1.
(a)This Act may be cited
as the Tax Shelter and Tax Haven
Reform Act of 2005
.
(b)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)The table of
contents for this Act is as follows:
Sec. 1. Short title; etc.
TITLE I—Strengthening tax shelter penalties
Sec. 101. Penalty for promoting abusive tax
shelters.
Sec. 102. Penalty for aiding and abetting the understatement of
tax liability.
TITLE II—Preventing abusive tax shelters
Sec. 201. Prohibited fee arrangement.
Sec. 202. Preventing tax shelter activities by financial
institutions.
Sec. 203. Information sharing for enforcement
purposes.
Sec. 204. Disclosure of information to Congress.
Sec. 205. Tax opinion standards for tax
practitioners.
Sec. 206. Whistleblower reforms.
Sec. 207. Denial of deduction for certain fines, penalties, and
other amounts.
Sec. 208. Sense of the Senate on tax enforcement
priorities.
TITLE III—Requiring economic substance
Sec. 301. Clarification of economic substance
doctrine.
Sec. 302. Penalty for understatements attributable to
transactions lacking economic substance, etc.
Sec. 303. Denial of deduction for interest on underpayments
attributable to noneconomic substance transactions.
TITLE IV—Deterring uncooperative tax havens
Sec. 401. Disclosing payments to persons in uncooperative tax
havens.
Sec. 402. Deterring uncooperative tax havens by restricting
allowable tax benefits.
Sec. 403. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore financial arrangements.
Sec. 404. Treasury regulations on foreign tax
credit.
<enum>I</enum><header>Strengthening tax shelter penalties</header>
<section commented="no" display-inline="no-display-inline" id="ID11C14050FFC443B585AB2AF466C5631A" section-type="subsequent-section"><enum>101.</enum><header>Penalty for
promoting abusive tax shelters</header>
<subsection commented="no" display-inline="no-display-inline" id="IDC191FD6ECC134BE08A4DD36EBF164BF9"><enum>(a)</enum><header>Penalty for
promoting abusive tax shelters</header><text display-inline="yes-display-inline">Section 6700 (relating to promoting abusive
tax shelters, etc.) is amended—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID8E6BA63D0D9E4A0AB7F9C233045611F7"><enum>(1)</enum><text display-inline="yes-display-inline">by redesignating subsections (b) and (c) as
subsections (d) and (e), respectively,</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDC147C205B821411D89C7B14B01155E78"><enum>(2)</enum><text display-inline="yes-display-inline">by striking <quote>a penalty</quote> and
all that follows through the period in the first sentence of subsection (a) and
inserting <quote>a penalty determined under subsection (b)</quote>, and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID3F339C61AFEC4F9693593CBF597F3AF5"><enum>(3)</enum><text display-inline="yes-display-inline">by inserting after subsection (a) the
following new subsections:</text>
<quoted-block display-inline="no-display-inline" id="IDF2176A32171445B799848B1FF7D9B7EE" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDF634AD16E0654684A22ABDCA398311A8"><enum>(b)</enum><header>Amount of
penalty; calculation of penalty; liability for penalty</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID18CDF84E2BAE4AC88C5CEFCCD8F7935E"><enum>(1)</enum><header>Amount of
penalty</header><text display-inline="yes-display-inline">The amount of the
penalty imposed by subsection (a) shall not exceed the greater of—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDA865E973157145C38D399033B656BCB3"><enum>(A)</enum><text display-inline="yes-display-inline">150 percent of the gross income derived (or
to be derived) from such activity by the person or persons subject to such
penalty, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDA3B47497CC70481EB77E75E43DA0D1C8"><enum>(B)</enum><text display-inline="yes-display-inline">if readily subject to calculation, the
total amount of underpayment by the taxpayer (including penalties, interest,
and taxes) in connection with such activity.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID8A79F2D4AE2840DC8D220BF84F0DF6C4"><enum>(2)</enum><header>Calculation of
penalty</header><text display-inline="yes-display-inline">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.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID151A527FFAB445F5927BAB7EF6F93981"><enum>(3)</enum><header>Liability for
penalty</header><text display-inline="yes-display-inline">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.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID04D255D7332C4450934E28ECA81C352F"><enum>(c)</enum><header>Penalty not
deductible</header><text display-inline="yes-display-inline">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.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="id36AB05EC798F4556AD06EC0D50177956"><enum>(b)</enum><header>Conforming
amendment</header><text display-inline="yes-display-inline">Section 6700(a) is
amended by striking the last sentence.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID1F40E54953D24E9589B850A64C061561"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to activities after the date of the enactment of this
Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="IDC89B1464487542AE9ADD5C4140B8B0CB" section-type="subsequent-section"><enum>102.</enum><header>Penalty for aiding
and abetting the understatement of tax liability</header>
<subsection commented="no" display-inline="no-display-inline" id="ID8664EF7CD0824EE69836AE57E7DD9505"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 6701(a)
(relating to imposition of penalty) is amended—</text>
<paragraph commented="no" display-inline="no-display-inline" id="IDE1ACDDFE72D24812ABA00F0B4FE94F6E"><enum>(1)</enum><text display-inline="yes-display-inline">by inserting <quote>the tax liability
or</quote> after <quote>respect to,</quote> in paragraph (1),</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID1277CF0A15D442959E3EA465691ACBD2"><enum>(2)</enum><text display-inline="yes-display-inline">by inserting <quote>aid, assistance,
procurement, or advice with respect to such</quote> before
<quote>portion</quote> both places it appears in paragraphs (2) and (3),
and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDC7112943CBD04C1FBA2235EDBBD93F12"><enum>(3)</enum><text display-inline="yes-display-inline">by inserting <quote>instance of aid,
assistance, procurement, or advice or each such</quote> before
<quote>document</quote> in the matter following paragraph (3).</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDCFB74AD004D64FC9ADB428412F355615"><enum>(b)</enum><header>Amount of
penalty</header><text display-inline="yes-display-inline">Subsection (b) of
section 6701 (relating to penalties for aiding and abetting understatement of
tax liability) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="IDA022C9628E48481EACAA8F1F56C029B7" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDB3061E608CB545A0B2D5ADCE3A8D8314"><enum>(b)</enum><header>Amount of
penalty; calculation of penalty; liability for penalty</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID645C297005A344E38E0E61A8AC8CAF26"><enum>(1)</enum><header>Amount of
penalty</header><text display-inline="yes-display-inline">The amount of the
penalty imposed by subsection (a) shall not exceed the greater of—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID76773B2E997F43A4984489E949C8C9F9"><enum>(A)</enum><text display-inline="yes-display-inline">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, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDE4BD708E3DC04617B761A1422C09F0A3"><enum>(B)</enum><text display-inline="yes-display-inline">if readily subject to calculation, the
total amount of underpayment by the taxpayer (including penalties, interest,
and taxes) in connection with the understatement of the liability for
tax.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDCE2F24ED668E4A6AB273AB756A980491"><enum>(2)</enum><header>Calculation of
penalty</header><text display-inline="yes-display-inline">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.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDC84B698FF3F347FFB13EB40A9F7706DB"><enum>(3)</enum><header>Liability for
penalty</header><text display-inline="yes-display-inline">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.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID91D46BB06F834E94A323488B11CAC58A"><enum>(c)</enum><header>Penalty not
deductible</header><text display-inline="yes-display-inline">Section 6701 is
amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="ID9F73DF3C04824E8A9A3F585F0A450F73" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDD71A22C9C6F04E6DBB28A000D2F99E40"><enum>(g)</enum><header>Penalty not
deductible</header><text display-inline="yes-display-inline">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.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID48117D41C97044A99C4B4B445B0CC598"><enum>(d)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to activities after the date of the enactment of this
Act.</text>
</subsection></section><enum>II</enum><header>Preventing abusive tax shelters</header>
<section commented="no" display-inline="no-display-inline" id="ID9C823C7249F640DDB662DFE0173464E9" section-type="subsequent-section"><enum>201.</enum><header>Prohibited fee
arrangement</header>
<subsection commented="no" display-inline="no-display-inline" id="IDE47CA1D550664CD88E3C43479A65BFFC"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 6701, as
amended by this Act, is amended—</text>
<paragraph commented="no" display-inline="no-display-inline" id="IDCF901FE478844DABB9A9D359F7C3F1B0"><enum>(1)</enum><text display-inline="yes-display-inline">by redesignating subsections (f) and (g) as
subsections (g) and (h), respectively,</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID4EB5F59A2BA547C5947FEACA1DB060D2"><enum>(2)</enum><text display-inline="yes-display-inline">by striking <quote>subsection (a).</quote>
in paragraphs (2) and (3) of subsection (g) (as redesignated by paragraph (1))
and inserting <quote>subsection (a) or (f).</quote>, and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID96021543EA1340A1B748045CE4138F8E"><enum>(3)</enum><text display-inline="yes-display-inline">by inserting after subsection (e) the
following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="ID4C1E8882D3DB4407B72594ED64B9C6C3" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="ID128D9B91243B4B378DBF0EDE99155635"><enum>(f)</enum><header>Prohibited fee
arrangement</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID505CFEEE6A894BFC817DA2EECCB450FF"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Any person who makes
an agreement for, charges, or collects a fee which is for services provided in
connection with the internal revenue laws, and the amount of which is
calculated according to, or is dependent upon, a projected or actual amount
of—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDE6E232562DB64C1195FB6C856BFBD2FD"><enum>(A)</enum><text display-inline="yes-display-inline">tax savings or benefits, or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDF70A196BCE0646458674F81F5BA05344"><enum>(B)</enum><text display-inline="yes-display-inline">losses which can be used to offset other
taxable income,</text>
</subparagraph><continuation-text commented="no" continuation-text-level="paragraph">shall pay a penalty with respect to
each such fee activity in the amount determined under subsection (b).</continuation-text></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID7B6D4E08FEB8492994EE28D5B89F648C"><enum>(2)</enum><header>Rules</header><text display-inline="yes-display-inline">The Secretary may issue rules to carry out
the purposes of this subsection and may provide exceptions for fee arrangements
that are in the public
interest.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="id2A3BFE8CBCB14288852A8587BE36AD35"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to fee agreements, charges, and collections made after
the date of the enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="idC9379FE71992494D8188F6959F34067D" section-type="subsequent-section"><enum>202.</enum><header>Preventing tax
shelter activities by financial institutions</header>
<subsection commented="no" display-inline="no-display-inline" id="id0AC267A491144907BC202E0D909722A4"><enum>(a)</enum><header>Examinations</header>
<paragraph commented="no" display-inline="no-display-inline" id="id70EBEE58AB3D454A9B7A0A36330D3A40"><enum>(1)</enum><header>Development of
examination techniques</header><text display-inline="yes-display-inline">Each
of the Federal banking agencies and the Commission shall, in consultation with
the Internal Revenue Service, develop examination techniques to detect
potential violations of section 6700 or 6701 of the Internal Revenue Code of
1986, by depository institutions, brokers, dealers, and investment advisers, as
appropriate.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="idEF3BA4E72E5E44F8AC4F4FA39D311FC4"><enum>(2)</enum><header>Frequency</header><text display-inline="yes-display-inline">Not less frequently than once in each
2-year period, each of the Federal banking agencies and the Commission shall
implement the examination techniques developed under paragraph (1) with respect
to each of the depository institutions, brokers, dealers, or investment
advisers subject to their enforcement authority. Such examination shall, to the
extent possible, be combined with any examination by such agency otherwise
required or authorized by Federal law.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="id7F800287C74C43FAB84AB44D3EA0353F"><enum>(b)</enum><header>Report to
internal revenue service</header><text display-inline="yes-display-inline">In
any case in which an examination conducted under this section with respect to a
financial institution or other entity reveals a potential violation, such
agency shall promptly notify the Internal Revenue Service of such potential
violation for investigation and enforcement by the Internal Revenue Service in
accordance with applicable provisions of law.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id3B3B399837504EA3B968BE3B7C6DF245"><enum>(c)</enum><header>Report to
congress</header><text display-inline="yes-display-inline">The Federal banking
agencies and the Commission shall submit a joint written report to Congress in
2007 and 2010 on their progress in preventing violations of sections 6700 and
6701 of the Internal Revenue Code of 1986, by depository institutions, brokers,
dealers, and investment advisers, as appropriate.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="idB0F74313E1834F239DE55503CEF95BF0"><enum>(d)</enum><header>Definitions</header><text display-inline="yes-display-inline">For purposes of this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="id402FA538018F491A8DF75534543DE985"><enum>(1)</enum><text display-inline="yes-display-inline">the terms <quote>broker</quote>,
<quote>dealer</quote>, and <quote>investment adviser</quote> have the same
meanings as in section 3 of the Securities Exchange Act of 1934 (15 U.S.C.
78c);</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="idAA65914592DF4DA2BCA42F1B852C0D2C"><enum>(2)</enum><text display-inline="yes-display-inline">the term <quote>Commission</quote> means
the Securities and Exchange Commission;</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id552F8F8839324E46AF7252FE737C1A66"><enum>(3)</enum><text display-inline="yes-display-inline">the term <quote>depository
institution</quote> has the same meaning as in section 3(c) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(c));</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id8967360339094753A655BAABBD63F4E6"><enum>(4)</enum><text display-inline="yes-display-inline">the term <quote>Federal banking
agencies</quote> has the same meaning as in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)); and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="idEA435AAADDE744CDA5698587B1510601"><enum>(5)</enum><text display-inline="yes-display-inline">the term <quote>Secretary</quote> means the
Secretary of the Treasury.</text>
</paragraph></subsection></section><section commented="no" display-inline="no-display-inline" id="ID97358E9C522C44789FAA6B645B958987" section-type="subsequent-section"><enum>203.</enum><header>Information sharing
for enforcement purposes</header>
<subsection commented="no" display-inline="no-display-inline" id="ID1E68AC35F4B646F1B802D46CEA447937"><enum>(a)</enum><header>Promotion of
prohibited tax shelters or tax avoidance schemes</header><text display-inline="yes-display-inline">Section 6103(h) (relating to disclosure to
certain Federal officers and employees for purposes of tax administration,
etc.) is amended by adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="IDDFC3CB53CB4A4231992788F751F01663" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="IDE0D8313F64F74C7FBDA5209B0A848D6F"><enum>(7)</enum><header>Disclosure of
returns and return information related to promotion of prohibited tax shelters
or tax avoidance schemes</header>
<subparagraph commented="no" display-inline="no-display-inline" id="IDD773C0232A2A4BF888C08CB4DA6AFBFF"><enum>(A)</enum><header>Written
request</header><text display-inline="yes-display-inline">Upon receipt by the
Secretary of a written request which meets the requirements of subparagraph (B)
from the head of the United States Securities and Exchange Commission, an
appropriate Federal banking agency as defined under section 1813(q) of title
12, United States Code, or the Public Company Accounting Oversight Board, a
return or return information shall be disclosed to such requestor’s officers
and employees who are personally and directly engaged in an investigation,
examination, or proceeding by such requestor to evaluate, determine, penalize,
or deter conduct by a financial institution, issuer, or public accounting firm,
or associated person, in connection with a potential or actual violation of
section 6700 (promotion of abusive tax shelters), 6701 (aiding and abetting
understatement of tax liability), or activities related to promoting or
facilitating inappropriate tax avoidance or tax evasion. Such disclosure shall
be solely for use by such officers and employees in such investigation,
examination, or proceeding.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID8306056B019E444BAA44478AF9C0A4A5"><enum>(B)</enum><header>Requirements</header><text display-inline="yes-display-inline">A request meets the requirements of this
subparagraph if it sets forth—</text>
<clause commented="no" display-inline="no-display-inline" id="ID221366AE94AA4DD0A623C1B53B2A7A7F"><enum>(i)</enum><text display-inline="yes-display-inline">the nature of the investigation,
examination, or proceeding,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID58FC1602E9444B64A7E661637BE5FB27"><enum>(ii)</enum><text display-inline="yes-display-inline">the statutory authority under which such
investigation, examination, or proceeding is being conducted,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDA6688048D13347BDA7C8E4F220ECA92B"><enum>(iii)</enum><text display-inline="yes-display-inline">the name or names of the financial
institution, issuer, or public accounting firm to which such return information
relates,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDE1691FAC1FEB44E184F1E024003C5E71"><enum>(iv)</enum><text display-inline="yes-display-inline">the taxable period or periods to which such
return information relates, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID2AEDF81033774439BBA8C6CF76616F9D"><enum>(v)</enum><text display-inline="yes-display-inline">the specific reason or reasons why such
disclosure is, or may be, relevant to such investigation, examination or
proceeding.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID0711839E7EA94A47B3C7C625F3A31A39"><enum>(C)</enum><header>Financial
institution</header><text display-inline="yes-display-inline">For the purposes
of this paragraph, the term <term>financial institution</term> means a
depository institution, foreign bank, insured institution, industrial loan
company, broker, dealer, investment company, investment advisor, or other
entity subject to regulation or oversight by the United States Securities and
Exchange Commission or an appropriate Federal banking
agency.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID85B894FE336543A6A49C0182771EB3A5"><enum>(b)</enum><header>Financial and
accounting fraud investigations</header><text display-inline="yes-display-inline">Section 6103(i) (relating to disclosure to
Federal officers or employees for administration of Federal laws not relating
to tax administration) is amended by adding at the end the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="IDE55F5B28994E4EBC9A217855E91D3980" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="ID5EF2CE26F9B1454895E14ABFDB12F840"><enum>(9)</enum><header>Disclosure of
returns and return information for use in financial and accounting fraud
investigations</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID05B0AB60BC21428092CC087694FC30AE"><enum>(A)</enum><header>Written
request</header><text display-inline="yes-display-inline">Upon receipt by the
Secretary of a written request which meets the requirements of subparagraph (B)
from the head of the United States Securities and Exchange Commission or the
Public Company Accounting Oversight Board, a return or return information shall
be disclosed to such requestor’s officers and employees who are personally and
directly engaged in an investigation, examination, or proceeding by such
requester to evaluate the accuracy of a financial statement or report or to
determine whether to require a restatement, penalize, or deter conduct by an
issuer, investment company, or public accounting firm, or associated person, in
connection with a potential or actual violation of auditing standards or
prohibitions against false or misleading statements or omissions in financial
statements or reports. Such disclosure shall be solely for use by such officers
and employees in such investigation, examination, or proceeding.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID8915873B554749EFAD9A5C44FFBA99A4"><enum>(B)</enum><header>Requirements</header><text display-inline="yes-display-inline">A request meets the requirements of this
subparagraph if it sets forth—</text>
<clause commented="no" display-inline="no-display-inline" id="ID184689123C2D4015931C32D2D024C8A5"><enum>(i)</enum><text display-inline="yes-display-inline">the nature of the investigation,
examination, or proceeding,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID0B71359B09FC4F6BB561B9E1659ED855"><enum>(ii)</enum><text display-inline="yes-display-inline">the statutory authority under which such
investigation, examination, or proceeding is being conducted,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID737544069DDF47418D656D54C26F9ABD"><enum>(iii)</enum><text display-inline="yes-display-inline">the name or names of the issuer, investment
company, or public accounting firm to which such return information
relates,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID19305441D33A475B8FA7709E4A8456A5"><enum>(iv)</enum><text display-inline="yes-display-inline">the taxable period or periods to which such
return information relates, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID553FD9AF88F74FC99C1ECD5D00379BA7"><enum>(v)</enum><text display-inline="yes-display-inline">the specific reason or reasons why such
disclosure is, or may be, relevant to such investigation, examination or
proceeding.</text>
</clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID5A82EBF08B74423EBA6F77AA9406DEA0"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to disclosures and to information and document
requests made after the date of the enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="IDB093A714B49A47868C15E5F1E219BC4C" section-type="subsequent-section"><enum>204.</enum><header>Disclosure of
information to Congress</header>
<subsection commented="no" display-inline="no-display-inline" id="ID6C37EEEC56914F438C96C7D72446DB8A"><enum>(a)</enum><header>Disclosure by
tax return preparer</header>
<paragraph commented="no" display-inline="no-display-inline" id="IDD687479CA18441E7B24701CCB0773A65"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Subparagraph (B) of
section 7216(b)(1) (relating to disclosures) is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="IDF738EECBF37141059860B198FAED43B3" style="OLC">
<subparagraph commented="no" display-inline="no-display-inline" id="ID705BFEFE21D147DB8070925892CF4119"><enum>(B)</enum><text display-inline="yes-display-inline">pursuant to any 1 of the following
documents, if clearly identified:</text>
<clause commented="no" display-inline="no-display-inline" id="IDB17CF96BA4CB4F80A78450A0063F9D9F"><enum>(i)</enum><text display-inline="yes-display-inline">The order of any Federal, State, or local
court of record.</text>
</clause><clause commented="no" display-inline="no-display-inline" id="ID65BA2E8732A24FEB9F7642E2FCC3744A"><enum>(ii)</enum><text display-inline="yes-display-inline">A subpoena issued by a Federal or State
grand jury.</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDB2196DF70B27460B94F07C7DDC38F6A2"><enum>(iii)</enum><text display-inline="yes-display-inline">An administrative order, summons, or
subpoena which is issued in the performance of its duties by—</text>
<subclause commented="no" display-inline="no-display-inline" id="ID2B80775056A04A228EE10F9EF33375B3"><enum>(I)</enum><text display-inline="yes-display-inline">any Federal agency, including Congress or
any committee or subcommittee thereof, or</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="IDF3E3263011544986B6BB9967A3C9D5D8"><enum>(II)</enum><text display-inline="yes-display-inline">any State agency, body, or commission
charged under the laws of the State or a political subdivision of the State
with the licensing, registration, or regulation of tax return
preparers.</text>
</subclause></clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID1C550F6197F841A997162D09997C7779"><enum>(2)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendment made by
this subsection shall apply to disclosures made after the date of the enactment
of this Act pursuant to any document in effect on or after such date.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID8CD46D0A713848FDA405D3022CD4EC11"><enum>(b)</enum><header>Disclosure by
Secretary</header><text display-inline="yes-display-inline">Paragraph (2) of
section 6104(a) (relating to inspection of applications for tax exemption or
notice of status) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="id85DF3A936C9541E2BEFC67D030832AE7" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="IDA580E567EBF64244A433CD4663764F5B"><enum>(2)</enum><header>Inspection by
Congress</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID006A7E12176C42A487916EE73ED38AE0"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">Upon receipt of a
written request from a committee or subcommittee of Congress, copies of
documents related to a determination by the Secretary to grant, deny, revoke,
or restore an organization’s exemption from taxation under section 501 shall be
provided to such committee or subcommittee, including any application, notice
of status, or supporting information provided by such organization to the
Internal Revenue Service; any letter, analysis, or other document produced by
or for the Internal Revenue Service evaluating, determining, explaining, or
relating to the tax exempt status of such organization (other than returns,
unless such returns are available to the public under this section or section
6103 or 6110); and any communication between the Internal Revenue Service and
any other party relating to the tax exempt status of such organization.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID9DEB8125C1614753A921CE1B0C5E3DFB"><enum>(B)</enum><header>Additional
information</header><text display-inline="yes-display-inline">Section 6103(f)
shall apply with respect to—</text>
<clause commented="no" display-inline="no-display-inline" id="ID0FA263F5972B4E4FA12DCA63549575D1"><enum>(i)</enum><text display-inline="yes-display-inline">the application for exemption of any
organization described in subsection (c) or (d) of section 501 which is exempt
from taxation under section 501(a) for any taxable year and any application
referred to in subparagraph (B) of subsection (a)(1) of this section,
and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDB24BF907A40E47AAA188C7F97FA62442"><enum>(ii)</enum><text display-inline="yes-display-inline">any other papers which are in the
possession of the Secretary and which relate to such application,</text>
</clause><continuation-text commented="no" continuation-text-level="subparagraph">as if such papers constituted
returns.</continuation-text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDE5A99CB0E23F425B9B7822AB496B5F34"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to disclosures and to information and document
requests made after the date of the enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID8DAC424D4AF9457C99DFA3B0B3F23FA1" section-type="subsequent-section"><enum>205.</enum><header>Tax opinion
standards for tax practitioners</header>
<subsection commented="no" display-inline="no-display-inline" id="IDEC21B5A5E5974016B8B1C62122C7A811"><enum></enum><text display-inline="yes-display-inline">Section 330(d) of title 31, United States
Code, is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="IDD04DE75E6EA5419899C2AF738AB0EB1D" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="ID24953C93B66D4EFE816FB2D052335805"><enum>(d)</enum><text display-inline="yes-display-inline">The Secretary of the Treasury shall impose
standards applicable to the rendering of written advice with respect to any
listed transaction or any entity, plan, arrangement, or other transaction which
has a potential for tax avoidance or evasion. Such standards shall address, but
not be limited to, the following issues:</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID53700F31F067487F966031858E19D9F8"><enum>(1)</enum><text display-inline="yes-display-inline">Independence of the practitioner issuing
such written advice from persons promoting, marketing, or recommending the
subject of the advice.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID8EDB76273E174DCBA52DEBBE32D86E3F"><enum>(2)</enum><text display-inline="yes-display-inline">Collaboration among practitioners, or
between a practitioner and other party, which could result in such
collaborating parties having a joint financial interest in the subject of the
advice.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID2163F7E5DAD549DDBF34D1EEA3B57281"><enum>(3)</enum><text display-inline="yes-display-inline">Avoidance of conflicts of interest which
would impair auditor independence.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID57A899985DCB4FDF9CEC15796AB20927"><enum>(4)</enum><text display-inline="yes-display-inline">For written advice issued by a firm,
standards for reviewing the advice and ensuring the consensus support of the
firm for positions taken.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID6F47B43DA62940E193A1579A52DCC0B7"><enum>(5)</enum><text display-inline="yes-display-inline">Reliance on reasonable factual
representations by the taxpayer and other parties.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDA98630CF550F46FBB063AF4C037090FD"><enum>(6)</enum><text display-inline="yes-display-inline">Appropriateness of the fees charged by the
practitioner for the written advice.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id86C6175D913F433E8EF50AC7571F5A16"><enum>(7)</enum><text display-inline="yes-display-inline">Preventing practitioners and firms from
aiding or abetting the understatement of tax liability by clients.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id232351265C614736A34CB566F3103AAB"><enum>(8)</enum><text display-inline="yes-display-inline">Banning the promotion of potentially
abusive or illegal tax
shelters.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID7AB8884AA4E54655AB15A3B2C916E2FF" section-type="subsequent-section"><enum>206.</enum><header>Whistleblower
reforms</header>
<subsection commented="no" display-inline="no-display-inline" id="ID51B45592001E4DA2B1A4E462A0B4C338"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 7623
(relating to expenses of detection of underpayments and fraud, etc.) is
amended—</text>
<paragraph commented="no" display-inline="no-display-inline" id="IDAF00228988D5417EA96DF389AC5FE344"><enum>(1)</enum><text display-inline="yes-display-inline">by striking “The Secretary” and inserting
“(a) <header-in-text level="subsection" style="OLC">In
General</header-in-text>.—The Secretary”,</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID694D53E2F586456282B889A4C2F86D83"><enum>(2)</enum><text display-inline="yes-display-inline">by striking <quote>and</quote> at the end
of paragraph (1) and inserting <quote>or</quote>,</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID656266CDEB2A45BBBD29391472E8B511"><enum>(3)</enum><text display-inline="yes-display-inline">by striking <quote>(other than
interest)</quote>, and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID6D059489C9274C788D42FB74C175265D"><enum>(4)</enum><text display-inline="yes-display-inline">by adding at the end the following new
subsections:</text>
<quoted-block display-inline="no-display-inline" id="ID4E33A98450D14DEABE94E85619E3136E" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDA5D297FC440749C1BFE182CEE3997529"><enum>(b)</enum><header>Awards to
whistleblowers</header>
<paragraph commented="no" display-inline="no-display-inline" id="IDCA6A2053386C4000911467151F744EE2"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">If the Secretary
proceeds with any administrative or judicial action described in subsection (a)
based on information brought to the Secretary’s attention by an individual,
such individual shall, subject to paragraph (2), receive as an award at least
15 percent but not more than 30 percent of the collected proceeds (including
penalties, interest, additions to tax, and additional amounts) resulting from
the action (including any related actions) or from any settlement in response
to such action. The determination of the amount of such award by the
Whistleblower Office shall depend upon the extent to which the individual
substantially contributed to such action, and shall be determined at the sole
discretion of the Whistleblower Office.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDF507C6FCEAA644A1B84DDCA007E57791"><enum>(2)</enum><header>Award in case
of less substantial contribution</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID74729843C2D442F5B9C4485441D50046"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">In the event the
action described in paragraph (1) is one which the Whistleblower Office
determines to be based principally on disclosures of specific allegations
(other than information provided by the individual described in paragraph (1))
resulting from a judicial or administrative hearing, from a governmental
report, hearing, audit, or investigation, or from the news media, the
Whistleblower Office may award such sums as it considers appropriate, but in no
case more than 10 percent of the collected proceeds (including penalties,
interest, additions to tax, and additional amounts) resulting from the action
(including any related actions) or from any settlement in response to such
action, taking into account the significance of the individual’s information
and the role of such individual and any legal representative of such individual
in contributing to such action.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID51A6437A806A4B7891E691D70C039D7B"><enum>(B)</enum><header>Nonapplication
of paragraph where individual is original source of information</header><text display-inline="yes-display-inline">Subparagraph (A) shall not apply if the
information resulting in the initiation of the action described in paragraph
(1) was originally provided by the individual described in paragraph
(1).</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDF6EE761F67804105AF986E63F90008FF"><enum>(3)</enum><header>Application of
this subsection</header><text display-inline="yes-display-inline">This
subsection shall apply with respect to any action—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID231038202E5E4749AA4A75B2E7CDADD7"><enum>(A)</enum><text display-inline="yes-display-inline">against any taxpayer, but in the case of
any individual, only if such individual’s gross income exceeds $200,000 for any
taxable year subject to such action, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID416A2881690E497EAEF81F9030EA6355"><enum>(B)</enum><text display-inline="yes-display-inline">if the tax, penalties, interest, additions
to tax, and additional amounts in dispute exceed $20,000.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDAAD61C83D11D4280BA0365EBD14DA0B1"><enum>(4)</enum><header>Additional
rules</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID57BB900128274D0E98BDDE6E8D5AAC7E"><enum>(A)</enum><header>No contract
necessary</header><text display-inline="yes-display-inline">No contract with
the Internal Revenue Service is necessary for any individual to receive an
award under this subsection.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID7779AE15B6404DAAAF76B35AB7F28C2C"><enum>(B)</enum><header>Representation</header><text display-inline="yes-display-inline">Any individual described in paragraph (1)
or (2) may be represented by counsel.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID08D4F21DB0D645ECA2B360E696BEE504"><enum>(C)</enum><header>Award not
subject to individual alternative minimum tax</header><text display-inline="yes-display-inline">No award received under this subsection
shall be included in gross income for purposes of determining alternative
minimum taxable income.</text>
</subparagraph></paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID20AD819D45A64242A34BA87A0008EE5B"><enum>(c)</enum><header>Whistleblower
Office</header>
<paragraph commented="no" display-inline="no-display-inline" id="IDC167A3C9ED4440ED8E835B32CFDBFD56"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">There is established
in the Internal Revenue Service an office to be known as the
<quote>Whistleblower Office</quote> which—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDAB870B87FFAB4B23B04E6024C7DA552E"><enum>(A)</enum><text display-inline="yes-display-inline">shall analyze information received from any
individual described in subsection (b) and either investigate the matter itself
or assign it to the appropriate Internal Revenue Service office,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDA3596805EA5848EE8ECA80094454379F"><enum>(B)</enum><text display-inline="yes-display-inline">shall monitor any action taken with respect
to such matter,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID054BFB3DA5C64BDAB31BB808BEC9FB13"><enum>(C)</enum><text display-inline="yes-display-inline">shall inform such individual that it has
accepted the individual’s information for further review,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDE899F67E996749F4BC39B86842BF91C3"><enum>(D)</enum><text display-inline="yes-display-inline">may require such individual and any legal
representative of such individual to not disclose any information so
provided,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDD4EA3B3665094A879862EDFEA274F354"><enum>(E)</enum><text display-inline="yes-display-inline">may ask for additional assistance from such
individual or any legal representative of such individual, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDC23BBA48AAAC4268934DCAA19BD2A835"><enum>(F)</enum><text display-inline="yes-display-inline">shall determine the amount to be awarded to
such individual under subsection (b).</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID2399DD3A16F44E519333695657F2F4EC"><enum>(2)</enum><header>Funding for
office</header><text display-inline="yes-display-inline">From the amounts
available for expenditure under subsection (a), the Whistleblower Office shall
be credited with an amount equal to the awards made under subsection (b). These
funds shall be used to maintain the Whistleblower Office and also to reimburse
other Internal Revenue Service offices for related costs, such as costs of
investigation and collection.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID9E4381BB0A1C42708AD791ED00C6DECC"><enum>(3)</enum><header>Request for
assistance</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID19CED0A26B8744608C412644B693331F"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">Any assistance
requested under paragraph (1)(E) shall be under the direction and control of
the Whistleblower Office or the office assigned to investigate the matter under
subparagraph (A). To the extent the disclosure of any returns or return
information to the individual or legal representative is required for the
performance of such assistance, such disclosure shall be pursuant to a contract
entered into between the Secretary and the recipients of such disclosure
subject to section 6103(n).</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID75ED7D0F280247FB820D649CB6C68F48"><enum>(B)</enum><header>Funding of
assistance</header><text display-inline="yes-display-inline">From the funds
made available to the Whistleblower Office under paragraph (2), the
Whistleblower Office may reimburse the costs incurred by any legal
representative in providing assistance described in subparagraph
(A).</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID9A483787E66A434CA0C45BC9E64DBCD8"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to information provided on or after the date of the
enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="IDC2D08DC787B24825B799E52F9A668435" section-type="subsequent-section"><enum>207.</enum><header>Denial of deduction
for certain fines, penalties, and other amounts</header>
<subsection commented="no" display-inline="no-display-inline" id="ID6BF83AFB84EF447AA683947DF51EA795"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (f) of
section 162 (relating to trade or business expenses) is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="ID71537781F7A0423AA285C31077991B6B" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="ID57CD0DF7AC35455D916F8CEDEB999FAB"><enum>(f)</enum><header>Fines,
penalties, and other amounts</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID7E3597A8568449FFB5AB3139E17ABD83"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Except as provided in
paragraph (2), no deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit, agreement, or
otherwise) to, or at the direction of, a government or entity described in
paragraph (4) in relation to the violation of any law or the investigation or
inquiry by such government or entity into the potential violation of any
law.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID6861821E7E304362B3E09B2B6C2F6673"><enum>(2)</enum><header>Exception for
amounts constituting restitution</header><text display-inline="yes-display-inline">Paragraph (1) shall not apply to any amount
which—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID0FF2CA7716EB4F05B258612D8047A11E"><enum>(A)</enum><text display-inline="yes-display-inline">the taxpayer establishes constitutes
restitution (including remediation of property) for damage or harm caused by or
which may be caused by the violation of any law or the potential violation of
any law, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDC4354876294A4C429B821EAA3AA904FB"><enum>(B)</enum><text display-inline="yes-display-inline">is identified as restitution in the court
order or settlement agreement.</text>
</subparagraph><continuation-text commented="no" continuation-text-level="paragraph">Identification pursuant to
subparagraph (B) alone shall not satisfy the requirement under subparagraph
(A). This paragraph shall not apply to any amount paid or incurred as
reimbursement to the government or entity for the costs of any investigation or
litigation.</continuation-text></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID7A4DF6141B2C49219C41BF8F79DD7AE9"><enum>(3)</enum><header>Exception for
amounts paid or incurred as the result of certain court orders</header><text display-inline="yes-display-inline">Paragraph (1) shall not apply to any amount
paid or incurred by order of a court in a suit in which no government or entity
described in paragraph (4) is a party.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDBF4CF24CBCD74CB39297778ED8E083D8"><enum>(4)</enum><header>Certain
nongovernmental regulatory entities</header><text display-inline="yes-display-inline">An entity is described in this paragraph if
it is—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID0CF6FC50B35548AB99E60A3A4934497B"><enum>(A)</enum><text display-inline="yes-display-inline">a nongovernmental entity which exercises
self-regulatory powers (including imposing sanctions) in connection with a
qualified board or exchange (as defined in section 1256(g)(7)), or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID8378B3D5BFE04308A124348E5C387D83"><enum>(B)</enum><text display-inline="yes-display-inline">to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory powers (including
imposing sanctions) as part of performing an essential governmental
function.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDA3E9613165B44EB399C43D29EC534656"><enum>(5)</enum><header>Exception for
taxes due</header><text display-inline="yes-display-inline">Paragraph (1) shall
not apply to any amount paid or incurred as taxes
due.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id9C95B9AB354C43C89BE5195DF6D6198B"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendment made by
this section shall apply to amounts paid or incurred on or after the date of
the enactment of this Act, except that such amendment shall not apply to
amounts paid or incurred under any binding order or agreement entered into
before such date. Such exception shall not apply to an order or agreement
requiring court approval unless the approval was obtained before such
date.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="IDB02EBFFF96C64D5484C5905A0F50E8DA" section-type="subsequent-section"><enum>208.</enum><header>Sense of the Senate
on tax enforcement priorities</header><text display-inline="no-display-inline">It is the sense of the Senate that
additional funds should be appropriated for Internal Revenue Service
enforcement efforts and that the Internal Revenue Service should devote
proportionately more of its enforcement funds—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID5499CED2801B4F0DAF5B56103694CB4D"><enum>(1)</enum><text display-inline="yes-display-inline">to combat the promotion of abusive tax
shelters for corporations and high net worth individuals and the aiding and
abetting of tax evasion,</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID412A5FBD767C406B8A8650DF1D3EBA84"><enum>(2)</enum><text display-inline="yes-display-inline">to stop accounting, law, and financial
firms involved in such promotion and aiding and abetting, and</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id17947B8FC30E45E7A269E9EDF3DB9E65"><enum>(3)</enum><text display-inline="yes-display-inline">to combat the use of offshore financial
accounts to conceal taxable income.</text>
</paragraph></section><enum>III</enum><header>Requiring economic substance</header>
<section commented="no" display-inline="no-display-inline" id="IDB14E1CC38E6540158210AED3A15F91CA" section-type="subsequent-section"><enum>301.</enum><header>Clarification of
economic substance doctrine</header>
<subsection commented="no" display-inline="no-display-inline" id="IDCA823D726F27487E9DBC16C55883B29F"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 7701 is
amended by redesignating subsection (o) as subsection (p) and by inserting
after subsection (n) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="ID34950100C70849D1A439662FB9243EE9" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="ID2E160AE66F5A411AB053227A236A0768"><enum>(o)</enum><header>Clarification
of economic substance doctrine; etc</header>
<paragraph commented="no" display-inline="no-display-inline" id="IDB8E67EF83ACE4EF7A9551582181B052F"><enum>(1)</enum><header>General
rules</header>
<subparagraph commented="no" display-inline="no-display-inline" id="ID46BA2A412E2D46BC9282D7C13835BEDD"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">In any case in which
a court determines that the economic substance doctrine is relevant for
purposes of this title to a transaction (or series of transactions), such
transaction (or series of transactions) shall have economic substance only if
the requirements of this paragraph are met.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID4348D956210A4E729AE9D92A0F69FDE4"><enum>(B)</enum><header>Definition of
economic substance</header><text display-inline="yes-display-inline">For
purposes of subparagraph (A)—</text>
<clause commented="no" display-inline="no-display-inline" id="ID799EB0782B4C4C5F9D3A395422E49E13"><enum>(i)</enum><header>In
general</header><text display-inline="yes-display-inline">A transaction has
economic substance only if—</text>
<subclause commented="no" display-inline="no-display-inline" id="ID376BE47FDE114EBFA6B3E40B69025A7D"><enum>(I)</enum><text display-inline="yes-display-inline">the transaction changes in a meaningful way
(apart from Federal tax effects) the taxpayer’s economic position, and</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="IDC8380BE4D25046B5A3F8F323A6387092"><enum>(II)</enum><text display-inline="yes-display-inline">the taxpayer has a substantial nontax
purpose for entering into such transaction and the transaction is a reasonable
means of accomplishing such purpose.</text>
</subclause><continuation-text commented="no" continuation-text-level="clause">In applying subclause (II), a purpose of
achieving a financial accounting benefit shall not be taken into account in
determining whether a transaction has a substantial nontax purpose if the
origin of such financial accounting benefit is a reduction of income
tax.</continuation-text></clause><clause commented="no" display-inline="no-display-inline" id="ID4D5C458A965448A28137844EC0DDF32A"><enum>(ii)</enum><header>Special rule
where taxpayer relies on profit potential</header><text display-inline="yes-display-inline">A transaction shall not be treated as
having economic substance by reason of having a potential for profit
unless—</text>
<subclause commented="no" display-inline="no-display-inline" id="ID3F7EF208F8534A1EB684B9B0B9AD203C"><enum>(I)</enum><text display-inline="yes-display-inline">the present value of the reasonably
expected pre-tax profit from the transaction is substantial in relation to the
present value of the expected net tax benefits that would be allowed if the
transaction were respected, and</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="ID6F2945818E194A6C90D8572D783D830F"><enum>(II)</enum><text display-inline="yes-display-inline">the reasonably expected pre-tax profit from
the transaction exceeds a risk-free rate of return.</text>
</subclause></clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID41B7A4C1A0E34B51A363AFE7EFD593CA"><enum>(C)</enum><header>Treatment of
fees and foreign taxes</header><text display-inline="yes-display-inline">Fees
and other transaction expenses and foreign taxes shall be taken into account as
expenses in determining pre-tax profit under subparagraph (B)(ii).</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDB61461B96F144A29A4A5CDDE126D6B3B"><enum>(2)</enum><header>Special rules
for transactions with tax-indifferent parties</header>
<subparagraph commented="no" display-inline="no-display-inline" id="IDDFAA0EEB8B7A49339DD526763047E8F1"><enum>(A)</enum><header>Special rules
for financing transactions</header><text display-inline="yes-display-inline">The form of a transaction which is in
substance the borrowing of money or the acquisition of financial capital
directly or indirectly from a tax-indifferent party shall not be respected if
the present value of the deductions to be claimed with respect to the
transaction is substantially in excess of the present value of the anticipated
economic returns of the person lending the money or providing the financial
capital. A public offering shall be treated as a borrowing, or an acquisition
of financial capital, from a tax-indifferent party if it is reasonably expected
that at least 50 percent of the offering will be placed with tax-indifferent
parties.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID91BFFA8412424C89A59EAF9269F72C5E"><enum>(B)</enum><header>Artificial
income shifting and basis adjustments</header><text display-inline="yes-display-inline">The form of a transaction with a
tax-indifferent party shall not be respected if—</text>
<clause commented="no" display-inline="no-display-inline" id="ID91FCAD06B2BC4219AE8C4F72DC790A68"><enum>(i)</enum><text display-inline="yes-display-inline">it results in an allocation of income or
gain to the tax-indifferent party in excess of such party’s economic income or
gain, or</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDCB48B3B00DEE46FFB2B52BD7EA444D97"><enum>(ii)</enum><text display-inline="yes-display-inline">it results in a basis adjustment or
shifting of basis on account of overstating the income or gain of the
tax-indifferent party.</text>
</clause></subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDF54F0FF49B224E4AB362CFA66DBBD605"><enum>(3)</enum><header>Definitions and
special rules</header><text display-inline="yes-display-inline">For purposes of
this subsection—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDA7D313A62D694E8E8B470B0B2D44A1A8"><enum>(A)</enum><header>Economic
substance doctrine</header><text display-inline="yes-display-inline">The term
<term>economic substance doctrine</term> means the common law doctrine under
which tax benefits under subtitle A with respect to a transaction are not
allowable if the transaction does not have economic substance or lacks a
business purpose.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID3BE37FFFB7554B3BA02FD3C6A7490F80"><enum>(B)</enum><header>Tax-indifferent
party</header><text display-inline="yes-display-inline">The term
<term>tax-indifferent party</term> means any person or entity not subject to
tax imposed by subtitle A. A person shall be treated as a tax-indifferent party
with respect to a transaction if the items taken into account with respect to
the transaction have no substantial impact on such person’s liability under
subtitle A.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID8F2226D13C5E44E7BF0683A29B3113B0"><enum>(C)</enum><header>Exception for
personal transactions of individuals</header><text display-inline="yes-display-inline">In the case of an individual, this
subsection shall apply only to transactions entered into in connection with a
trade or business or an activity engaged in for the production of
income.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID6B6C75E158DB448FA05F2670D382406E"><enum>(D)</enum><header>Treatment of
lessors</header><text display-inline="yes-display-inline">In applying paragraph
(1)(B)(ii) to the lessor of tangible property subject to a lease—</text>
<clause commented="no" display-inline="no-display-inline" id="ID01DDA748990D453EB659D1B0948FB316"><enum>(i)</enum><text display-inline="yes-display-inline">the expected net tax benefits with respect
to the leased property shall not include the benefits of—</text>
<subclause commented="no" display-inline="no-display-inline" id="IDBF1FAA9455F94DD89DCFBF4EDD13C873"><enum>(I)</enum><text display-inline="yes-display-inline">depreciation,</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="ID0E2624A44EE347FAB55F4BC42E21BC36"><enum>(II)</enum><text display-inline="yes-display-inline">any tax credit, or</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="ID6DDC5ED661E049F0A0A81C800B58B3A8"><enum>(III)</enum><text display-inline="yes-display-inline">any other deduction as provided in guidance
by the Secretary, and</text>
</subclause></clause><clause commented="no" display-inline="no-display-inline" id="IDC5BCE339EE9841B0A499AD79AF9CDD19"><enum>(ii)</enum><text display-inline="yes-display-inline">subclause (II) of paragraph (1)(B)(ii)
shall be disregarded in determining whether any of such benefits are
allowable.</text>
</clause></subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDB016F2A914094F30B172BFAFFEA4A0B2"><enum>(4)</enum><header>Other common
law doctrines not affected</header><text display-inline="yes-display-inline">Except as specifically provided in this
subsection, the provisions of this subsection shall not be construed as
altering or supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such other rule of
law.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDD8B7C3E194D54A64BF487A1E17381BA9"><enum>(5)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the purposes of
this subsection. Such regulations may include exemptions from the application
of this
subsection.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID9660FCF6608A483EA2730BAF32ACD807"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to transactions entered into after the date of the
enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="IDE34F540966024684B6155A0952534042" section-type="subsequent-section"><enum>302.</enum><header>Penalty for
understatements attributable to transactions lacking economic substance,
etc</header>
<subsection commented="no" display-inline="no-display-inline" id="ID41042532D7B1410587EE88724447008E"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subchapter A of
chapter 68 is amended by inserting after section 6662A the following new
section:</text>
<quoted-block display-inline="no-display-inline" id="ID72A766B7E0064B66BFFC9EAB17705B5F" style="OLC">
<section commented="no" display-inline="no-display-inline" id="IDC6C9DB83162245A2AAAC4FC6F4325BB7" section-type="subsequent-section"><enum>6662B.</enum><header>Penalty for
understatements attributable to transactions lacking economic substance,
etc</header>
<subsection commented="no" display-inline="no-display-inline" id="ID27C0E4B009034319A324E68E3AFC6ACB"><enum>(a)</enum><header>Imposition of
penalty</header><text display-inline="yes-display-inline">If a taxpayer has an
noneconomic substance transaction understatement for any taxable year, there
shall be added to the tax an amount equal to 40 percent of the amount of such
understatement.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDA094833E13B240E78D9DB8710BD4FD47"><enum>(b)</enum><header>Reduction of
penalty for disclosed transactions</header><text display-inline="yes-display-inline">Subsection (a) shall be applied by
substituting <quote>20 percent</quote> for <quote>40 percent</quote> with
respect to the portion of any noneconomic substance transaction understatement
with respect to which the relevant facts affecting the tax treatment of the
item are adequately disclosed in the return or a statement attached to the
return.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID4427746EF7A146BFA759853BE0944A40"><enum>(c)</enum><header>Noneconomic
substance transaction understatement</header><text display-inline="yes-display-inline">For purposes of this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID6937E63A389B46FF8A3A49A6AC2DC86C"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>noneconomic substance transaction understatement</term> means any amount
which would be an understatement under section 6662A(b)(1) if section 6662A
were applied by taking into account items attributable to noneconomic substance
transactions rather than items to which section 6662A would apply without
regard to this paragraph.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDDE4142E9FC16407DB7267C42E445938B"><enum>(2)</enum><header>Noneconomic
substance transaction</header><text display-inline="yes-display-inline">The
term <term>noneconomic substance transaction</term> means any transaction
if—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID5E298F882EBD43F0A414B7171AB0EF19"><enum>(A)</enum><text display-inline="yes-display-inline">there is a lack of economic substance
(within the meaning of section 7701(o)(1)) for the transaction giving rise to
the claimed benefit or the transaction was not respected under section
7701(o)(2), or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID28865C8AB1384D5CBBC76C35F01316EC"><enum>(B)</enum><text display-inline="yes-display-inline">the transaction fails to meet the
requirements of any similar rule of law.</text>
</subparagraph></paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDD9AF9F9D46FF46528572FF493682EEDD"><enum>(d)</enum><header>Rules
applicable to compromise of penalty</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID61FF68697B45415E88EB0ACEBA8F94E4"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">If the 1st letter of
proposed deficiency which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has been sent with
respect to a penalty to which this section applies, only the Commissioner of
Internal Revenue may compromise all or any portion of such penalty.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDFC87E9E52A3C4D899ABCBFFA68FE66BE"><enum>(2)</enum><header>Applicable
rules</header><text display-inline="yes-display-inline">The rules of paragraphs
(2) and (3) of section 6707A(d) shall apply for purposes of paragraph
(1).</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDEFFD938E495343DBB29420F4E953339A"><enum>(e)</enum><header>Coordination
with other penalties</header><text display-inline="yes-display-inline">Except
as otherwise provided in this part, the penalty imposed by this section shall
be in addition to any other penalty imposed by this title.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID06A2880AEB09468CA7C6454F369F7C9A"><enum>(f)</enum><header>Cross
references</header>
<toc regeneration="no-regeneration">
<toc-entry bold="off" level="paragraph">(1) For coordination of
penalty with understatements under section 6662 and other special rules, see
section 6662A(e).</toc-entry>
<toc-entry bold="off" level="paragraph">(2) For reporting of
penalty imposed under this section to the Securities and Exchange Commission,
see section 6707A(e).</toc-entry>
</toc>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID00336BB9FC7C4E109225182E52FAD17F"><enum>(b)</enum><header>Coordination
with other understatements and penalties</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID2ECFAACF32474851A3C321320624326D"><enum>(1)</enum><text display-inline="yes-display-inline">The second sentence of section
6662(d)(2)(A) is amended by inserting <quote>and without regard to items with
respect to which a penalty is imposed by section 6662B</quote> before the
period at the end.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID66CE5825D6F8425E8EFC062B8679B973"><enum>(2)</enum><text display-inline="yes-display-inline">Subsection (e) of section 6662A is
amended—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID7E6D4EA5A83B478FA229A9C929680F9B"><enum>(A)</enum><text display-inline="yes-display-inline">in paragraph (1), by inserting <quote>and
noneconomic substance transaction understatements</quote> after
<quote>reportable transaction understatements</quote> both places it
appears,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDCC8F0AB625E2424DBBCD87F4586359EC"><enum>(B)</enum><text display-inline="yes-display-inline">in paragraph (2)(A), by inserting
<quote>and a noneconomic substance transaction understatement</quote> after
<quote>reportable transaction understatement</quote>,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDECE9B45EC7B1412FA1D6181027C0ECD3"><enum>(C)</enum><text display-inline="yes-display-inline">in paragraph (2)(B), by inserting
<quote>6662B or</quote> before <quote>6663</quote>,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID5073E1A304334350A61DB8D28144950B"><enum>(D)</enum><text display-inline="yes-display-inline">in paragraph (2)(C)(i), by inserting
<quote>or section 6662B</quote> before the period at the end,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDDC7A3ED296044532A809F10DC98F6A13"><enum>(E)</enum><text display-inline="yes-display-inline">in paragraph (2)(C)(ii), by inserting
<quote>and section 6662B</quote> after <quote>This section</quote>,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID59B4862BF7354DB9A7BBB0829F35CBEC"><enum>(F)</enum><text display-inline="yes-display-inline">in paragraph (3), by inserting <quote>or
noneconomic substance transaction understatement</quote> after
<quote>reportable transaction understatement</quote>, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDA71AE17653824ED4A77BF2B8DFAF5ECF"><enum>(G)</enum><text display-inline="yes-display-inline">by adding at the end the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="ID2D72ACC6BD09418080B03D3C31FD5507" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="ID5311F43E698744B186D4AC82016D19BF"><enum>(4)</enum><header>Noneconomic
substance transaction understatement</header><text display-inline="yes-display-inline">For purposes of this subsection, the term
<term>noneconomic substance transaction understatement</term> has the meaning
given such term by section
6662B(c).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID91BFE2EE459547BEBA44F350A3E4594F"><enum>(3)</enum><text display-inline="yes-display-inline">Subsection (e) of section 6707A is
amended—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID39BC82CEAEC84A8C80EF74D1EF5CB79E"><enum>(A)</enum><text display-inline="yes-display-inline">by striking <quote>or</quote> at the end of
subparagraph (B), and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDEDF3910421544FB5927569A29FBAA592"><enum>(B)</enum><text display-inline="yes-display-inline">by striking subparagraph (C) and inserting
the following new subparagraphs:</text>
<quoted-block display-inline="no-display-inline" id="ID2C211757403740C9B7A3CDC07D735FA3" style="OLC">
<subparagraph commented="no" display-inline="no-display-inline" id="ID5FD16871BCFC4210B7D181A02B60725C"><enum>(C)</enum><text display-inline="yes-display-inline">is required to pay a penalty under section
6662B with respect to any noneconomic substance transaction, or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID5ED4C018140344279E1C2C99781B693A"><enum>(D)</enum><text display-inline="yes-display-inline">is required to pay a penalty under section
6662(h) with respect to any transaction and would (but for section
6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate
prescribed under section 6662A(c) or under section
6662B,</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID656F133A7FBB4534BE39DE07DDE35E5A"><enum>(c)</enum><header>Clerical
amendment</header><text display-inline="yes-display-inline">The table of
sections for part II of subchapter A of chapter 68 is amended by inserting
after the item relating to section 6662A the following new item:</text>
<quoted-block display-inline="no-display-inline" id="ID0B8856F2A3EC4463B5A270EA6209A4E9" style="USC">
<toc regeneration="no-regeneration">
<toc-entry bold="off" level="section">Sec. 6662B. Penalty for
understatements attributable to transactions lacking economic substance,
etc.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDFD2D15958B254E0CB385177BA4A9EABC"><enum>(d)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to transactions entered into after the date of the
enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID7030BFB9947E4320943B011CBC2B9C21" section-type="subsequent-section"><enum>303.</enum><header>Denial of deduction
for interest on underpayments attributable to noneconomic substance
transactions</header>
<subsection commented="no" display-inline="no-display-inline" id="ID5DB8B35E661848838265185AA0FB1BA3"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 163(m)
(relating to interest on unpaid taxes attributable to nondisclosed reportable
transactions) is amended—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID7610D8D4D3D54942AC9C8203B26CA46D"><enum>(1)</enum><text display-inline="yes-display-inline">by striking “attributable” and all that
follows and inserting the following: “attributable to—</text>
<quoted-block display-inline="no-display-inline" id="ID366DB17BD2704BC88301A2E5B22FA51F" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="IDA2874D72B72A4FC5BA1D3CB1625F4303"><enum>(1)</enum><text display-inline="yes-display-inline">the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to which the
requirement of section 6664(d)(2)(A) is not met, or</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID904BABB8158842C98CF80ABAA93B1463"><enum>(2)</enum><text display-inline="yes-display-inline">any noneconomic substance transaction
understatement (as defined in section
6662B(c)).</text>
</paragraph><after-quoted-block>,
and</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID63A65B4F273D44F7AE1309896ECAC391"><enum>(2)</enum><text display-inline="yes-display-inline">by inserting “<header-in-text level="section" style="OLC">and Noneconomic Substance
Transactions</header-in-text>” after “<header-in-text level="section" style="OLC">Transactions</header-in-text>”.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDABB1DC2382EB4E35909F9D15B1791BC2"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to transactions after the date of the enactment of
this Act in taxable years ending after such date.</text>
</subsection></section><enum>IV</enum><header>Deterring uncooperative tax havens</header>
<section commented="no" display-inline="no-display-inline" id="IDF4BDBFCDDA4C4E2494EE4C89C68BE3CD" section-type="subsequent-section"><enum>401.</enum><header>Disclosing payments
to persons in uncooperative tax havens</header>
<subsection commented="no" display-inline="no-display-inline" id="ID8979CFADA68341BE8E415F2CA3906B0F"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subpart A of part III
of subchapter A of chapter 61 is amended by inserting after section 6038C the
following new section:</text>
<quoted-block display-inline="no-display-inline" id="ID94214DC2EE8D4B97B1A503DA1B166B74" style="OLC">
<section commented="no" display-inline="no-display-inline" id="ID66E98FE6C94B4EB1945790B5CC8ECCCF" section-type="subsequent-section"><enum>6038D.</enum><header>Deterring
uncooperative tax havens through listing and reporting requirements</header>
<subsection commented="no" display-inline="no-display-inline" id="IDAECF469447F9490E9A08093FE3A08CE7"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Each United States
person who transfers money or other property directly or indirectly to any
uncooperative tax haven, to any financial institution licensed by or operating
in any uncooperative tax haven, or to any person who is a resident of any
uncooperative tax haven shall furnish to the Secretary, at such time and in
such manner as the Secretary shall by regulation prescribe, such information
with respect to such transfer as the Secretary may require.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID5959B25B295F43CA8D95DD0BDF8C44D6"><enum>(b)</enum><header>Exceptions</header><text display-inline="yes-display-inline">Subsection (a) shall not apply to a
transfer by a United States person if the amount of money (and the fair market
value of property) transferred is less than $10,000. Related transfers shall be
treated as 1 transfer for purposes of this subsection.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDA0CBAC519DB345A895E3DCD0CA90B298"><enum>(c)</enum><header>Uncooperative
tax haven</header><text display-inline="yes-display-inline">For purposes of
this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID5E61945AACA74662ABFD0572FFC53669"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>uncooperative tax haven</term> means any foreign jurisdiction which is
identified on a list maintained by the Secretary under paragraph (2) as being a
jurisdiction—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDBD944455B70D46AD85091CB80DD879D2"><enum>(A)</enum><text display-inline="yes-display-inline">which imposes no or nominal taxation either
generally or on specified classes of income, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID619EEAD1DF3D4BF788267C47D58DF8FC"><enum>(B)</enum><text display-inline="yes-display-inline">has corporate, business, bank, or tax
secrecy or confidentiality rules and practices, or has ineffective information
exchange practices which, in the judgment of the Secretary, effectively limit
or restrict the ability of the United States to obtain information relevant to
the enforcement of this title.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDC50A47E348094EAAB48112B85E339B1C"><enum>(2)</enum><header>Maintenance of
list</header><text display-inline="yes-display-inline">Not later than November
1 of each calendar year, the Secretary shall issue a list of foreign
jurisdictions which the Secretary determines qualify as uncooperative tax
havens under paragraph (1).</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID8DE12217A9854937A7CDC4371D07462B"><enum>(3)</enum><header>Ineffective
information exchange practices</header><text display-inline="yes-display-inline">For purposes of paragraph (1), a
jurisdiction shall be deemed to have ineffective information exchange practices
if the Secretary determines that during any taxable year ending in the 12-month
period preceding the issuance of the list under paragraph (2)—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID74E39FF2175B43EBB573C1BAE5B18A18"><enum>(A)</enum><text display-inline="yes-display-inline">the exchange of information between the
United States and such jurisdiction was inadequate to prevent evasion or
avoidance of United States income tax by United States persons or to enable the
United States effectively to enforce this title, or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID5E8DA1CBB2DD4D3DB1388AC87392366E"><enum>(B)</enum><text display-inline="yes-display-inline">such jurisdiction was identified by an
intergovernmental group or organization of which the United States is a member
as uncooperative with international tax enforcement or information exchange and
the United States concurs in the determination.</text>
</subparagraph></paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID4669F358E0D44A63ACEB08BBF91F9A53"><enum>(d)</enum><header>Penalty for
failure to file information</header><text display-inline="yes-display-inline">If a United States person fails to furnish
the information required by subsection (a) with respect to any transfer within
the time prescribed therefor (including extensions), such United States person
shall pay (upon notice and demand by the Secretary and in the same manner as
tax) an amount equal to 20 percent of the amount of such transfer.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDAE70A86C008C4A919537B9C692A60F33"><enum>(e)</enum><header>Simplified
reporting</header><text display-inline="yes-display-inline">The Secretary may
by regulations provide for simplified reporting under this section for United
States persons making large volumes of similar payments.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID716BAE0C8C694FFC8E16867333A09CF1"><enum>(f)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the purposes of
this
section.</text>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDC5A9A3BAF6E244749732718B325F713E"><enum>(b)</enum><header>Clerical
amendment</header><text display-inline="yes-display-inline">The table of
sections for such subpart A is amended by inserting after the item relating to
section 6038C the following new item:</text>
<quoted-block display-inline="no-display-inline" id="ID0F5EA16FF5954B46A75CE39F07D2D90D" style="USC">
<toc regeneration="no-regeneration">
<toc-entry bold="off" level="section">Sec. 6038D. Deterring
uncooperative tax havens through listing and reporting
requirements.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID0D887DCF91ED4F1299E954BCFED3B32E"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to transfers after the date which is 180 days after
the date of the enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID3BA0C280CCC746079870E02DC6E3D9F6" section-type="subsequent-section"><enum>402.</enum><header>Deterring
uncooperative tax havens by restricting allowable tax benefits</header>
<subsection commented="no" display-inline="no-display-inline" id="ID220DFB5F20A54C9385D7C5E3521F3B77"><enum>(a)</enum><header>Limitation on
deferral</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID88D24E4B6D724CDAAE04D4BF0B866786"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (a) of
section 952 (defining subpart F income) is amended by striking
<quote>and</quote> at the end of paragraph (4), by striking the period at the
end of paragraph (5) and inserting <quote>, and</quote>, and by inserting after
paragraph (5) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="ID2DB75F1EA5F643B090BB533B52E2B910" style="OLC">
<paragraph commented="no" display-inline="no-display-inline" id="ID5F1BE34B897E4206A6D78C612573103D"><enum>(6)</enum><text display-inline="yes-display-inline">an amount equal to the applicable fraction
(as defined in subsection (e)) of the income of such corporation other than
income which—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID62AFCC790B404B1B95657F244676E8D8"><enum>(A)</enum><text display-inline="yes-display-inline">is attributable to earnings and profits of
the foreign corporation included in the gross income of a United States person
under section 951 (other than by reason of this paragraph or paragraph
(3)(A)(i)), or</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID396D2BF7D12B4CA4A156765EB8FB363C"><enum>(B)</enum><text display-inline="yes-display-inline">is described in subsection
(b).</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID47340B6942244F91A0334078D0C7087A"><enum>(2)</enum><header>Applicable
fraction</header><text display-inline="yes-display-inline">Section 952 is
amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="IDAA134C225ABF4EA48F789A54011ACAAB" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDE897DF5CF5BA4C09A355CCEE55DC9517"><enum>(e)</enum><header>Identified Tax
Haven Income Which is Subpart <enum-in-header>F</enum-in-header>
Income</header>
<paragraph commented="no" display-inline="no-display-inline" id="IDF47F718038D44111A4B83B15D2560B92"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">For purposes of
subsection (a)(6), the term <term>applicable fraction</term> means the
fraction—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDD363A5C0E6834797AD0E0E63F3130150"><enum>(A)</enum><text display-inline="yes-display-inline">the numerator of which is the aggregate
identified tax haven income for the taxable year, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDDE8B0EA325C94DEAA49287AFF7C14D9C"><enum>(B)</enum><text display-inline="yes-display-inline">the denominator of which is the aggregate
income for the taxable year which is from sources outside the United
States.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID2534BBD1D84C45468A8EEE5DDA294244"><enum>(2)</enum><header>Identified tax
haven income</header><text display-inline="yes-display-inline">For purposes of
paragraph (1), the term <term>identified tax haven income</term> means income
for the taxable year which is attributable to a foreign jurisdiction for any
period during which such jurisdiction has been identified as an uncooperative
tax haven under section 6038D(c).</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID4902AED541964C13BCB81D853BA661FB"><enum>(3)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe regulations
similar to the regulations issued under section 999(c) to carry out the
purposes of this
subsection.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID8DD7A83430164307911A6774277778A4"><enum>(b)</enum><header>Denial of
foreign tax credit</header><text display-inline="yes-display-inline">Section
901 (relating to taxes of foreign countries and of possessions of United
States) is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="ID9B840E7FD29E4290BE237C3E05E257D8" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="IDDC0323046ED7431CA8E92E8DAC879D3F"><enum>(m)</enum><header>Reduction of
foreign tax credit, etc., for identified tax haven income</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID0CE1E834942546DFBABD132FA6B6E9AE"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Notwithstanding any
other provision of this part—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDA7F42B5F09804D6481A8147F43DBEC36"><enum>(A)</enum><text display-inline="yes-display-inline">no credit shall be allowed under subsection
(a) for any income, war profits, or excess profits taxes paid or accrued (or
deemed paid under section 902 or 960) to any foreign jurisdiction if such taxes
are with respect to income attributable to a period during which such
jurisdiction has been identified as an uncooperative tax haven under section
6038D(c), and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDC99AD5D9DA2646D68116BF735E9EC84D"><enum>(B)</enum><text display-inline="yes-display-inline">subsections (a), (b), (c), and (d) of
section 904 and sections 902 and 960 shall be applied separately with respect
to all income of a taxpayer attributable to periods described in subparagraph
(A) with respect to all such jurisdictions.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID24DAADE4A7FD4159853793D312C5392C"><enum>(2)</enum><header>Taxes allowed
as a deduction, etc</header><text display-inline="yes-display-inline">Sections
275 and 78 shall not apply to any tax which is not allowable as a credit under
subsection (a) by reason of this subsection.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="IDA4216593E8C0483CA6C2516F6821C4BB"><enum>(3)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the purposes of
this subsection, including regulations which treat income paid through 1 or
more entities as derived from a foreign jurisdiction to which this subsection
applies if such income was, without regard to such entities, derived from such
jurisdiction.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID15723C0FE30046D0AF482F1B2CE7A39D"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to taxable years beginning after the date of the
enactment of this Act.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID896D54A8FDEF49FE925D19B967B7DE11" section-type="subsequent-section"><enum>403.</enum><header>Doubling of certain
penalties, fines, and interest on underpayments related to certain offshore
financial arrangements</header>
<subsection commented="no" display-inline="no-display-inline" id="IDEC6E97098E64473FAF004E4D191F728F"><enum>(a)</enum><header>Determination
of penalty</header>
<paragraph commented="no" display-inline="no-display-inline" id="ID45A032AC2905461588AB5E01AB9F6361"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Notwithstanding any
other provision of law, in the case of an applicable taxpayer—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="IDAF61321C4B4C4962AA4587D0A3373710"><enum>(A)</enum><text display-inline="yes-display-inline">the determination as to whether any
interest or applicable penalty is to be imposed with respect to any arrangement
described in paragraph (2), or to any underpayment of Federal income tax
attributable to items arising in connection with any such arrangement, shall be
made without regard to the rules of subsections (b), (c), and (d) of section
6664 of the Internal Revenue Code of 1986, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDBEA41B7DE5964A039AAD6644335A623C"><enum>(B)</enum><text display-inline="yes-display-inline">if any such interest or applicable penalty
is imposed, the amount of such interest or penalty shall be equal to twice that
determined without regard to this section.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID27595F939E7647FD919DF611E7F73B9A"><enum>(2)</enum><header>Applicable
taxpayer</header><text display-inline="yes-display-inline">For purposes of this
subsection—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="ID48416B8427A1403EB4383F84BB4E4ACA"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>applicable taxpayer</term> means a taxpayer which—</text>
<clause commented="no" display-inline="no-display-inline" id="ID7BCA471253BE432B913D7B94C24ECAF5"><enum>(i)</enum><text display-inline="yes-display-inline">has underreported its United States income
tax liability with respect to any item which directly or indirectly
involves—</text>
<subclause commented="no" display-inline="no-display-inline" id="ID2ABB4322EBCF494CADD712CD75B77C74"><enum>(I)</enum><text display-inline="yes-display-inline">any financial arrangement which in any
manner relies on the use of an offshore payment mechanism (including credit,
debit, or charge cards) issued by a bank or other entity in a foreign
jurisdiction, or</text>
</subclause><subclause commented="no" display-inline="no-display-inline" id="ID20C40A905A3B4B15BB9067ABE5E7A77B"><enum>(II)</enum><text display-inline="yes-display-inline">any offshore financial arrangement
(including any arrangement with foreign banks, financial institutions,
corporations, partnerships, trusts, or other entities), and</text>
</subclause></clause><clause commented="no" display-inline="no-display-inline" id="IDA26458CC8C48470885CB2D7C17FC6B68"><enum>(ii)</enum><text display-inline="yes-display-inline">has not signed a closing agreement pursuant
to the Voluntary Offshore Compliance Initiative established by the Department
of the Treasury under Revenue Procedure 2003–11 or voluntarily disclosed its
participation in such arrangement by notifying the Internal Revenue Service of
such arrangement prior to the issue being raised by the Internal Revenue
Service during an examination.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID5FED4851A77645B496866DD256EE4FFA"><enum>(B)</enum><header>Authority to
waive</header><text display-inline="yes-display-inline">The Secretary of the
Treasury or the Secretary’s delegate may waive the application of paragraph (1)
for any taxpayer if the Secretary or the Secretary’s delegate determines
that—</text>
<clause commented="no" display-inline="no-display-inline" id="idAB753798D71F4A0586C959664101C2BD"><enum>(i)</enum><text display-inline="yes-display-inline">the use of such offshore payment mechanism
or financial arrangement was incidental to the transaction,</text>
</clause><clause commented="no" display-inline="no-display-inline" id="id7A9894DA17574D4DBD05D774E64418F7"><enum>(ii)</enum><text display-inline="yes-display-inline">in the case of a trade or business, such
use took place in the ordinary course of the trade or business of the taxpayer,
and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="idD28664DA1D9C4DB7A43E15ABF0A7CF8E"><enum>(iii)</enum><text display-inline="yes-display-inline">such waiver would serve the public
interest.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="IDC452328A2C854649A1F534B98043BECE"><enum>(C)</enum><header>Issues
raised</header><text display-inline="yes-display-inline">For purposes of
subparagraph (A)(ii), an item shall be treated as an issue raised during an
examination if the individual examining the return—</text>
<clause commented="no" display-inline="no-display-inline" id="ID60881BBAAADF40EB814D3724640E55C0"><enum>(i)</enum><text display-inline="yes-display-inline">communicates to the taxpayer knowledge
about the specific item, or</text>
</clause><clause commented="no" display-inline="no-display-inline" id="IDA12C37922E0348749C9E8A78BE646DE6"><enum>(ii)</enum><text display-inline="yes-display-inline">has made a request to the taxpayer for
information and the taxpayer could not make a complete response to that request
without giving the examiner knowledge of the specific item.</text>
</clause></subparagraph></paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID2FA4802687C64D0196634C0F7D95FC63"><enum>(b)</enum><header>Definitions and
rules</header><text display-inline="yes-display-inline">For purposes of this
section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="ID8E142477DA2E409CB5C16473DF2F0CC4"><enum>(1)</enum><header>Applicable
penalty</header><text display-inline="yes-display-inline">The term
<term>applicable penalty</term> means any penalty, addition to tax, or fine
imposed under chapter 68 of the Internal Revenue Code of 1986.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="ID6C1359D5BD73435F928BF7D729EE6825"><enum>(2)</enum><header>Fees and
expenses</header><text display-inline="yes-display-inline">The Secretary of the
Treasury may retain and use an amount not in excess of 25 percent of all
additional interest, penalties, additions to tax, and fines collected under
this section to be used for enforcement and collection activities of the
Internal Revenue Service. The Secretary shall keep adequate records regarding
amounts so retained and used. The amount credited as paid by any taxpayer shall
be determined without regard to this paragraph.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="ID6130CAE4D20D4F56A6B5A14B0096EC77"><enum>(c)</enum><header>Report by
Secretary</header><text display-inline="yes-display-inline">The Secretary shall
each year conduct a study and report to Congress on the implementation of this
section during the preceding year, including statistics on the number of
taxpayers affected by such implementation and the amount of interest and
applicable penalties asserted, waived, and assessed during such preceding
year.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID5180C148AC634209B1EC6D7C5EA87214"><enum>(d)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The provisions of this
section shall apply to interest, penalties, additions to tax, and fines with
respect to any taxable year if, as of the date of the enactment of this Act,
the assessment of any tax, penalty, or interest with respect to such taxable
year is not prevented by the operation of any law or rule of law.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID073A7A251A3F431887180E6D6C9B52E1" section-type="subsequent-section"><enum>404.</enum><header>Treasury regulations
on foreign tax credit</header>
<subsection commented="no" display-inline="no-display-inline" id="IDB9379A1219E54F9D918B09297D682940"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 901 (relating
to taxes of foreign countries and of possessions of United States), as amended
by section 402, is amended by redesignating subsection (n) as subsection (o)
and by inserting after subsection (m) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="ID1F266DBDC9E5489BABD8C90E561D975E" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="ID4E2A811490354AFE94283DF12057CED0"><enum>(n)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary may prescribe regulations
disallowing a credit under subsection (a) for all or a portion of any foreign
tax, or allocating a foreign tax among 2 or more persons, in cases where the
foreign tax is imposed on any person in respect of income of another person or
in other cases involving the inappropriate separation of the foreign tax from
the related foreign
income.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="IDBD0B9DB6A9324AB28153D32D866D7EAA"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to transactions entered into after the date of the
enactment of this Act.</text>
</subsection></section>