagraph (B)(i) shall be increased to the 
                        greater of--
                                    ``(I) $25,000, or
                                    ``(II) the amount (not exceeding 
                                $100,000) determined under subparagraph 
                                (D), and
                            ``(ii) subparagraph (B)(ii) shall not 
                        apply.
                    ``(D) Amount.--The amount determined under this 
                subparagraph is--
                            ``(i) in the case of a violation involving 
                        a transaction, the amount of the transaction, 
                        or
                            ``(ii) in the case of a violation involving 
                        a failure to report the existence of an account 
                        or any identifying information required to be 
                        provided with respect to an account, the 
                        balance in the account at the time of the 
                        violation.''
    (b) Effective Date.--The amendment made by this section shall apply 
to violations occurring after the date of the enactment of this Act.

SEC. 213. 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 Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return 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 Secretary 
                has identified as frivolous under subsection (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 provided 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--
                    ``(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 impede 
                        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 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice 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
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--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 Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous 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 section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--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 requirement 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 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:
                    ``(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 Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (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 Agreements.--Section 7122 is amended by adding at the 
end the following new subsection:
    ``(e) Frivolous Submissions, Etc.--Notwithstanding 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 (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. 214. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

    (a) Censure; Imposition of Penalty.--
            (1) In general.--Section 330(b) of title 31, United States 
        Code, is amended--
                    (A) by inserting ``, or censure,'' after 
                ``Department'', and
                    (B) by adding at the end the following new flush 
                sentence:
``The Secretary may impose a monetary penalty on any representative 
described in the preceding sentence. If the representative was acting 
on behalf of an employer or any firm or other entity in connection with 
the conduct giving rise to such penalty, the Secretary may impose a 
monetary penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such penalty shall not 
exceed the gross income derived (or to be derived) from the conduct 
giving rise to the penalty and may be in addition to, or in lieu of, 
any suspension, disbarment, or censure.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to actions taken after the date of the enactment of 
        this Act.
    (b) Tax Shelter Opinions, Etc.--Section 330 of such title 31 is 
amended by adding at the end the following new subsection:
    ``(d) Nothing in this section or in any other provision of law 
shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.''

SEC. 215. PENALTY ON PROMOTERS OF TAX SHELTERS.

    (a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is 
amended by adding at the end the following new sentence: 
``Notwithstanding the first sentence, if an activity with respect to 
which a penalty imposed under this subsection involves a statement 
described in paragraph (2)(A), the amount of the penalty shall be equal 
to 50 percent of the gross income derived (or to be derived) from such 
activity by the person on which the penalty is imposed.''
    (b) Effective Date.--The amendment made by this section shall apply 
to activities after the date of the enactment of this Act.

                      TITLE III--OTHER PROVISIONS

SEC. 301. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 (relating to consolidated return 
regulations) is amended by adding at the end the following new 
sentence: ``In prescribing such regulations, the Secretary may 
prescribe rules applicable to corporations filing consolidated returns 
under section 1501 that are different from other provisions of this 
title that would apply if such corporations filed separate returns.''
    (b) Result Not Overturned.--Notwithstanding subsection (a), the 
Internal Revenue Code of 1986 shall be construed by treating Treasury 
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) 
as being inapplicable to the type of factual situation in Rite Aid 
Corporation v. United States, 255 F.3d 1357 (Fed. Cir. 2001).
    (c) Effective Date.--The provisions of this section shall apply to 
taxable years beginning before, on, or after the date of the enactment 
of this Act.




                                                       Calendar No. 466

107th CONGRESS

  2d Session

                                S. 2498

                          [Report No. 107-189]

_______________________________________________________________________

                                 A BILL

    To amend the Internal Revenue Code of 1986 to require adequate 
disclosure of transactions which have a potential for tax avoidance or 
                    evasion, and for other purposes.

_______________________________________________________________________

                             June 28, 2002

                       Reported with an amendment