[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4351 Introduced in House (IH)]







108th CONGRESS
  2d Session
                                H. R. 4351

   To amend the Internal Revenue Code of 1986 to restrict the use of 
                         abusive tax shelters.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 12, 2004

 Mr. Emanuel introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to restrict the use of 
                         abusive tax shelters.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax Shelter Promoter Liability Act 
of 2004''.

SEC 2. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

    (a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 of 
the Internal Revenue Code of 1986 (relating to promoting abusive tax 
shelters, etc.) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (d) and (e), respectively,
            (2) by striking ``a penalty'' and all that follows through 
        the period in the first sentence of subsection (a) and 
        inserting ``a penalty determined under subsection (b)'', and
            (3) by inserting after subsection (a) the following new 
        subsections:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 150 percent of the gross 
        income derived (or to be derived) from such activity by the 
        person or persons subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of an activity described in subsection (a), 
        each instance in which income was derived by the person or 
        persons subject to such penalty, and each person who 
        participated in such an activity.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to such activity, all 
        such persons shall be jointly and severally liable for the 
        penalty under such subsection.
    ``(c) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 3. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

    (a) In General.--Section 6701(a) of the Internal Revenue Code of 
1986 (relating to imposition of penalty) is amended--
            (1) by inserting ``the tax liability or'' after ``respect 
        to,'' in paragraph (1),
            (2) by inserting ``aid, assistance, procurement, or advice 
        with respect to such'' before ``portion'' both places it 
        appears in paragraphs (2) and (3), and
            (3) by inserting ``instance of aid, assistance, 
        procurement, or advice or each such'' before ``document'' in 
        the matter following paragraph (3).
    (b) Amount of Penalty.--Subsection (b) of section 6701 of such Code 
(relating to penalties for aiding and abetting understatement of tax 
liability) is amended to read as follows:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall not exceed 150 percent of the gross 
        income derived (or to be derived) from such aid, assistance, 
        procurement, or advice provided by the person or persons 
        subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of aid, assistance, procurement, or advice 
        described in subsection (a), each instance in which income was 
        derived by the person or persons subject to such penalty, and 
        each person who made such an understatement of the liability 
        for tax.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to providing such aid, 
        assistance, procurement, or advice, all such persons shall be 
        jointly and severally liable for the penalty under such 
        subsection.''.
    (c) Penalty Not Deductible.--Section 6701 of such Code is amended 
by adding at the end the following new subsection:
    ``(g) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to activities after the date of the enactment of this Act.

SEC. 4. PENALTY FOR FAILURE TO REGISTER TAX SHELTER.

    (a) In General.--Section 6707 of the Internal Revenue Code of 1986 
(relating to failure to furnish information regarding tax shelters) is 
amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION ON POTENTIALLY ABUSIVE TAX 
              SHELTER OR LISTED TRANSACTION.

    ``(a) In General.--If a person who is required to file a return 
under section 6111 with respect to any potentially abusive tax 
shelter--
            ``(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 shelter,
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 not less than $50,000 and not more than 
        $100,000.
            ``(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) 100 percent of the gross income derived by 
                such person for providing aid, assistance, procurement, 
                advice, or other services with respect to the listed 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `150 percent' 
        for `100 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Certain Rules To Apply.--The provisions of section 6707A(d) 
allowing the Commissioner of Internal Revenue to rescind a penalty 
under certain circumstances shall apply to any penalty imposed under 
this section.
    ``(d) Potentially Abusive Tax Shelters and Listed Transactions.--
The terms `potentially abusive tax shelter' and `listed transaction' 
have the respective meanings given to such terms by section 6707A(c).
    ``(e) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 of such Code 
is amended by striking ``regarding tax shelters'' and inserting ``on 
potentially abusive tax shelter or listed transaction''.
    (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. 5. PENALTY FOR FAILING TO MAINTAIN CLIENT LIST.

    (a) In General.--Subsection (a) of section 6708 of the Internal 
Revenue Code of 1986 (relating to failure to maintain lists of 
investors in potentially abusive tax shelters) 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 upon written request 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. If such person makes available an incomplete list upon 
        such request, such person shall pay a penalty of $100 per each 
        omitted name for each day of such omission after such 20th day.
            ``(2) Good cause exception.--No penalty shall be imposed by 
        paragraph (1) with respect to the failure on any day if, in the 
        judgment of the Secretary, such failure is due to good 
        cause.''.
    (b) Penalty Not Deductible.--Section 6708 of such Code is amended 
by adding at the end the following new subsection:
    ``(c) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to requests made by the Secretary of the Treasury after the date 
of the enactment of this Act.

SEC. 6. PENALTY FOR FAILING TO DISCLOSE POTENTIALLY ABUSIVE TAX 
              SHELTER.

    (a) In General.--Part I of subchapter B of chapter 68 of the 
Internal Revenue Code of 1986 (relating to assessable penalties) is 
amended by inserting after section 6707 the following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE POTENTIALLY ABUSIVE TAX 
              SHELTER 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 potentially 
abusive tax shelter 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.--Except as provided in paragraph 
        3, the amount of the penalty under subsection (a) with respect 
        to a listed transaction shall be $100,000.
            ``(3) Increase in penalty for intentional nondisclosure.--
        In the case of an intentional failure by any person under 
        subsection (a), the penalty under paragraph (1) shall be 
        $100,000 and the penalty under paragraph (2) shall be $200,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Potentially abusive tax shelter.--The term 
        `potentially abusive tax shelter' means any transaction with 
        respect to which information is required to be included with a 
        return or statement, because the Secretary has determined by 
        regulation or otherwise that such transaction has a potential 
        for tax avoidance or evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a potentially 
        abusive tax shelter which is the same as, or substantially 
        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 a penalty imposed by this section 
        with respect to any violation if--
                    ``(A) the violation is with respect to a 
                potentially abusive tax shelter 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 the 
        Commissioner's 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 facts and circumstances of the 
                transaction,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
        A copy of such opinion shall be provided upon written request 
        to the Committee on Ways and Means of the House of 
        Representatives, the Committee on Finance of the Senate, the 
        Joint Committee on Taxation, or the General Accounting Office.
            ``(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,
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any potentially abusive tax 
                shelter at a rate prescribed under section 6662A(c), or
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction,
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) Penalty in Addition to Other Penalties.--The penalty imposed 
by this section shall be in addition to any other penalty provided by 
law.
    ``(g) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 of such Code is amended by inserting after 
the item relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include potentially abusive tax 
                                        shelter 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. 7. IMPROVED DISCLOSURE OF POTENTIALLY ABUSIVE TAX SHELTERS.

    (a) In General.--Section 6111 of the Internal Revenue Code of 1986 
(relating to registration of tax shelters) is amended to read as 
follows:

``SEC. 6111. DISCLOSURE OF POTENTIALLY ABUSIVE TAX SHELTERS.

    ``(a) In General.--Each material advisor with respect to any 
potentially abusive tax shelter shall make a return (in such form as 
the Secretary may prescribe) setting forth--
            ``(1) information identifying and describing such shelter,
            ``(2) information describing any potential tax benefits 
        expected to result from the shelter, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date which is 30 days 
before the date on which the first sale of such shelter occurs or on 
any other 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 
                        designing, organizing, managing, promoting, 
                        selling, implementing, or carrying out any 
                        potentially abusive tax shelter, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such aid, assistance, or advice.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a potentially 
                        abusive tax shelter substantially all of the 
                        tax benefits from which are provided to natural 
                        persons, and
                            ``(ii) $100,000 in any other case.
            ``(2) Potentially abusive tax shelter.--The term 
        `potentially abusive tax shelter' 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 of such Code is amended 
        to read as follows:

                              ``Sec. 6111. Disclosure of potentially 
                                        abusive tax shelters.''.
            (2)(A) So much of section 6112 of such Code as precedes 
        subsection (c) thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF POTENTIALLY ABUSIVE TAX SHELTERS MUST 
              KEEP CLIENT LISTS.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any potentially abusive tax shelter (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 
        shelter, 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 respect to such 
transaction.''.
            (B) Section 6112 of such Code is amended by redesignating 
        subsection (c) as subsection (b).
            (C) Section 6112(b) of such Code, 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 of such Code is amended 
        to read as follows:

                              ``Sec. 6112. Material advisors of 
                                        potentially abusive tax 
                                        shelters must keep client 
                                        lists.''.
            (3)(A) The heading for section 6708 of such Code is amended 
        to read as follows:

``SEC. 6708. FAILURE TO MAINTAIN CLIENT LISTS WITH RESPECT TO 
              POTENTIALLY ABUSIVE TAX SHELTERS.''.

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

                              ``Sec. 6708. Failure to maintain client 
                                        lists with respect to 
                                        potentially abusive tax 
                                        shelters.''.
    (c) Required Disclosure Not Subject to Claim of Confidentiality.--
Section 6112(b)(1) of such Code, as redesignated by subsection 
(b)(2)(B), is amended by adding at the end the following new flush 
sentence:
        ``For purposes of this section, the identity of any person on 
        such list shall not be privileged.''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), 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.
            (2) No claim of confidentiality against disclosure.--The 
        amendment made by subsection (c) shall take effect as if 
        included in the amendments made by section 142 of the Deficit 
        Reduction Act of 1984.

SEC. 8. EXTENSION OF STATUTE OF LIMITATIONS FOR UNDISCLOSED TAX 
              SHELTER.

    (a) In General.--Section 6501(c) of the Internal Revenue Code of 
1986 (relating to exceptions) is amended by adding at the end the 
following new paragraph:
            ``(10) Potentially abusive tax shelters.--If a taxpayer 
        fails to include on any return or statement for any taxable 
        year any information with respect to a potentially abusive tax 
        shelter (as defined in section 6707A(c)) which is required 
        under section 6011 to be included with such return or 
        statement, the time for assessment of any tax imposed by this 
        title with respect to such transaction shall not expire before 
        the date which is 2 years after the earlier of--
                    ``(A) the date on which the Secretary is furnished 
                the information so required; or
                    ``(B) the date that a material advisor (as defined 
                in section 6111) meets the requirements of section 6112 
                with respect to a request by the Secretary under 
                section 6112(b) relating to such transaction with 
                respect to such taxpayer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years with respect to which the period for assessing a 
deficiency did not expire before the date of the enactment of this Act.

SEC. 9. PENALTY FOR FAILING 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 $10,000.
                            ``(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, the amount 
                of the civil penalty imposed under subparagraph (A) 
                shall be--
                            ``(i) not less than $5,000,
                            ``(ii) not more than 50 percent of the 
                        amount determined under subparagraph (D), and
                            ``(iii) 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.
                                 <all>