110 HR 4351 EH: AMT Relief Act of 2007
U.S. House of Representatives
0
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.
(a)This Act may be cited as the AMT Relief Act of 2007
.
(b)Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c)The table of contents for this Act is as follows:
Sec. 1. Short title, etc.
Title I—Individual Tax Relief
Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 103. Increase of AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability, etc.
Sec. 104. Refundable child credit.
Title II—Revenue Provisions
Subtitle A—Nonqualified deferred compensation from certain tax indifferent parties
Sec. 201. Nonqualified deferred compensation from certain tax indifferent parties.
Subtitle B—Codification of economic substance doctrine
Sec. 211. Codification of economic substance doctrine.
Sec. 212. Penalties for underpayments.
Subtitle C—Other Provisions
Sec. 221. Delay in application of worldwide allocation of interest.
Sec. 222. Modification of penalty for failure to file partnership returns.
Sec. 223. Penalty for failure to file S corporation returns.
Sec. 224. Increase in minimum penalty on failure to file a return of tax.
Sec. 225. Time for payment of corporate estimated taxes.
<enum>I</enum><header>Individual Tax Relief</header>
<section id="H9E8AADD9392149A1B4ADCBE3FBD629D"><enum>101.</enum><header>Extension of alternative minimum tax relief for nonrefundable personal credits</header>
<subsection id="HF974AD746FF246C68D9D4FBEE8331F4D"><enum>(a)</enum><header>In general</header><text>Paragraph (2) of section 26(a) (relating to special rule for taxable years 2000 through 2006) is amended—</text>
<paragraph id="H2BE969E7EE534728B5589087989997B8"><enum>(1)</enum><text>by striking <quote>or 2006</quote> and inserting <quote>2006, or 2007</quote>, and</text> </paragraph>
<paragraph id="H44B4E65C1DEC44BC8C16C9B5E9FBEA4C"><enum>(2)</enum><text>by striking <quote><header-in-text level="paragraph" style="OLC">2006</header-in-text></quote> in the heading thereof and inserting <quote><header-in-text level="paragraph" style="OLC">2007</header-in-text></quote>.</text> </paragraph></subsection>
<subsection id="HA34453DC18AB4470BFD32D1567345272"><enum>(b)</enum><header> Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2006.</text> </subsection></section>
<section display-inline="no-display-inline" id="HE0A49A5AA71A4BF18FF5AAB71D32BA80" section-type="subsequent-section"><enum>102.</enum><header>Extension of increased alternative minimum tax exemption amount</header>
<subsection id="H9FD1E5578C354183808901CC18FB4397"><enum>(a)</enum><header>In general</header><text>Paragraph (1) of section 55(d) (relating to exemption amount) is amended—</text>
<paragraph id="H7E532E8C8ABF4E578992812374084913"><enum>(1)</enum><text>by striking <quote>($62,550 in the case of taxable years beginning in 2006)</quote> in subparagraph (A) and inserting <quote>($66,250 in the case of taxable years beginning in 2007)</quote>, and</text> </paragraph>
<paragraph id="H64952674F0C8480E003D79506C572B57"><enum>(2)</enum><text>by striking <quote>($42,500 in the case of taxable years beginning in 2006)</quote> in subparagraph (B) and inserting <quote>($44,350 in the case of taxable years beginning in 2007)</quote>.</text> </paragraph></subsection>
<subsection id="H85913C7B27AB48B7ACCCEAD39E276C81"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2006.</text> </subsection></section>
<section commented="no" display-inline="no-display-inline" id="H07E115081E1444A8B520FC061BBE25DC" section-type="subsequent-section"><enum>103.</enum><header>Increase of AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability, etc</header>
<subsection commented="no" id="H878A531C262A45F5A000A20080567299"><enum>(a)</enum><header>In general</header><text>Paragraph (2) of <external-xref legal-doc="usc" parsable-cite="usc/26/53">section 53(e)</external-xref> is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H1C2268D6AE9347A8B28164A57D3563BF" style="OLC">
<paragraph commented="no" id="H94D34352679E4B6AB58907F209A78500"><enum>(2)</enum><header>AMT refundable credit amount</header><text>For purposes of paragraph (1), the term <quote>AMT refundable credit amount</quote> means, with respect to any taxable year, the amount (not in excess of the long-term unused minimum tax credit for such taxable year) equal to the greater of—</text>
<subparagraph commented="no" id="H8A06227388674B8C9345C31C4C2D9F70"><enum>(A)</enum><text>50 percent of the long-term unused minimum tax credit for such taxable year, or</text> </subparagraph>
<subparagraph commented="no" id="H0ED746DDEB504E82B2C31B935E7CF962"><enum>(B)</enum><text display-inline="yes-display-inline">the amount (if any) of the AMT refundable credit amount determined under this paragraph for the taxpayer’s preceding taxable year.</text> </subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection commented="no" id="HB2886C2C16D84623001601546DFA5BB7"><enum>(b)</enum><header>Treatment of certain underpayments, interest, and penalties attributable to the treatment of incentive stock options</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/53">Section 53</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HAF082BF13DA0499EB736056D6C8907E6" style="OLC">
<subsection commented="no" id="H9E9DCE1D5C194505AAEBCD552DFB313B"><enum>(f)</enum><header>Treatment of certain underpayments, interest, and penalties attributable to the treatment of incentive stock options</header>
<paragraph commented="no" id="H90147E4591D84B968034351223808FE0"><enum>(1)</enum><header>Abatement</header><text>Any underpayment of tax outstanding on the date of the enactment of this subsection which is attributable to the application of section 56(b)(3) for any taxable year ending before January 1, 2007 (and any interest or penalty with respect to such underpayment which is outstanding on such date of enactment), is hereby abated. No credit shall be allowed under this section with respect to any amount abated under this paragraph.</text> </paragraph>
<paragraph commented="no" id="HC14E7352C27E47C6AC84A489D3E9A585"><enum>(2)</enum><header>Increase in credit for certain interest and penalties already paid</header><text>Any interest or penalty paid before the date of the enactment of this subsection which would (but for such payment) have been abated under paragraph (1) shall be treated for purposes of this section as an amount of adjusted net minimum tax imposed for the taxable year of the underpayment to which such interest or penalty relates.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection commented="no" id="H00399C4F695E46219BE7BCDE24A9B205"><enum>(c)</enum><header>Effective date</header>
<paragraph commented="no" id="HE31E2E8833714C4C87FF85C0A3BA4D69"><enum>(1)</enum><header>In general</header><text>Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2006.</text> </paragraph>
<paragraph commented="no" id="HBC002CE879AF41F588886580A2CD555"><enum>(2)</enum><header>Abatement</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/53">Section 53(f)(1)</external-xref> of the Internal Revenue Code of 1986, as added by subsection (b), shall take effect on the date of the enactment of this Act.</text> </paragraph></subsection></section>
<section display-inline="no-display-inline" id="HD1FF32ABEF904D8A9BE34866708B37F3" section-type="subsequent-section"><enum>104.</enum><header>Refundable child credit</header>
<subsection commented="no" id="HEE074845DE4B4CA582C1E7274420644F"><enum>(a)</enum><header>Modification of threshold amount</header><text display-inline="yes-display-inline">Clause (i) of <external-xref legal-doc="usc" parsable-cite="usc/26/24">section 24(d)(1)(B)</external-xref> is amended by inserting <quote>($8,500 in the case of taxable years beginning in 2008)</quote> after <quote>$10,000</quote>.</text> </subsection>
<subsection id="H0FCE8C37234F477AB34F3CBCF200E4F4"><enum>(b)</enum><header>Effective date</header><text>The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section>
<enum>II</enum><header>Revenue Provisions</header>
<subtitle id="H35C2E8D68D444D1991307D6FF0EE2421"><enum>A</enum><header>Nonqualified deferred compensation from certain tax indifferent parties</header>
<section display-inline="no-display-inline" id="H25FC196AD0E84BCFB3E68379CBE91CE" section-type="subsequent-section"><enum>201.</enum><header>Nonqualified deferred compensation from certain tax indifferent parties</header>
<subsection id="H4066694E1DA84ACDBFDBA98D819CE700"><enum>(a)</enum><header>In general</header><text>Subpart B of part II of subchapter E of chapter 1 (relating to taxable year for which items of gross income included) is amended by inserting after section 457 the following new section:</text>
<quoted-block display-inline="no-display-inline" id="H0D209E7885534141A4265BB75E3780C0" style="OLC">
<section id="HC672AF67214640739B44C533555B2CD9"><enum>457A.</enum><header>Nonqualified deferred compensation from certain tax indifferent parties</header>
<subsection id="HDF38D86A1F3A4A168D3131C9F5CA6918"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Any compensation which is deferred under a nonqualified deferred compensation plan of a nonqualified entity shall be taken into account for purposes of this chapter when there is no substantial risk of forfeiture of the rights to such compensation.</text> </subsection>
<subsection id="H4D51E4D6688D409E9001FD9D46EB9721"><enum>(b)</enum><header>Nonqualified entity</header><text>For purposes of this section, the term <term>nonqualified entity</term> means—</text>
<paragraph id="H69D7FC660C5B4419BEA4BDE16D76639E"><enum>(1)</enum><text display-inline="yes-display-inline">any foreign corporation unless substantially all of its income is—</text>
<subparagraph id="H747039C2071F4CE3AE00047730ED2B1E"><enum>(A)</enum><text>effectively connected with the conduct of a trade or business in the United States, or</text> </subparagraph>
<subparagraph id="HFCE20C8A88C740ECB073F99E2484310"><enum>(B)</enum><text>subject to a comprehensive foreign income tax, and</text> </subparagraph></paragraph>
<paragraph display-inline="no-display-inline" id="HBAC1EE56A498483781195C21215C60E7"><enum>(2)</enum><text display-inline="yes-display-inline">any partnership unless substantially all of its income is allocated to persons other than—</text>
<subparagraph id="H08A7A39E389A4F14B3CE0459B3A61404"><enum>(A)</enum><text>foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, and</text> </subparagraph>
<subparagraph id="HCFEB7A0E6D4B4F7E9F2F6DEDFC5DEA54"><enum>(B)</enum><text>organizations which are exempt from tax under this title.</text> </subparagraph></paragraph></subsection>
<subsection id="HF22CB856E89742699C933D66F97E91B7"><enum>(c)</enum><header>Ascertainability of amounts of compensation</header>
<paragraph id="HCAB6787771AF42FDB3CC49C29F306C27"><enum>(1)</enum><header>In general</header><text>If the amount of any compensation is not ascertainable at the time that such compensation is otherwise to be taken into account under subsection (a)—</text>
<subparagraph id="H39B5FA5412CA46EA80AE764E3F93162"><enum>(A)</enum><text>such amount shall be so taken into account when ascertainable, and</text> </subparagraph>
<subparagraph id="HC93E960C99BA42E2BAE6006409DD55A7"><enum>(B)</enum><text>the tax imposed under this chapter for the taxable year in which such compensation is taken into account under subparagraph (A) shall be increased by the sum of—</text>
<clause id="H8B44CDC38F2343AEADF3C9A490C87D62"><enum>(i)</enum><text>the amount of interest determined under paragraph (2), and</text> </clause>
<clause id="HFA63A9C554D247568B69492C11622431"><enum>(ii)</enum><text>an amount equal to 20 percent of the amount of such compensation.</text> </clause></subparagraph></paragraph>
<paragraph id="H4B491DAF75E0457AA49D98749C398E6F"><enum>(2)</enum><header>Interest</header><text display-inline="yes-display-inline">For purposes of paragraph (1)(B)(i), the interest determined under this paragraph for any taxable year is the amount of interest at the underpayment rate under section 6621 plus 1 percentage point on the underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.</text> </paragraph></subsection>
<subsection id="H713752997EAD46AC89CFDB599CBD8B6"><enum>(d)</enum><header>Other definitions and special rules</header><text>For purposes of this section—</text>
<paragraph display-inline="no-display-inline" id="HA5F8383EC8BD474FA3AA007489E1F301"><enum>(1)</enum><header>Substantial risk of forfeiture</header>
<subparagraph id="HEAA008189FB4447D93CE102E3753700"><enum>(A)</enum><header>In general</header><text>The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual.</text> </subparagraph>
<subparagraph id="H1670ADE90CB1413199DF6697EC68AFBB"><enum>(B)</enum><header>Exception for compensation based on gain recognized on an investment asset</header>
<clause id="H976D8D86AAF54A219D80A3712990F6E9"><enum>(i)</enum><header>In general</header><text>To the extent provided in regulations prescribed by the Secretary, if compensation is determined solely by reference to the amount of gain recognized on the disposition of an investment asset, such compensation shall be treated as subject to a substantial risk of forfeiture until the date of such disposition.</text> </clause>
<clause id="H3CB8853FB34C49C288E100B200007DD8"><enum>(ii)</enum><header>Investment asset</header><text>For purposes of clause (i), the term <quote>investment asset</quote> means any single asset (other than an investment fund or similar entity)—</text>
<subclause id="H2451B273D72349029F39921D92BD5BD8"><enum>(I)</enum><text>acquired directly by an investment fund or similar entity,</text> </subclause>
<subclause id="H9FA17605E4044D1A9D03BB448D7411EC"><enum>(II)</enum><text>with respect to which such entity does not (nor does any person related to such entity) participate in the active management of such asset (or if such asset is an interest in an entity, in the active management of the activities of such entity), and</text> </subclause>
<subclause id="H01186045112F418681797B6171F740C6"><enum>(III)</enum><text>substantially all of any gain on the disposition of which (other than such deferred compensation) is allocated to investors in such entity.</text> </subclause></clause>
<clause id="H6E0485133C714B1FB3DE8DFF03F4E0F4"><enum>(iii)</enum><header>Coordination with special rule for short-term deferrals of compensation</header><text>Paragraph (3)(B) shall not apply to any compensation to which clause (i) applies.</text> </clause></subparagraph></paragraph>
<paragraph id="H229782F375404B3494225F883640C6F1"><enum>(2)</enum><header>Comprehensive foreign income tax</header><text>The term <term>comprehensive foreign income tax</term> means, with respect to any foreign person, the income tax of a foreign country if—</text>
<subparagraph id="H4150E604866846659C992D8491FD5266"><enum>(A)</enum><text>such person is eligible for the benefits of a comprehensive income tax treaty between such foreign country and the United States, or</text> </subparagraph>
<subparagraph id="H1400A87A4B6A4D3497E3E0166F4D65D7"><enum>(B)</enum><text>such person demonstrates to the satisfaction of the Secretary that such foreign country has a comprehensive income tax.</text> </subparagraph><continuation-text continuation-text-level="paragraph">Such term shall not include any tax unless such tax includes rules for the deductibility of deferred compensation which are similar to the rules of this title.</continuation-text></paragraph>
<paragraph id="H17E6B5A3649E403A9C01957793D3F2E6"><enum>(3)</enum><header>Nonqualified deferred compensation plan</header>
<subparagraph id="H1B5E446380C4491DA6007D1D28688F5F"><enum>(A)</enum><header>In general</header><text>The term <term>nonqualified deferred compensation plan</term> has the meaning given such term under section 409A(d), except that such term shall include any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient.</text> </subparagraph>
<subparagraph commented="no" id="H409F5B275A384F869073CEA674F2BA00"><enum>(B)</enum><header>Exception for short-term deferrals</header><text display-inline="yes-display-inline">Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 12 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.</text> </subparagraph></paragraph>
<paragraph id="H9D9EC8EE668B4190AFA711A156CC2170"><enum>(4)</enum><header>Exception for certain compensation with respect to effectively connected income</header><text display-inline="yes-display-inline">In the case a foreign corporation with income which is taxable under section 882, this section shall not apply to compensation which, had such compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture, would have been deductible by such foreign corporation against such income.</text> </paragraph>
<paragraph id="H876C63AD1A8F45AD931026B01781F318"><enum>(5)</enum><header>Application of rules</header><text display-inline="yes-display-inline">Rules similar to the rules of paragraphs (5) and (6) of section 409A(d) shall apply.</text> </paragraph></subsection>
<subsection id="HF8E3B92866E14AE400CE07F0AB961F34"><enum>(e)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.</text> </subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection id="HC8ADDA63480E4D93A9EBE0B8EE856484"><enum>(b)</enum><header>Conforming amendment</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/26">Section 26(b)(2)</external-xref> is amended by striking <quote>and</quote> at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting <quote>, and</quote>, and by adding at the end the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="HB2C2CBC26BCD4852A5925D06328D8D77" style="OLC">
<subparagraph id="H4913D41E46D14A6DB744FC5F29717CD2"><enum>(U)</enum><text display-inline="yes-display-inline">section 457A(c)(1)(B) (relating to ascertainability of amounts of compensation).</text> </subparagraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection id="H10BCA1D0633640C6A5BE2DE581B932F4"><enum>(c)</enum><header>Clerical amendment</header><text display-inline="yes-display-inline">The table of sections of subpart B of part II of subchapter E of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by inserting after the item relating to section 457 the following new item:</text>
<quoted-block display-inline="no-display-inline" id="H9CE22BC453F547349DA2968BC61E69F" style="OLC">
<toc container-level="quoted-block-container" idref="H0D209E7885534141A4265BB75E3780C0" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="HC672AF67214640739B44C533555B2CD9" level="section">Sec. 457A. Nonqualified deferred compensation from certain tax indifferent parties.</toc-entry> </toc> <after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection id="H56BFD0298B764848A700A69CCBD70503"><enum>(d)</enum><header>Effective date</header>
<paragraph id="H7AD2CC6F6EC340FC902B6E7B12242C7B"><enum>(1)</enum><header>In general</header><text>Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts deferred which are attributable to services performed after December 31, 2007.</text> </paragraph>
<paragraph id="H199B1B99DE8441B9858541B5D3AF00BF"><enum>(2)</enum><header>Application to existing deferrals</header><text>In the case of any amount deferred to which the amendments made by this section do not apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2008, to the extent such amount is not includible in gross income in a taxable year beginning before 2017, such amounts shall be includible in gross income in the later of—</text>
<subparagraph id="H6BBB2C186D40487596B59237F97CB124"><enum>(A)</enum><text>the last taxable year beginning before 2017, or</text> </subparagraph>
<subparagraph id="H8FD302A513CB4686B13C5F15E0184F00"><enum>(B)</enum><text>the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation (determined in the same manner as determined for purposes of <external-xref legal-doc="usc" parsable-cite="usc/26/457A">section 457A</external-xref> of the Internal Revenue Code of 1986, as added by this section).</text> </subparagraph></paragraph>
<paragraph id="H83AAF6B92BC5487EBD36DA2143B12CEF"><enum>(3)</enum><header>Accelerated payments</header><text display-inline="yes-display-inline">No later than 60 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2007, may, without violating the requirements of <external-xref legal-doc="usc" parsable-cite="usc/26/409A">section 409A(a)</external-xref> of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income.</text> </paragraph>
<paragraph id="HF8D52D9479B042F8BB0246B29E7FA208"><enum>(4)</enum><header>Certain back-to-back arrangements</header><text>If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2007, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection.</text> </paragraph>
<paragraph id="H3087AE9791A94C73A771002B58165FB3"><enum>(5)</enum><header>Accelerated payment not treated as material modification</header><text>Any amendment to a nonqualified deferred compensation arrangement made pursuant to paragraph (3) or (4) shall not be treated as a material modification of the arrangement for purposes of <external-xref legal-doc="usc" parsable-cite="usc/26/409A">section 409A</external-xref> of the Internal Revenue Code of 1986.</text> </paragraph></subsection></section></subtitle>
<subtitle id="HE1A7D9A2A01A422F00B10037119B33CD"><enum>B</enum><header>Codification of economic substance doctrine</header>
<section display-inline="no-display-inline" id="H2A4F93637267495EB57F1153C895D8FC" section-type="subsequent-section"><enum>211.</enum><header>Codification of economic substance doctrine</header>
<subsection commented="no" display-inline="no-display-inline" id="HADFD807F32CF423BB1278CDC71024032"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline"><external-xref legal-doc="usc" parsable-cite="usc/26/7701">Section 7701</external-xref> is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HDB7776237784404199FFD9452928F916" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="HF8D369BF0EBD4FD58BDD1FD83968DBE4"><enum>(p)</enum><header display-inline="yes-display-inline">Clarification of economic substance doctrine</header>
<paragraph commented="no" display-inline="no-display-inline" id="HF5F377598E0F4ED798BB657170764E86"><enum>(1)</enum><header display-inline="yes-display-inline">Application of doctrine</header><text>In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="H929159DC00334F6899DAE5383815EFBF"><enum>(A)</enum><text display-inline="yes-display-inline">the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and</text> </subparagraph>
<subparagraph commented="no" display-inline="no-display-inline" id="H9D1F8FF8712949C39F60D2263900406F"><enum>(B)</enum><text display-inline="yes-display-inline">the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.</text> </subparagraph></paragraph>
<paragraph commented="no" display-inline="no-display-inline" id="HC1CA33D4343140C4BE718D139E11739C"><enum>(2)</enum><header display-inline="yes-display-inline">Special rule where taxpayer relies on profit potential</header>
<subparagraph id="H344B49D4E4014042A700505F61D8694F"><enum>(A)</enum><header>In general</header><text>The potential for profit of a transaction shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of paragraph (1) are met with respect to the transaction only if 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.</text> </subparagraph>
<subparagraph commented="no" display-inline="no-display-inline" id="H0942F5741AD743018DFC812DA22C1C38"><enum>(B)</enum><header display-inline="yes-display-inline">Treatment of fees and foreign taxes</header><text display-inline="yes-display-inline">Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (A).</text> </subparagraph></paragraph>
<paragraph id="HA995D1B369574149AEFC94005EADEE5F"><enum>(3)</enum><header>State and local tax benefits</header><text>For purposes of paragraph (1), any State or local income tax effect which is related to a Federal income tax effect shall be treated in the same manner as a Federal income tax effect.</text> </paragraph>
<paragraph id="H31FF29D1947245159BFFD9AD6784F07D"><enum>(4)</enum><header>Financial accounting benefits</header><text>For purposes of paragraph (1)(B), achieving a financial accounting benefit shall not be taken into account as a purpose for entering into a transaction if such transaction results in a Federal income tax benefit.</text> </paragraph>
<paragraph commented="no" display-inline="no-display-inline" id="H4314BF93B5C548C2BBF3390033321572"><enum>(5)</enum><header display-inline="yes-display-inline">Definitions and special rules</header><text display-inline="yes-display-inline">For purposes of this subsection—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="H13B0894F970345AC854451244C008E8F"><enum>(A)</enum><header display-inline="yes-display-inline">Economic substance doctrine</header><text display-inline="yes-display-inline">The term <term>economic substance doctrine</term> means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.</text> </subparagraph>
<subparagraph commented="no" display-inline="no-display-inline" id="HF8652CA2B9614E42ADBC7489DFEA5379"><enum>(B)</enum><header display-inline="yes-display-inline">Exception for personal transactions of individuals</header><text display-inline="yes-display-inline">In the case of an individual, paragraph (1) shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.</text> </subparagraph>
<subparagraph commented="no" display-inline="no-display-inline" id="H88BF020C399F485E93D4F103EE7823B3"><enum>(C)</enum><header display-inline="yes-display-inline">Other common law doctrines not affected</header><text display-inline="yes-display-inline">Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.</text> </subparagraph>
<subparagraph id="H7902136D8B2A49EA9714269FA08FD1C6"><enum>(D)</enum><header>Determination of application of doctrine not affected</header><text display-inline="yes-display-inline">The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.</text> </subparagraph></paragraph>
<paragraph commented="no" display-inline="no-display-inline" id="HA8D121F648C54D3FA7CFAC6B0099629C"><enum>(6)</enum><header display-inline="yes-display-inline">Regulations</header><text display-inline="yes-display-inline">The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection commented="no" display-inline="no-display-inline" id="H4057933EA9C34E909616D4C75E77DF80"><enum>(b)</enum><header display-inline="yes-display-inline">Effective Date</header><text display-inline="yes-display-inline">The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.</text> </subsection></section>
<section display-inline="no-display-inline" id="HD53A3E99C248414EB1E1574E7397546F" section-type="subsequent-section"><enum>212.</enum><header>Penalties for underpayments</header>
<subsection commented="no" display-inline="no-display-inline" id="H3515E3A8167A4CDCB7A8DCBB1CCC2874"><enum>(a)</enum><header display-inline="yes-display-inline">Penalty for underpayments attributable to transactions lacking economic substance</header>
<paragraph commented="no" display-inline="no-display-inline" id="HAFD57D0184D14071B709BF63DA2FF196"><enum>(1)</enum><header display-inline="yes-display-inline">In general</header><text>Subsection (b) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662">section 6662</external-xref> is amended by inserting after paragraph (5) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H678D63048F654EA98EF4AD609E5B9E7C" style="OLC">
<paragraph id="H8C3256214D2C4467AAD326C389313583"><enum>(6)</enum><text>Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(p)) or failing to meet the requirements of any similar rule of law.</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph>
<paragraph id="HC0907BC5FA674DD99B6591A8C7224387"><enum>(2)</enum><header>Increased penalty for nondisclosed transactions</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/6662">Section 6662</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HC924C004410C4AB58C2EA29FC5FD5859" style="OLC">
<subsection id="H710A01228DCA41E48E19A85C6FD3D9BC"><enum>(i)</enum><header>Increase in penalty in case of nondisclosed noneconomic substance transactions</header>
<paragraph id="H99C3BE3882744E8287E170B32FC5DA5"><enum>(1)</enum><header>In general</header><text>To the extent that a portion of the underpayment to which this section applies is attributable to one or more nondisclosed noneconomic substance transactions, subsection (a) shall be applied with respect to such portion by substituting <quote>40 percent</quote> for <quote>20 percent</quote>.</text> </paragraph>
<paragraph display-inline="no-display-inline" id="HEB61620837544DB8AD4BE846BDDF4C9E"><enum>(2)</enum><header>Nondisclosed noneconomic substance transactions</header><text>For purposes of this subsection, the term <term>nondisclosed noneconomic substance transaction</term> means any portion of a transaction described in subsection (b)(6) with respect to which the relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement attached to the return.</text> </paragraph>
<paragraph id="HF7AE50DD9B404072834446F7851704C5"><enum>(3)</enum><header>Special rule for amended returns</header><text display-inline="yes-display-inline">Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph>
<paragraph id="H5B6B8062F2664ED690D3ECEB05E19F3"><enum>(3)</enum><header>Conforming amendment</header><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662A">section 6662A(e)(2)</external-xref> is amended—</text>
<subparagraph id="H73AE587529A34311AFF7009C755357C7"><enum>(A)</enum><text>by striking <quote>section 6662(h)</quote> and inserting <quote>subsection (h) or (i) of section 6662</quote>, and</text> </subparagraph>
<subparagraph id="HC5528B462B11449389A3472C28A42376"><enum>(B)</enum><text>by striking <quote><header-in-text level="subparagraph" style="OLC">gross valuation misstatement penalty</header-in-text></quote> in the heading and inserting <quote><header-in-text level="subparagraph" style="OLC">certain increased underpayment penalties</header-in-text></quote>.</text> </subparagraph></paragraph></subsection>
<subsection display-inline="no-display-inline" id="H1A98A4F4A0214572B637FE295597B16B"><enum>(b)</enum><header>Reasonable cause exception not applicable to noneconomic substance transactions, tax shelters, and certain large corporations</header><text>Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/6664">section 6664</external-xref> is amended—</text>
<paragraph id="HC001725060184FF5ADFE7C9D929DB14C"><enum>(1)</enum><text>by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively,</text> </paragraph>
<paragraph id="HA5C6BE683A5F4FE6B71581047285EBBA"><enum>(2)</enum><text>by striking <quote>paragraph (2)</quote> in paragraph (4), as so redesignated, and inserting <quote>paragraph (3)</quote>, and</text> </paragraph>
<paragraph id="H2DC7B7355BBA41BF8CF74B81A900A005"><enum>(3)</enum><text>by inserting after paragraph (1) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H2E77B9BAC416428F94CC16EF30E37DA7" style="OLC">
<paragraph id="HC1127BACEF7C448A841586AE1F47A7F"><enum>(2)</enum><header>Exception for noneconomic substance transactions, tax shelters, and certain large corporations</header><text>Paragraph (1) shall not apply—</text>
<subparagraph id="HB3E9A8AF3FD94C5BB1D400F5B2B7F9B6"><enum>(A)</enum><text>to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)) or transactions described in section 6662(b)(6), and</text> </subparagraph>
<subparagraph id="H88F02BB5731B4A0F8C00E574AF641706"><enum>(B)</enum><text>to any taxpayer if such taxpayer is a specified large corporation (as defined in section 6662(d)(2)(D)(ii)).</text> </subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection>
<subsection id="HB1330D2F12A548E190BB5B47D0AAD9AB"><enum>(c)</enum><header>Application of penalty for erroneous claim for refund or credit to noneconomic substance transactions</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/6676">Section 6676</external-xref> is amended by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HAFAF31BAC4124D67BD4C5495C8568EA8" style="OLC">
<subsection id="H23E0388B518C4E5D849581085121D7D"><enum>(c)</enum><header>Noneconomic substance transactions treated as lacking reasonable basis</header><text display-inline="yes-display-inline">For purposes of this section, any excessive amount which is attributable to any transaction described in section 6662(b)(6) shall not be treated as having a reasonable basis.</text> </subsection><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection id="HCF85E53F4F5140E68553B1AF73B1EF07"><enum>(d)</enum><header>Special understatement reduction rule for certain large corporations</header>
<paragraph id="H3CF2F2D6E4624CA7B2E38C42DB890000"><enum>(1)</enum><header>In general</header><text>Paragraph (2) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662">section 6662(d)</external-xref> is amended by adding at the end the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="H3454D8B2AF1A4868B0D435959DC57204" style="OLC">
<subparagraph id="HC3549267A9EC4345A3A690802B75E565"><enum>(D)</enum><header>Special reduction rule for certain large corporations</header>
<clause id="H0FEE189D4994446BBE9153EBDF32B141"><enum>(i)</enum><header>In general</header><text>In the case of any specified large corporation—</text>
<subclause id="H3436D467E6BF4562957CCE3FA1426DDC"><enum>(I)</enum><text>subparagraph (B) shall not apply, and</text> </subclause>
<subclause id="HED2F460B856445D7ADEBD158CC3B6652"><enum>(II)</enum><text>the amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to any item with respect to which the taxpayer has a reasonable belief that the tax treatment of such item by the taxpayer is more likely than not the proper tax treatment of such item.</text> </subclause></clause>
<clause id="HDD8865C96CC44C32A59EB1A77DCBBDD"><enum>(ii)</enum><header>Specified large corporation</header>
<subclause id="H583B140A50CF4A158622C159B37E48E5"><enum>(I)</enum><header>In general</header><text display-inline="yes-display-inline">For purposes of this subparagraph, the term <term>specified large corporation</term> means any corporation with gross receipts in excess of $100,000,000 for the taxable year involved.</text> </subclause>
<subclause id="H54519DF3AF784A0799AC7103001718D0"><enum>(II)</enum><header>Aggregation rule</header><text display-inline="yes-display-inline">All persons treated as a single employer under section 52(a) shall be treated as one person for purposes of subclause (I).</text> </subclause></clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph>
<paragraph id="HB2BC82A852E54FF2B9B8E5492BB8BCA3"><enum>(2)</enum><header>Conforming amendment</header><text>Subparagraph (C) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662">section 6662(d)(2)</external-xref> is amended by striking <quote>Subparagraph (B)</quote> and inserting <quote>Subparagraphs (B) and (D)(i)(II)</quote>.</text> </paragraph></subsection>
<subsection commented="no" display-inline="no-display-inline" id="HFE8AACEFEFC14B33B475E1E0081134B3"><enum>(e)</enum><header display-inline="yes-display-inline">Effective Date</header><text display-inline="yes-display-inline">The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.</text> </subsection></section></subtitle>
<subtitle id="HF5249B85394C487E95FDED3C21B49C5F"><enum>C</enum><header>Other Provisions</header>
<section display-inline="no-display-inline" id="H9F18FB0ACE5A46D1AEF917ABFB68EC36" section-type="subsequent-section"><enum>221.</enum><header>Delay in application of worldwide allocation of interest</header>
<subsection id="H518D2FFDDB2D4C2AA0E29990B08C4D44"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Paragraphs (5)(D) and (6) of section 864(f) are each amended by striking <quote>December 31, 2008</quote> and inserting <quote>December 31, 2017</quote>.</text> </subsection>
<subsection id="H0C76AFDC13F94451BA5CC9050044F20"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2008.</text> </subsection></section>
<section display-inline="no-display-inline" id="HE0B5FB5156264CE986E393C4795760C0" section-type="subsequent-section"><enum>222.</enum><header>Modification of penalty for failure to file partnership returns</header>
<subsection id="H480CBEC5692A403E84C5269E04BD3C5C"><enum>(a)</enum><header>Extension of time limitation</header><text>Subsection (a) of section 6698 (relating to general rule) is amended by striking <quote>5 months</quote> and inserting <quote>12 months</quote>.</text> </subsection>
<subsection id="HD73202525B234823ADFEB00AF75F358"><enum>(b)</enum><header>Increase in penalty amount</header><text>Paragraph (1) of <external-xref legal-doc="usc" parsable-cite="usc/26/6698">section 6698(b)</external-xref> is amended by striking <quote>$50</quote> and inserting <quote>$100</quote>.</text> </subsection>
<subsection id="H6D1A79EE9EF6417CA0CCD1C826545FBE"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to returns required to be filed after the date of the enactment of this Act.</text> </subsection></section>
<section commented="no" display-inline="no-display-inline" id="H6CDD9661E40B46E2B050944121DB19CB" section-type="subsequent-section"><enum>223.</enum><header>Penalty for failure to file S corporation returns</header>
<subsection commented="no" id="H2B9DF05F04B445FF93F864A5FF1F7E39"><enum>(a)</enum><header>In general</header><text>Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end the following new section:</text>
<quoted-block display-inline="no-display-inline" id="H5A9503187FCB459AB8FEAB1FF62731E9" style="OLC">
<section commented="no" id="H4841948184CC4A51BCD23540B379FDDE"><enum>6699A.</enum><header>Failure to file S corporation return</header>
<subsection commented="no" id="H4E983F33DDEA46F098872878004100AF"><enum>(a)</enum><header>General rule</header><text>In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or pay tax), if any S corporation required to file a return under section 6037 for any taxable year—</text>
<paragraph commented="no" id="H1C34E17D3EF745998189F94BB53D200"><enum>(1)</enum><text>fails to file such return at the time prescribed therefor (determined with regard to any extension of time for filing), or</text> </paragraph>
<paragraph commented="no" id="H0AB0FE3E3D47498EBEEB6266B9000073"><enum>(2)</enum><text>files a return which fails to show the information required under section 6037,</text> </paragraph><continuation-text commented="no" continuation-text-level="subsection">such S corporation shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such failure continues (but not to exceed 12 months), unless it is shown that such failure is due to reasonable cause.</continuation-text></subsection>
<subsection commented="no" id="HF1FB88BF22F94288A8CCB66E8EF12CC5"><enum>(b)</enum><header>Amount per month</header><text>For purposes of subsection (a), the amount determined under this subsection for any month is the product of—</text>
<paragraph commented="no" id="H394961B2932842599777ACFE0083FA59"><enum>(1)</enum><text>$100, multiplied by</text> </paragraph>
<paragraph commented="no" id="H994FED69F5CC48C19C6892318CC7D8D9"><enum>(2)</enum><text>the number of persons who were shareholders in the S corporation during any part of the taxable year.</text> </paragraph></subsection>
<subsection commented="no" id="HE5A81C1B500245879B64BDEA5BF76F3D"><enum>(c)</enum><header>Assessment of penalty</header><text>The penalty imposed by subsection (a) shall be assessed against the S corporation.</text> </subsection>
<subsection commented="no" id="HED2C366E33DE4F2ABB48A73CA69CCE91"><enum>(d)</enum><header>Deficiency procedures not To apply</header><text>Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).</text> </subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection commented="no" id="H0F383229686E49D8AFD16B244F65DDD"><enum>(b)</enum><header>Clerical amendment</header><text>The table of sections for part I of subchapter B of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/68">chapter 68</external-xref> is amended by adding at the end the following new item:</text>
<quoted-block id="H517637F222FC43EFBC9DF8CFAECE0696" style="OLC">
<toc>
<toc-entry idref="H4841948184CC4A51BCD23540B379FDDE" level="section">Sec. 6699A. Failure to file S corporation return.</toc-entry> </toc> <after-quoted-block>.</after-quoted-block></quoted-block> </subsection>
<subsection commented="no" id="H02E8747C1B3D4635842F3F6900C8842B"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to returns required to be filed after the date of the enactment of this Act.</text> </subsection></section>
<section display-inline="no-display-inline" id="HC6C8B41ED3774B09B40013BAA6B13750" section-type="subsequent-section"><enum>224.</enum><header>Increase in minimum penalty on failure to file a return of tax</header>
<subsection id="H8CB164CE68C94841BCF89B510084C26C"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/6651">section 6651</external-xref> is amended by striking <quote>$100</quote> in the last sentence and inserting <quote>$150</quote>.</text> </subsection>
<subsection id="HD5BD17A5752E45B78B10F454E531DCC7"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to returns the due date for the filing of which (including extensions) is after December 31, 2007.</text> </subsection></section>
<section id="H5D59C1D5F2504FA6B75C15E07263FC15"><enum>225.</enum><header>Time for payment of corporate estimated taxes</header><text display-inline="no-display-inline">The percentage under subparagraph (B) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this Act is increased by 52.5 percentage points.</text> </section></subtitle>
Passed the House of Representatives December 12, 2007.Lorraine C. Miller,Clerk.