[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2136 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 2136

To restrict the use of offshore tax havens and abusive tax shelters to 
    inappropriately avoid Federal taxation, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 3, 2007

Mr. Doggett (for himself, Mr. Emanuel, Mr. Levin, Ms. DeLauro, Ms. Lee, 
Mr. McGovern, Mr. Pascrell, Ms. Schakowsky, Mr. Stark, Ms. Sutton, Mr. 
Van Hollen, Mr. Grijalva, Mr. Lynch, Mr. Nadler, Mr. Lewis of Georgia, 
 Mr. Fattah, Mr. Stupak, Ms. Kaptur, Mr. Rush, Mr. McNulty, Mr. George 
 Miller of California, Mr. Andrews, Ms. Solis, Ms. Watson, Mr. Payne, 
  Mr. Costello, Mr. Conyers, Ms. Slaughter, Mr. Farr, Mr. Filner, Mr. 
Hinchey, Mr. Cleaver, Mr. Johnson of Georgia, Mr. Welch of Vermont, Mr. 
    Ellison, Mr. Bishop of New York, Mr. Neal of Massachusetts, Mr. 
 Tierney, Mr. DeFazio, Mr. Abercrombie, and Ms. Clarke) introduced the 
following bill; which was referred to the Committee on Ways and Means, 
    and in addition to the Committees on Financial Services and the 
 Judiciary, for a period to be subsequently determined by the Speaker, 
 in each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
To restrict the use of offshore tax havens and abusive tax shelters to 
    inappropriately avoid Federal taxation, and for other purposes.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Stop Tax Haven 
Abuse Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; etc.
        TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

Sec. 101. Establishing presumptions for entities and transactions 
                            involving offshore secrecy jurisdictions.
Sec. 102. Authorizing special measures against foreign jurisdictions, 
                            financial institutions, and others that 
                            impede United States tax enforcement.
Sec. 103. Allowing more time for investigations involving offshore 
                            secrecy jurisdictions.
Sec. 104. Reporting United States beneficial owners of foreign owned 
                            financial accounts.
Sec. 105. Preventing misuse of foreign trusts for tax evasion.
Sec. 106. Limitation on legal opinion protection from penalties with 
                            respect to transactions involving offshore 
                            secrecy jurisdictions.
  TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES

Sec. 201. Penalty for failing to disclose offshore holdings.
Sec. 202. Deadline for anti-money laundering rule for hedge funds and 
                            private equity funds.
Sec. 203. Anti-money laundering requirements for formation agents.
Sec. 204. Strengthening summons in cases involving offshore secrecy 
                            jurisdictions.
Sec. 205. Improving enforcement of foreign financial account reporting.
               TITLE III--COMBATING TAX SHELTER PROMOTERS

Sec. 301. Penalty for promoting abusive tax shelters.
Sec. 302. Penalty for aiding and abetting the understatement of tax 
                            liability.
Sec. 303. Prohibition on tax shelter patents.
Sec. 304. Prohibited fee arrangement.
Sec. 305. Preventing tax shelter activities by financial institutions.
Sec. 306. Information sharing for enforcement purposes.
Sec. 307. Disclosure of information to Congress.
Sec. 308. Tax opinion standards for tax practitioners.
Sec. 309. Denial of deduction for certain fines, penalties, and other 
                            amounts.
                 TITLE IV--REQUIRING ECONOMIC SUBSTANCE

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 403. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.

        TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

SEC. 101. ESTABLISHING PRESUMPTIONS FOR ENTITIES AND TRANSACTIONS 
              INVOLVING OFFSHORE SECRECY JURISDICTIONS.

    (a) Presumptions for Internal Revenue Code of 1986.--
            (1) In general.--Chapter 76 is amended by inserting after 
        section 7491 the following new subchapter:

       ``Subchapter F--Presumptions for Certain Legal Proceedings

``Sec. 7492. Presumptions pertaining to entities and transactions 
                            involving offshore secrecy jurisdictions.

``SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND TRANSACTIONS 
              INVOLVING OFFSHORE SECRECY JURISDICTIONS.

    ``(a) Control.--For purposes of any United States civil judicial or 
administrative proceeding to determine or collect tax, there shall be a 
rebuttable presumption that a United States person (other than an 
entity with shares regularly traded on an established securities 
market) who directly or indirectly formed, transferred assets to, was a 
beneficiary of, or received money or property or the use thereof from 
an entity, including a trust, corporation, limited liability company, 
partnership, or foundation (other than an entity with shares regularly 
traded on an established securities market), formed, domiciled, or 
operating in an offshore secrecy jurisdiction, exercised control over 
such entity. The presumption of control created by this subsection 
shall not be applied to prevent the Secretary from determining or 
arguing the absence of control.
    ``(b) Transfers of Income.--For purposes of any United States civil 
judicial or administrative proceeding to determine or collect tax, 
there shall be a rebuttable presumption that any amount or thing of 
value received by a United States person (other than an entity with 
shares regularly traded on an established securities market) directly 
or indirectly from an account or entity (other than an entity with 
shares regularly traded on an established securities market) in an 
offshore secrecy jurisdiction, constitutes income of such person 
taxable in the year of receipt, and any amount or thing of value paid 
or transferred by or on behalf of a United States person (other than an 
entity with shares regularly traded on an established securities 
market) directly or indirectly to an account or entity (other than an 
entity with shares regularly traded on an established securities 
market) in any such jurisdiction represents previously unreported 
income of such person taxable in the year of the transfer.
    ``(c) Rebutting the Presumptions.--The presumptions established in 
this section may be rebutted only by clear and convincing evidence, 
including detailed documentary, testimonial, and transactional 
evidence, establishing that--
            ``(1) in subsection (a), such taxpayer exercised no 
        control, directly or indirectly, over such entity at the time 
        in question, and
            ``(2) in subsection (b), such amounts or things of value 
        did not represent income related to such United States person.
Any court having jurisdiction of a civil proceeding in which control of 
such an offshore entity or the income character of such receipts or 
amounts transferred is an issue shall prohibit the introduction by the 
taxpayer of any foreign based document that is not authenticated in 
open court by a person with knowledge of such document, or any other 
evidence supplied by a person outside the jurisdiction of a United 
States court, unless such person appears before the court.''.
            (2) The table of subchapters for chapter 76 is amended by 
        inserting after the item relating to subchapter E the following 
        new item:

     ``subchapter f--presumptions for certain legal proceedings''.

    (b) Definition of Offshore Secrecy Jurisdiction.--Section 7701(a) 
is amended by adding at the end the following new paragraph:
            ``(50) Offshore secrecy jurisdiction.--
                    ``(A) In general.--The term `offshore secrecy 
                jurisdiction' means any foreign jurisdiction which is 
                listed by the Commissioner of Internal Revenue as an 
                offshore secrecy jurisdiction for purposes of this 
                title.
                    ``(B) Determination of jurisdictions on list.--A 
                jurisdiction shall be listed under paragraph (A) if the 
                Commissioner determines that such jurisdiction has 
                corporate, business, bank, or tax secrecy rules and 
                practices which, in the judgment of the Commissioner, 
                unreasonably restrict the ability of the United States 
                to obtain information relevant to the enforcement of 
                this title, unless the Commissioner also determines 
                that such country has effective information exchange 
                practices.
                    ``(C) Secrecy or confidentiality rules and 
                practices.--For purposes of subparagraph (B), 
                corporate, business, bank, or tax secrecy or 
                confidentiality rules and practices include both formal 
                laws and regulations and informal government or 
                business practices having the effect of inhibiting 
                access of law enforcement and tax administration 
                authorities to beneficial ownership and other financial 
                information.
                    ``(D) Ineffective information exchange practices.--
                For purposes of subparagraph (B), a jurisdiction shall 
                be deemed to have ineffective information exchange 
                practices unless the Commissioner determines, on an 
                annual basis, that--
                            ``(i) such jurisdiction has in effect a 
                        treaty or other information exchange agreement 
                        with the United States that provides for the 
                        prompt, obligatory, and automatic exchange of 
                        such information as is foreseeably relevant for 
                        carrying out the provisions of the treaty or 
                        agreement or the administration or enforcement 
                        of this title,
                            ``(ii) during the 12-month period preceding 
                        the annual determination, the exchange of 
                        information between the United States and such 
                        jurisdiction was in practice adequate to 
                        prevent evasion or avoidance of United States 
                        income tax by United States persons and to 
                        enable the United States effectively to enforce 
                        this title, and
                            ``(iii) during the 12-month period 
                        preceding the annual determination, such 
                        jurisdiction was not 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 such identification.
                    ``(E) Initial list of offshore secrecy 
                jurisdictions.--For purposes of this paragraph, each of 
                the following foreign jurisdictions, which have been 
                previously and publicly identified by the Internal 
                Revenue Service as secrecy jurisdictions in Federal 
                court proceedings, shall be deemed listed by the 
                Commissioner of Internal Revenue as an offshore secrecy 
                jurisdiction unless delisted by the Commissioner under 
                subparagraph (F)(ii):
                            ``(i) Anguilla.
                            ``(ii) Antigua and Barbuda.
                            ``(iii) Aruba.
                            ``(iv) Bahamas.
                            ``(v) Barbados.
                            ``(vi) Belize.
                            ``(vii) Bermuda.
                            ``(viii) British Virgin Islands.
                            ``(ix) Cayman Islands.
                            ``(x) Cook Islands.
                            ``(xi) Costa Rica.
                            ``(xii) Cyprus.
                            ``(xiii) Dominica.
                            ``(xiv) Gibraltar.
                            ``(xv) Grenada.
                            ``(xvi) Guernsey/Sark/Alderney.
                            ``(xvii) Hong Kong.
                            ``(xviii) Isle of Man.
                            ``(xix) Jersey.
                            ``(xx) Latvia.
                            ``(xxi) Liechtenstein.
                            ``(xxii) Luxembourg.
                            ``(xxiii) Malta.
                            ``(xxiv) Nauru.
                            ``(xxv) Netherlands Antilles.
                            ``(xxvi) Panama.
                            ``(xxvii) Samoa.
                            ``(xxviii) St. Kitts and Nevis.
                            ``(xxix) St. Lucia.
                            ``(xxx) St. Vincent and the Grenadines.
                            ``(xxxi) Singapore.
                            ``(xxxii) Switzerland.
                            ``(xxxiii) Turks and Caicos.
                            ``(xxxiv) Vanuatu.
                    ``(F) Modifications to list.--The Commissioner--
                            ``(i) shall add to the list under paragraph 
                        (A) jurisdictions which meet the requirements 
                        of paragraph (B), and
                            ``(ii) may remove from such list only those 
                        jurisdictions which do not meet the 
                        requirements of paragraph (B).''.
    (c) Presumptions for Securities Law Purposes.--Section 21 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at 
the end the following new subsection:
    ``(j) Presumptions Pertaining to Control and Beneficial 
Ownership.--
            ``(1) Control.--For purposes of any civil judicial or 
        administrative proceeding under this title, there shall be a 
        rebuttable presumption that a United States person (other than 
        an entity with shares regularly traded on an established 
        securities market) who directly or indirectly formed, 
        transferred assets to, was a beneficiary of, or received money 
        or property or the use thereof from an entity, including a 
        trust, corporation, limited liability company, partnership, or 
        foundation (other than an entity with shares regularly traded 
        on an established securities market), formed, domiciled, or 
        operating in an offshore secrecy jurisdiction (as defined in 
        section 7701(a)(50) of the Internal Revenue Code of 1986), 
        exercised control over such entity. The presumption of control 
        created by this paragraph shall not be applied to prevent the 
        Commission from determining or arguing the absence of control.
            ``(2) Beneficial ownership.--For purposes of any civil 
        judicial or administrative proceeding under this title, there 
        shall be a rebuttable presumption that securities that are 
        nominally owned by an entity, including a trust, corporation, 
        limited liability company, partnership, or foundation (other 
        than an entity with shares regularly traded on an established 
        securities market), formed, domiciled, or operating in an 
        offshore secrecy jurisdiction (as so defined), are beneficially 
        owned by any United States person (other than an entity with 
        shares regularly traded on an established securities market) 
        who directly or indirectly exercised control over such entity. 
        The presumption of beneficial ownership created by this 
        paragraph shall not be applied to prevent the Commission from 
        determining or arguing the absence of beneficial ownership.''.
    (d) Presumption for Reporting Purposes Relating to Foreign 
Financial Accounts.--Section 5314 of title 31, United States Code, is 
amended by adding at the end the following:
    ``(d) Rebuttable Presumption.--For purposes of this section, there 
shall be a rebuttable presumption that any account with a financial 
institution formed, domiciled, or operating in an offshore secrecy 
jurisdiction (as defined in section 7701(a)(50) of the Internal Revenue 
Code of 1986) contains funds in an amount that is at least sufficient 
to require a report prescribed by regulations under this section.''.
    (e) Regulatory Authority and Effective Date.--
            (1) Regulatory authority.--Not later than 180 days after 
        the date of the enactment of this Act, the Secretary of the 
        Treasury and the Chairman of the Securities and Exchange 
        Commission shall each adopt regulations or other guidance 
        necessary to implement the amendments made by this section. The 
        Secretary and the Chairman may by regulation or guidance 
        provide that the presumption of control shall not extend to 
        particular classes of transactions, such as corporate 
        reorganizations or transactions below a specified dollar 
        threshold, if either determines that applying such amendments 
        to such transactions is not necessary to carry out the purposes 
        of such amendments.
            (2) Effective date.--The amendments made by this section 
        shall take effect on the date of the enactment of this Act.

SEC. 102. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS, 
              FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED 
              STATES TAX ENFORCEMENT.

    Section 5318A of title 31, United States Code, is amended--
            (1) by striking the section heading and inserting the 
        following:
``Sec. 5318A. Special measures for jurisdictions, financial 
              institutions, or international transactions that are of 
              primary money laundering concern or impede United States 
              tax enforcement'';
            (2) in subsection (a), by striking the subsection heading 
        and inserting the following:
    ``(a) Special Measures To Counter Money Laundering and Efforts To 
Impede United States Tax Enforcement.--'';
            (3) in subsection (c), by striking the subsection heading 
        and inserting the following:
    ``(c) Consultations and Information To Be Considered in Finding 
Jurisdictions, Institutions, Types of Accounts, or Transactions To Be 
of Primary Money Laundering Concern or To Be Impeding United States Tax 
Enforcement.--'';
            (4) in subsection (a)(1), by inserting ``or is impeding 
        United States tax enforcement'' after ``primary money 
        laundering concern'';
            (5) in subsection (a)(4)--
                    (A) in subparagraph (A)--
                            (i) by inserting ``in matters involving 
                        money laundering,'' before ``shall consult''; 
                        and
                            (ii) by striking ``and'' at the end;
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C); and
                    (C) by inserting after subparagraph (A) the 
                following:
                    ``(B) in matters involving United States tax 
                enforcement, shall consult with the Commissioner of the 
                Internal Revenue Service, the Secretary of State, the 
                Attorney General of the United States, and in the sole 
                discretion of the Secretary, such other agencies and 
                interested parties as the Secretary may find to be 
                appropriate; and'';
            (6) in each of paragraphs (1)(A), (2), (3), and (4) of 
        subsection (b), by inserting ``or to be impeding United States 
        tax enforcement'' after ``primary money laundering concern'' 
        each place that term appears;
            (7) in subsection (b), by striking paragraph (5) and 
        inserting the following:
            ``(5) Prohibitions or conditions on opening or maintaining 
        certain correspondent or payable-through accounts or 
        authorizing certain payment cards.--If the Secretary finds a 
        jurisdiction outside of the United States, 1 or more financial 
        institutions operating outside of the United States, or 1 or 
        more classes of transactions within or involving a jurisdiction 
        outside of the United States to be of primary money laundering 
        concern or to be impeding United States tax enforcement, the 
        Secretary, in consultation with the Secretary of State, the 
        Attorney General of the United States, and the Chairman of the 
        Board of Governors of the Federal Reserve System, may prohibit, 
        or impose conditions upon--
                    ``(A) the opening or maintaining in the United 
                States of a correspondent account or payable-through 
                account; or
                    ``(B) the authorization, approval, or use in the 
                United States of a credit card, charge card, debit 
                card, or similar credit or debit financial instrument 
                by any domestic financial institution, financial 
                agency, or credit card company or association, for or 
                on behalf of a foreign banking institution, if such 
                correspondent account, payable-through account, credit 
                card, charge card, debit card, or similar credit or 
                debit financial instrument, involves any such 
                jurisdiction or institution, or if any such transaction 
                may be conducted through such correspondent account, 
                payable-through account, credit card, charge card, 
                debit card, or similar credit or debit financial 
                instrument.''; and
            (8) in subsection (c)(1), by inserting ``or is impeding 
        United States tax enforcement'' after ``primary money 
        laundering concern'';
            (9) in subsection (c)(2)(A)--
                    (A) in clause (ii), by striking ``bank secrecy or 
                special regulatory advantages'' and inserting ``bank, 
                tax, corporate, trust, or financial secrecy or 
                regulatory advantages'';
                    (B) in clause (iii), by striking ``supervisory and 
                counter-money'' and inserting ``supervisory, 
                international tax enforcement, and counter-money'';
                    (C) in clause (v), by striking ``banking or 
                secrecy'' and inserting ``banking, tax, or secrecy''; 
                and
                    (D) in clause (vi), by inserting ``, tax treaty, or 
                tax information exchange agreement'' after ``treaty'';
            (10) in subsection (c)(2)(B)--
                    (A) in clause (i), by inserting ``or tax evasion'' 
                after ``money laundering''; and
                    (B) in clause (iii), by inserting ``, tax 
                evasion,'' after ``money laundering''; and
            (11) in subsection (d), by inserting ``involving money 
        laundering, and shall notify, in writing, the Committee on 
        Finance of the Senate and the Committee on Ways and Means of 
        the House of Representatives of any such action involving 
        United States tax enforcement'' after ``such action''.

SEC. 103. ALLOWING MORE TIME FOR INVESTIGATIONS INVOLVING OFFSHORE 
              SECRECY JURISDICTIONS.

    (a) In General.--Section 6501(c) is amended by adding at the end 
the following new paragraph:
            ``(11) Returns involving offshore secrecy jurisdictions.--
        In the case of a return for a year in which the taxpayer 
        directly or indirectly formed, owned, transferred assets to, 
        was a beneficiary of, or received money or property or the use 
        thereof from a financial account or an entity (other than an 
        entity with shares regularly traded on an established 
        securities market), including a trust, corporation, limited 
        liability company, partnership, or foundation (other than an 
        entity with shares regularly traded on an established 
        securities market) formed, located, domiciled or operating in 
        an offshore secrecy jurisdiction, the tax may be assessed, or a 
        proceeding in court for the collection of such tax may be begun 
        without assessment, at any time within 6 years after the return 
        was filed.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to--
            (1) returns filed after the date of the enactment of this 
        Act, and
            (2) returns filed on or before such date if the period 
        specified in section 6501 of the Internal Revenue Code of 1986 
        (determined without regard to the amendments made by subsection 
        (a)) for assessment of such taxes has not expired as of such 
        date.

SEC. 104. REPORTING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED 
              FINANCIAL ACCOUNTS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by inserting after section 6045 the following new 
sections:

``SEC. 6045A. RETURNS REGARDING UNITED STATES BENEFICIAL OWNERS OF 
              FOREIGN OWNED FINANCIAL ACCOUNTS.

    ``(a) Requirement of Return.--If--
            ``(1) any withholding agent under sections 1441 and 1442 
        has the control, receipt, custody, disposal, or payment of any 
        amount constituting gross income from sources within the United 
        States of any foreign entity, including a trust, corporation, 
        limited liability company, partnership, or foundation (other 
        than an entity with shares regularly traded on an established 
        securities market), and
            ``(2) such withholding agent determines for purposes of 
        titles 14, 18, or 31 of the United States Code that a United 
        States person has any beneficial interest in the foreign entity 
        or in the account in such entity's name (hereafter in this 
        section referred to as `United States beneficial owner'),
then the withholding agent shall make a return according to the forms 
or regulations prescribed by the Secretary.
    ``(b) Required Information.--For purposes of subsection (a) the 
information required to be included on the return shall include--
            ``(1) the name, address, and, if known, the taxpayer 
        identification number of the United States beneficial owner,
            ``(2) the known facts pertaining to the relationship of 
        such United States beneficial owner to the foreign entity and 
        the account,
            ``(3) the gross amount of income from sources within the 
        United States (including gross proceeds from brokerage 
        transactions), and
            ``(4) such other information as the Secretary may by forms 
        or regulations provide.
    ``(c) Statements To Be Furnished to Beneficial Owners With Respect 
to Whom Information Is Required To Be Reported.--A withholding agent 
required to make a return under subsection (a) shall furnish to each 
United States beneficial owner whose name is required to be set forth 
in such return a statement showing--
            ``(1) the name, address, and telephone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to such United States beneficial owner.
The written statement required under the preceding sentence shall be 
furnished to the United States beneficial owner on or before January 31 
of the year following the calendar year for which the return under 
subsection (a) was required to be made. In the event the person filing 
such return does not have a current address for the United States 
beneficial owner, such written statement may be mailed to the address 
of the foreign entity.
    ``(d) Cross Reference.--

            ``For provisions relating to penalties for 
            failure to file returns and reports, see 
            sections 6721, 7203, and 7206(1).

``SEC. 6045B. RETURNS BY FINANCIAL INSTITUTIONS REGARDING ESTABLISHMENT 
              OF ACCOUNTS AND CREATION OF ENTITIES IN OFFSHORE SECRECY 
              JURISDICTIONS.

    ``(a) Requirement of Return.--Any financial institution directly or 
indirectly--
            ``(1) opening a bank, brokerage, or other financial 
        account, or
            ``(2) forming or acquiring an entity, including a trust, 
        corporation, limited liability company, partnership, or 
        foundation (other than an entity with shares regularly traded 
        on an established securities market),
in an offshore secrecy jurisdiction at the direction of, on behalf of, 
or for the benefit of a United States person shall make a return 
according to the forms or regulations prescribed by the Secretary.
    ``(b) Required Information.--For purposes of subsection (a) the 
information required to be included on the return shall include--
            ``(1) the name, address, and taxpayer identification number 
        of such United States person,
            ``(2) the name and address of the financial institution at 
        which a financial account is opened, the type of account, the 
        account number, the name under which the account was opened, 
        and the amount of the initial deposit,
            ``(3) the name and address of an entity formed or acquired, 
        the type of entity, and the name and address of any company 
        formation agent or other professional employed to form or 
        acquire the entity, and
            ``(4) such other information as the Secretary may by forms 
        or regulations provide.
    ``(c) Statements To Be Furnished to United States Persons With 
Respect to Whom Information Is Required To Be Reported.--A financial 
institution required to make a return under subsection (a) shall 
furnish to each United States person whose name is required to be set 
forth in such return a statement showing--
            ``(1) the name, address, and telephone number of the 
        contact information of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to such United States person.
The written statement required under the preceding sentence shall be 
furnished to such United States person on or before January 31 of the 
year following the calendar year for which the return under subsection 
(a) was required to be made.
    ``(d) Exemption.--The Secretary may by regulations exempt any class 
of United States persons or any class of accounts or entities from the 
requirements of this section if the Secretary determines that applying 
this section to such persons, accounts, or entities is not necessary to 
carry out the purposes of this section.
    ``(e) Cross Reference.--

``For provisions relating to penalties for failure to file returns and 
                            reports required under this section, see 
                            sections 6721, 7203, and 7206(1).''.
    (b) Clerical Amendment.--The table of sections for such subpart is 
amended by inserting after the item relating to section 6045 the 
following new items:

``Sec. 6045A. Returns regarding United States beneficial owners of 
                            foreign owned financial accounts.
``Sec. 6045B. Returns by financial institutions regarding establishment 
                            of accounts and creation of entities in 
                            offshore secrecy jurisdictions.''.
    (c) Additional Penalties.--
            (1) Additional penalties on banks.--Section 5239(b)(1) of 
        the Revised Statutes (12 U.S.C. 93(b)(1)) is amended by 
        inserting ``or any of the provisions of section 6045B of the 
        Internal Revenue Code of 1986,'' after ``any regulation issued 
        pursuant to,''.
            (2) Additional penalties on securities firms.--Section 
        21(d)(3)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 
        78u(d)(3)(A)) is amended by inserting ``any of the provisions 
        of section 6045B of the Internal Revenue Code of 1986,'' after 
        ``the rules or regulations thereunder,''.
    (d) Regulatory Authority and Effective Date.--
            (1) Regulatory authority.--Not later than 180 days after 
        the date of the enactment of this Act, the Secretary of the 
        Treasury shall adopt regulations, forms, or other guidance 
        necessary to implement this section.
            (2) Effective date.--Section 6045A of the Internal Revenue 
        Code of 1986 (as added by this section) and the amendment made 
        by subsection (c)(1) shall take effect with respect to amounts 
        paid into foreign owned accounts after December 31 of the year 
        of the date of the enactment of this Act. Section 6045B of such 
        Code (as so added) and the amendment made by subsection (c)(2) 
        shall take effect with respect to accounts opened or entities 
        formed or acquired after December 31 of the year of the date of 
        the enactment of this Act.

SEC. 105. PREVENTING MISUSE OF FOREIGN TRUSTS FOR TAX EVASION.

    (a) Attribution of Trust Protector Powers to Grantors.--Section 672 
is amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Grantor Treated as Holding Any Power or Interest of Trust 
Protector or Enforcer.--For purposes of this subpart, a grantor shall 
be treated as holding any power or interest held by any trust protector 
or trust enforcer or similar person appointed to advise, influence, 
oversee, or veto the actions of the trustee.''.
    (b) Treatment of United States Recipients of Foreign Trust Assets 
as Trust Beneficiaries.--Section 679 is amended by redesignating 
subsections (c) and (d) as subsections (d) and (e), respectively, and 
by inserting after subsection (b) the following new subsection:
    ``(c) Certain United States Persons Treated as Beneficiaries.--Any 
United States person receiving from a foreign trust cash or other 
property, or receiving the use thereof, shall be treated as a 
beneficiary of such trust regardless of whether such person is a named 
beneficiary, except to the extent that such person paid fair market 
value for the benefit received.''.
    (c) Treatment of Foreign Trust Transfers of Real Estate, Artwork, 
or Jewelry Consistently With Transfers of Securities.--Section 
643(i)(1) is amended by striking ``or marketable securities'' and 
inserting ``or other property, including real estate, marketable 
securities, artwork, jewelry, and other personal property,''.
    (d) Treatment of Trusts With Future or Contingent United States 
Beneficiaries.--Section 679(a)(1) is amended--
            (1) by inserting ``or for any subsequent year'' after 
        ``such year'', and
            (2) by inserting ``(including a contingent beneficiary)'' 
        after ``beneficiary''.

SEC. 106. LIMITATION ON LEGAL OPINION PROTECTION FROM PENALTIES WITH 
              RESPECT TO TRANSACTIONS INVOLVING OFFSHORE SECRECY 
              JURISDICTIONS.

    (a) In General.--Section 6664 is amended by adding at the end the 
following new subsection:
    ``(e) Certain Opinions May Not Be Relied Upon.--For purposes of 
this part, an opinion of a tax advisor may not be relied upon to 
establish that there was reasonable cause for any portion of an 
underpayment, or that the taxpayer acted in good faith with respect to 
such portion, if such portion is attributable to a transaction any part 
of which involves an entity or financial account in an offshore secrecy 
jurisdiction.''.
    (b) Regulatory Authority.--The Secretary of the Treasury may by 
regulation or guidance provide that subsection (e) of section 6664 of 
the Internal Revenue Code of 1986, as added by subsection (a), does not 
apply to legal opinions that express a confidence level that 
substantially exceeds the ``more likely than not'' confidence level; or 
that such subsection does not apply to classes of transactions, such as 
corporate reorganizations, where the Secretary determines that applying 
such subsection to such transactions is not necessary to carry out the 
purposes of such subsection.

  TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES

SEC. 201. PENALTY FOR FAILING TO DISCLOSE OFFSHORE HOLDINGS.

    (a) Securities Exchange Act of 1934.--Section 21(d)(3)(B) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by 
adding at the end the following:
                    ``(iv) Fourth tier.--Notwithstanding clauses (i), 
                (ii), and (iii), the amount of the penalty for each 
                such violation shall not exceed $1,000,000 for any 
                person if the violation described in subparagraph (A) 
                involved a knowing failure to disclose any holding or 
                transaction involving equity or debt instruments of an 
                issuer and known by such person to involve a foreign 
                entity, including any trust, corporation, limited 
                liability company, partnership, or foundation that is 
                directly or indirectly controlled by such person, and 
                which would have been otherwise subject to disclosure 
                by such person under this title.''.
    (b) Securities Act of 1933.--Section 20(d)(2) of the Securities Act 
of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the 
following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.
    (c) Investment Company Act of 1940.--Section 9(d)(2) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by 
adding at the end the following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.
    (d) Investment Advisers Act of 1940.--Section 203(i)(2) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by 
adding at the end the following:
                    ``(D) Fourth tier.--Notwithstanding subparagraphs 
                (A), (B), and (C), the amount of penalty for each such 
                violation shall not exceed $1,000,000 for any person, 
                if the violation described in paragraph (1) involved a 
                knowing failure to disclose any holding or transaction 
                involving equity or debt instruments of an issuer and 
                known by such person to involve a foreign entity, 
                including any trust, corporation, limited liability 
                company, partnership, or foundation, directly or 
                indirectly controlled by such person, and which would 
                have been otherwise subject to disclosure by such 
                person under this title.''.

SEC. 202. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR HEDGE FUNDS AND 
              PRIVATE EQUITY FUNDS.

    (a) In General.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary of the Treasury, in consultation 
with the Chairman of the Securities and Exchange Commission and the 
Chairman of the Commodity Futures Trading Commission, shall publish a 
final rule in the Federal Register requiring unregistered investment 
companies, including hedge funds or private equity funds, to establish 
anti-money laundering programs and submit suspicious activity reports 
under subsections (g) and (h) of section 5318 of title 31, United 
States Code.
    (b) Contents.--The final rule published under this section--
            (1) shall require, at a minimum, that to safeguard against 
        terrorist financing and money laundering, all unregistered 
        investment companies shall--
                    (A) use risk-based due diligence policies, 
                procedures, and controls that are reasonably designed 
                to ascertain the identity of and evaluate foreign 
                persons (including, where appropriate, the nominal and 
                beneficial owner or beneficiary of a foreign 
                corporation, partnership, trust, or other foreign 
                entity) planning to supply or supplying funds to be 
                invested with the advice or assistance of that 
                unregistered investment company; and
                    (B) be subject to section 5318(k)(2) of title 31, 
                United States Code; and
            (2) may incorporate aspects of the proposed rule for 
        unregistered investment companies published in the Federal 
        Register on September 26, 2002 (67 Fed. Reg. 60617) (relating 
        to anti-money laundering programs).
    (c) Definitions.--In this section--
            (1) the terms ``investment company'' and ``issuer'' have 
        the same meanings as in section 2 of the Investment Company Act 
        of 1940 (15 U.S.C. 80a-2); and
            (2) the term ``unregistered investment company'' means an 
        issuer that would be an investment company, but for the 
        exclusion under paragraph (1) or (7) of section 3(c) of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-3(c)).

SEC. 203. ANTI-MONEY LAUNDERING REQUIREMENTS FOR FORMATION AGENTS.

    (a) Anti-Money Laundering Obligations for Formation Agents.--
Section 5312(a)(2) of title 31, United States Code, is amended--
            (1) in subparagraph (Y), by striking ``or'' at the end;
            (2) by redesignating subparagraph (Z) as subparagraph (AA); 
        and
            (3) by inserting after subparagraph (Y) the following:
                    ``(Z) persons involved in forming new corporations, 
                limited liability companies, partnerships, trusts, or 
                other legal entities; or''.
    (b) Deadline for Anti-Money Laundering Rule for Formation Agents.--
Not later than 90 days after the date of the enactment of this Act, 
after consulting with the Attorney General of the United States, the 
Commissioner of the Internal Revenue Service, and Chairman of the 
Securities and Exchange Commission, the Secretary of the Treasury shall 
publish a proposed rule in the Federal Register requiring persons 
described in section 5312(a)(2)(Z) of title 31, United States Code, as 
added by this section, to establish anti-money laundering programs 
under subsection (h) of section 5318 of that title. The Secretary shall 
publish such rule in final form in the Federal Register not later than 
180 days after the date of the enactment of this Act.

SEC. 204. STRENGTHENING SUMMONS IN CASES INVOLVING OFFSHORE SECRECY 
              JURISDICTIONS.

    (a) In General.--Subsection (f) of section 7609 is amended to read 
as follows:
    ``(f) Additional Requirement in the Case of a John Doe Summons.--
            ``(1) General rule.--Any summons described in subsection 
        (c)(1) which does not identify the person with respect to whose 
        liability the summons is issued may be served only after a 
        court proceeding in which the Secretary establishes that--
                    ``(A) the summons relates to the investigation of a 
                particular person or ascertainable group or class of 
                persons,
                    ``(B) there is a reasonable basis for believing 
                that such person or group or class of persons may fail 
                or may have failed to comply with any provision of any 
                internal revenue law, and
                    ``(C) the information sought to be obtained from 
                the examination of the records or testimony (and the 
                identity of the person or persons with respect to whose 
                liability the summons is issued) is not readily 
                available from other sources.
            ``(2) Exception.--Paragraph (1) shall not apply to any 
        summons which specifies that it is limited to information 
        regarding a United States correspondent account (as defined in 
        section 5318A(e)(1)(B) of title 31, United States Code) or a 
        United States payable-through account (as defined in section 
        5318A(e)(1)(C) of such title) of a financial institution in an 
        offshore secrecy jurisdiction.
            ``(3) Presumption in cases involving offshore secrecy 
        jurisdictions.--For purposes of this section, in any case in 
        which the particular person or ascertainable group or class of 
        persons has financial accounts in or transactions related to 
        offshore secrecy jurisdictions, there shall be a presumption 
        that there is a reasonable basis for believing that such person 
        or group or class of persons may fail or may have failed to 
        comply with provisions of internal revenue law.
            ``(4) Project john doe summonses.--
                    ``(A) In general.--Notwithstanding the requirements 
                of paragraph (1), the Secretary may issue a summons 
                described in paragraph (1) if the summons--
                            ``(i) relates to a project which is 
                        approved under subparagraph (B),
                            ``(ii) is issued to a person who is a 
                        member of the group or class established under 
                        subparagraph (B)(i), and
                            ``(iii) is issued within 3 years of the 
                        date on which such project was approved under 
                        subparagraph (B).
                    ``(B) Approval of projects.--A project may only be 
                approved under this subparagraph after a court 
                proceeding in which the Secretary establishes that--
                            ``(i) any summons issues with respect to 
                        the project will be issued to a member of an 
                        ascertainable group or class of persons, and
                            ``(ii) any summons issued with respect to 
                        such project will meet the requirements of 
                        subparagraphs (A), (B), and (C) of paragraph 
                        (1).
                    ``(C) Extension.--Upon application of the 
                Secretary, the court may extend the time for issuing 
                such summonses under subparagraph (A)(i) for additional 
                3-year periods, but only if the court continues to 
                exercise oversight of such project under subparagraph 
                (D).
                    ``(D) Ongoing court oversight.--During any period 
                in which the Secretary is authorized to issue summonses 
                in relation to a project approved under subparagraph 
                (B) (including during any extension under subparagraph 
                (C)), the Secretary shall report annually to the court 
                on the use of such authority, provide copies of all 
                summonses with such report, and comply with the court's 
                direction with respect to the issuance of any John Doe 
                summons under such project.''.
    (b) Jurisdiction of Court.--
            (1) In general.--Paragraph (1) of section 7609(h) is 
        amended by inserting after the first sentence the following new 
        sentence: ``Any United States district court in which a member 
        of the group or class to which a summons may be issued resides 
        or is found shall have jurisdiction to hear and determine the 
        approval of a project under subsection (f)(4)(B).''.
            (2) Conforming amendment.--The first sentence of section 
        7609(h)(1) is amended by striking ``(f)'' and inserting 
        ``(f)(1)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to summonses issued after the date of the enactment of this Act.
    (d) GAO Report.--Not later than the date which is 5 years after the 
date of the enactment of this Act, the Comptroller General of the 
United States shall issue a report on the implementation of section 
7609(f)(4) of the Internal Revenue Code of 1986, as added by this 
section.

SEC. 205. IMPROVING ENFORCEMENT OF FOREIGN FINANCIAL ACCOUNT REPORTING.

    (a) Clarifying the Connection of Foreign Financial Account 
Reporting to Tax Administration.--Paragraph (4) of section 6103(b) 
(relating to tax administration) is amended by adding at the end the 
following new sentence:
        ``For purposes of clause (i), section 5314 of title 31, United 
        States Code, and sections 5321 and 5322 of such title (as such 
        sections pertain to such section 5314), shall be considered to 
        be an internal revenue law.''.
    (b) Simplifying the Calculation of Foreign Financial Account 
Reporting Penalties.--Section 5321(a)(5)(D)(ii) of title 31, United 
States Code, is amended by striking ``the balance in the account at the 
time of the violation'' and inserting ``the highest balance in the 
account during the reporting period to which the violation relates''.
    (c) Clarifying the Use of Suspicious Activity Reports Under the 
Bank Secrecy Act for Civil Tax Law Enforcement.--Section 5319 of title 
31, United States Code, is amended by inserting ``the civil and 
criminal enforcement divisions of the Internal Revenue Service,'' after 
``including''.

               TITLE III--COMBATING TAX SHELTER PROMOTERS

SEC. 301. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

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

SEC. 302. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

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

SEC. 303. PROHIBITION ON TAX SHELTER PATENTS.

    (a) In General.--Section 102 of title 35, United States Code, is 
amended--
            (1) by redesignating subsection (g) as subsection (h); and
            (2) by inserting after subsection (f) the following:
    ``(g) the invention is designed to minimize, avoid, defer, or 
otherwise affect the liability for Federal, State, local, or foreign 
tax, or''.
    (b) Effective Date and Application.--The amendment made by this 
section shall take effect on the date of the enactment of this Act and 
apply to any application for a patent that has not been granted by that 
date.

SEC. 304. PROHIBITED FEE ARRANGEMENT.

    (a) In General.--Section 6701, as amended by this Act, is amended--
            (1) by redesignating subsections (f) and (g) as subsections 
        (g) and (h), respectively,
            (2) by striking ``subsection (a).'' in paragraphs (2) and 
        (3) of subsection (g) (as redesignated by paragraph (1)) and 
        inserting ``subsection (a) or (f).'', and
            (3) by inserting after subsection (e) the following new 
        subsection:
    ``(f) Prohibited Fee Arrangement.--
            ``(1) In general.--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--
                    ``(A) tax savings or benefits, or
                    ``(B) losses which can be used to offset other 
                taxable income,
        shall pay a penalty with respect to each such fee activity in 
        the amount determined under subsection (b).
            ``(2) Rules.--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.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to fee agreements, charges, and collections made after the date 
of the enactment of this Act.

SEC. 305. PREVENTING TAX SHELTER ACTIVITIES BY FINANCIAL INSTITUTIONS.

    (a) Examinations.--
            (1) Development of examination techniques.--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.
            (2) Implementation.--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.
    (b) Report to Internal Revenue Service.--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.
    (c) Report to Congress.--The Federal banking agencies and the 
Commission shall submit a joint written report to Congress in 2009 and 
2012 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.
    (d) Definitions.--For purposes of this section--
            (1) the terms ``broker'', ``dealer'', and ``investment 
        adviser'' have the same meanings as in section 3 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c);
            (2) the term ``Commission'' means the Securities and 
        Exchange Commission;
            (3) the term ``depository institution'' has the same 
        meaning as in section 3(c) of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813(c));
            (4) the term ``Federal banking agencies'' has the same 
        meaning as in section 3(q) of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813(q)); and
            (5) the term ``Secretary'' means the Secretary of the 
        Treasury.

SEC. 306. INFORMATION SHARING FOR ENFORCEMENT PURPOSES.

    (a) Promotion of Prohibited Tax Shelters or Tax Avoidance 
Schemes.--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:
            ``(7) Disclosure of returns and return information related 
        to promotion of prohibited tax shelters or tax avoidance 
        schemes.--
                    ``(A) Written request.--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. In the discretion of the 
                Secretary, such disclosure may take the form of the 
                participation of Internal Revenue Service employees in 
                a joint investigation, examination, or proceeding with 
                the Securities Exchange Commission, Federal banking 
                agency, or Public Company Accounting Oversight Board.
                    ``(B) Requirements.--A request meets the 
                requirements of this subparagraph if it sets forth--
                            ``(i) the nature of the investigation, 
                        examination, or proceeding,
                            ``(ii) the statutory authority under which 
                        such investigation, examination, or proceeding 
                        is being conducted,
                            ``(iii) the name or names of the financial 
                        institution, issuer, or public accounting firm 
                        to which such return information relates,
                            ``(iv) the taxable period or periods to 
                        which such return information relates, and
                            ``(v) the specific reason or reasons why 
                        such disclosure is, or may be, relevant to such 
                        investigation, examination or proceeding.
                    ``(C) Financial institution.--For the purposes of 
                this paragraph, the term `financial institution' 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.''.
    (b) Financial and Accounting Fraud Investigations.--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:
            ``(9) Disclosure of returns and return information for use 
        in financial and accounting fraud investigations.--
                    ``(A) Written request.--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 requestor 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.
                    ``(B) Requirements.--A request meets the 
                requirements of this subparagraph if it sets forth--
                            ``(i) the nature of the investigation, 
                        examination, or proceeding,
                            ``(ii) the statutory authority under which 
                        such investigation, examination, or proceeding 
                        is being conducted,
                            ``(iii) the name or names of the issuer, 
                        investment company, or public accounting firm 
                        to which such return information relates,
                            ``(iv) the taxable period or periods to 
                        which such return information relates, and
                            ``(v) the specific reason or reasons why 
                        such disclosure is, or may be, relevant to such 
                        investigation, examination or proceeding.''.
    (c) Effective Date.--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.

SEC. 307. DISCLOSURE OF INFORMATION TO CONGRESS.

    (a) Disclosure by Tax Return Preparer.--
            (1) In general.--Subparagraph (B) of section 7216(b)(1) 
        (relating to disclosures) is amended to read as follows:
                    ``(B) pursuant to any one of the following 
                documents, if clearly identified:
                            ``(i) The order of any Federal, State, or 
                        local court of record.
                            ``(ii) A subpoena issued by a Federal or 
                        State grand jury.
                            ``(iii) An administrative order, summons, 
                        or subpoena which is issued in the performance 
                        of its duties by--
                                    ``(I) any Federal agency, including 
                                Congress or any committee or 
                                subcommittee thereof, or
                                    ``(II) 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.''.
            (2) Effective date.--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.
    (b) Disclosure by Secretary.--Paragraph (2) of section 6104(a) 
(relating to inspection of applications for tax exemption or notice of 
status) is amended to read as follows:
            ``(2) Inspection by congress.--
                    ``(A) In general.--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.
                    ``(B) Additional information.--Section 6103(f) 
                shall apply with respect to--
                            ``(i) 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
                            ``(ii) any other papers which are in the 
                        possession of the Secretary and which relate to 
                        such application,
                as if such papers constituted returns.''.
    (c) Effective Date.--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.

SEC. 308. TAX OPINION STANDARDS FOR TAX PRACTITIONERS.

    Section 330(d) of title 31, United States Code, is amended to read 
as follows:
    ``(d) 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:
            ``(1) Independence of the practitioner issuing such written 
        advice from persons promoting, marketing, or recommending the 
        subject of the advice.
            ``(2) 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.
            ``(3) Avoidance of conflicts of interest which would impair 
        auditor independence.
            ``(4) For written advice issued by a firm, standards for 
        reviewing the advice and ensuring the consensus support of the 
        firm for positions taken.
            ``(5) Reliance on reasonable factual representations by the 
        taxpayer and other parties.
            ``(6) Appropriateness of the fees charged by the 
        practitioner for the written advice.
            ``(7) Preventing practitioners and firms from aiding or 
        abetting the understatement of tax liability by clients.
            ``(8) Banning the promotion of potentially abusive or 
        illegal tax shelters.''.

SEC. 309. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--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.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which--
                    ``(A) 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
                    ``(B) is identified as restitution in the court 
                order or settlement agreement.
        Identification pursuant to subparagraph (B) alone shall not 
        satisfy the requirement under subparagraph (A). This paragraph 
        shall not apply to any amount paid or incurred as reimbursement 
        to the government or entity for the costs of any investigation 
        or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--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.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) 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
                    ``(B) 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.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Effective Date.--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.

                 TITLE IV--REQUIRING ECONOMIC SUBSTANCE

SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--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.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                        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.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) 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
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                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.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) 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
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' 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.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' 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.
                    ``(C) Exception for personal transactions of 
                individuals.--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.
                    ``(D) Treatment of lessors.--In applying paragraph 
                (1)(B)(ii) to the lessor of tangible property subject 
                to a lease--
                            ``(i) the expected net tax benefits with 
                        respect to the leased property shall not 
                        include the benefits of--
                                    ``(I) depreciation,
                                    ``(II) any tax credit, or
                                    ``(III) any other deduction as 
                                provided in guidance by the Secretary, 
                                and
                            ``(ii) subclause (II) of paragraph 
                        (1)(B)(ii) shall be disregarded in determining 
                        whether any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--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.
            ``(5) Regulations.--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.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 402. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has a 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.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' 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.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' 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.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(p)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(p)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) In general.--If the first 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.
            ``(2) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply for purposes of paragraph 
        (1).
    ``(e) Coordination With Other Penalties.--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.
    ``(f) Cross References.--

            ``(1) For coordination of penalty with 
            understatements under section 6662 and other 
            special rules, see section 6662A(e).
            ``(2) For reporting of penalty imposed under 
            this section to the Securities and Exchange 
            Commission, see section 6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A), by inserting ``and a 
                noneconomic substance transaction understatement'' 
                after ``reportable transaction understatement'',
                    (C) in paragraph (2)(B), by inserting ``6662B or'' 
                before ``6663'',
                    (D) in paragraph (2)(C)(i), by inserting ``or 
                section 6662B'' before the period at the end,
                    (E) in paragraph (2)(C)(ii), by inserting ``and 
                section 6662B'' after ``This section'',
                    (F) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (G) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) 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,''.
    (c) Clerical Amendment.--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:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 403. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) (relating to interest on unpaid 
taxes attributable to nondisclosed reportable transactions) is 
amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) 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
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``and Noneconomic Substance Transactions'' 
        after ``Transactions''.
    (b) Effective Date.--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.
                                 <all>