110 HR 5790 IH: Universal Homeowner Tax Cut Act of
U.S. House of Representatives
2008-04-15
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.This Act may be cited as the
Universal Homeowner Tax Cut Act of
2008
.
<enum>I</enum><header>Deduction for
State and local real property taxes allowed whether or not taxpayer itemizes
other deductions</header>
<section id="H15943F3BAEDD459DA39511CC7E25A9FF" section-type="subsequent-section"><enum>101.</enum><header>Deduction for State
and local real property taxes allowed whether or not taxpayer itemizes other
deductions</header>
<subsection id="H2EC845889F5A4B95B727A2502E47A7D"><enum>(a)</enum><header>In
general</header><text>Subsection (a) of section 62 of the Internal Revenue Code
of 1986 (defining adjusted gross income) is amended by inserting before the
last sentence the following new paragraph:</text>
<quoted-block id="H73C120445EB14402BF0028E95B402519" style="OLC">
<paragraph id="H1475A4B699FC498294836BF060A6A2B5"><enum>(22)</enum><header>State and local
real property taxes</header><text display-inline="yes-display-inline">At the
election of the taxpayer, so much of the deduction allowed by section 164 for
State and local real property taxes (within the meaning of section 164) as does
not exceed $1,000 ($2,000 in the case of a joint
return).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HD76B566AD6D5452C9385E3B41750C283"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by subsection (a) shall apply to taxable
years beginning after December 31, 2008.</text>
</subsection></section><enum>II</enum><header>Revenue
Provisions</header>
<subtitle id="HF2C9B332313041EAAF2CA594D1C050BD"><enum>A</enum><header>Nonqualified
deferred compensation from certain tax indifferent parties</header>
<section display-inline="no-display-inline" id="H0C82169EE39B4B169742763FA43FEB03" section-type="subsequent-section"><enum>201.</enum><header>Nonqualified
deferred compensation from certain tax indifferent parties</header>
<subsection id="HF46BBE011D544C4D995C00DF3BCC7765"><enum>(a)</enum><header>In
general</header><text>Subpart B of part II of subchapter E of chapter 1 of the
Internal Revenue Code of 1986 (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="HD3F3BBDEBBDF430CA6555C97149CE594" style="OLC">
<section id="H004E9D6588B84032A90900D494AD3310"><enum>457A.</enum><header>Nonqualified
deferred compensation from certain tax indifferent parties</header>
<subsection id="H8CE6A4E2F05C4FE5B9BE8D49003E7F72"><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="H1CE52F3153284B11A86925E666A2FA53"><enum>(b)</enum><header>Nonqualified
entity</header><text>For purposes of this section, the term <term>nonqualified
entity</term> means—</text>
<paragraph id="H99372114D5F942F99836E1B740D7853"><enum>(1)</enum><text display-inline="yes-display-inline">any foreign corporation unless
substantially all of its income is—</text>
<subparagraph id="HD1FF256C7839464084EC95688027D84E"><enum>(A)</enum><text>effectively
connected with the conduct of a trade or business in the United States,
or</text>
</subparagraph><subparagraph id="HD8C6D373E6424011AAB14400FFBC7950"><enum>(B)</enum><text>subject to a
comprehensive foreign income tax, and</text>
</subparagraph></paragraph><paragraph display-inline="no-display-inline" id="HC42C0C6BCFD342539C2C17C388A8728"><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="H800351D49CF34BE18EC348CB47C288DB"><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="HE053567BCB94478F8D7790C03F217795"><enum>(B)</enum><text>organizations
which are exempt from tax under this title.</text>
</subparagraph></paragraph></subsection><subsection id="HA65BCEC2E21A4B6986E553F40192122D"><enum>(c)</enum><header>Ascertainability
of amounts of compensation</header>
<paragraph id="H6DECD4401EC04AE3A8211762E0CE6F57"><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="H249B585AE763448887CF7F6E65EAD401"><enum>(A)</enum><text>such amount shall
be so taken into account when ascertainable, and</text>
</subparagraph><subparagraph id="H853E5EFA22DE459997A81D1683BF592"><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="H00A79C284E3B4A20BDDD0878BB244D96"><enum>(i)</enum><text>the amount of
interest determined under paragraph (2), and</text>
</clause><clause id="HFE1D95644A764D03875C138F1501F1BA"><enum>(ii)</enum><text>an amount equal
to 20 percent of the amount of such compensation.</text>
</clause></subparagraph></paragraph><paragraph id="H5663D5598A874547827B747C865966BD"><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="H74F9898BEAA340959810E90876E100F9"><enum>(d)</enum><header>Other
definitions and special rules</header><text>For purposes of this
section—</text>
<paragraph display-inline="no-display-inline" id="H2690A3C38A4849A1AF167F60873C1822"><enum>(1)</enum><header>Substantial risk
of forfeiture</header>
<subparagraph id="HC0A833DB4EB344DABA27243B10589F69"><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="H73C8C6E312964FB09D00A9CACB6981CC"><enum>(B)</enum><header>Exception for
compensation based on gain recognized on an investment asset</header>
<clause id="HF8F66B280F5D48DB8D3B0234BCB3A58E"><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="H7E7D81FB716243E399791829E8175F29"><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="H23FBA7ADBEBE4849A17E946EE6DFF2B1"><enum>(I)</enum><text>acquired directly
by an investment fund or similar entity,</text>
</subclause><subclause id="HECFCDA296E934B5EA42518B072298626"><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="HA8FF7530CC534333B5E5B107EE8E5F6B"><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="H54F7E27389A04E098D8C73A585B06D93"><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="HF93E413D3DBC48ECABD5A9CB320060A2"><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="HAB687205A7CC440296F2686E228CAF80"><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="H2FC1F781BD494AB3B61783FD00A568A3"><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="H22E84BE405ED4BBBA43B681322D81947"><enum>(3)</enum><header>Nonqualified
deferred compensation plan</header>
<subparagraph id="HEE7D9A34EA9F47A7866EE97EB15C0043"><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="H44F84B2DB00E451BBBE702003B6521FC"><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="HD370DFB5E3ED4DF9A708A417EF2E5796"><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="HF9F293B5144F4EDCAD66AAB3E30F834"><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="HACA9B0CF98FE40C68101B93FC66CFE3B"><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="HDB6CE03DE42942D68EE7E0FAD96E400"><enum>(b)</enum><header>Conforming
amendment</header><text>Section 26(b)(2) of such Code 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="H25932C73A57942B6993204F611601494" style="OLC">
<subparagraph id="H3B5EE33F7322498BB8D2852F0000DD9C"><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="HC361D544565442B5A067306400D6DB63"><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 chapter 1 of such Code is
amended by inserting after the item relating to section 457 the following new
item:</text>
<quoted-block display-inline="no-display-inline" id="H3C8E5B5151EA42838B214CD226FB179C" style="OLC">
<toc container-level="quoted-block-container" idref="HD3F3BBDEBBDF430CA6555C97149CE594" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="H004E9D6588B84032A90900D494AD3310" 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="H5DC3B98E4EC34E4BAD5000CFCC309579"><enum>(d)</enum><header>Effective
date</header>
<paragraph id="H441F4EB6B4E84F86B55437AF435B1C58"><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="HF2723C8C9DA049C5B9E376AEFCB6813D"><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="H5925960616794CCEBF991136E934F2BD"><enum>(A)</enum><text>the last taxable
year beginning before 2017, or</text>
</subparagraph><subparagraph id="HE598DDA587B64E4B81E067807F4E6A5"><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="HC35CDC46BEEC417CA83DA54C110313E"><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 section
409A(a) 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="H02EE8BA8DDE847AF8FB87F10E44924E8"><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="H41B9139633714A97AF13F2138EFCE845"><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="H730802FA192B49D08FDB00899F1FFCE5"><enum>B</enum><header>Codification of
economic substance doctrine</header>
<section display-inline="no-display-inline" id="H481F53B750474AAD80F6DEF115661318" section-type="subsequent-section"><enum>211.</enum><header>Codification of
economic substance doctrine</header>
<subsection commented="no" display-inline="no-display-inline" id="H22E3BA9534DE425100672306DCCA370"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 7701 of the
Internal Revenue Code of 1986 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="H162719BF850C40F0B605063DF3A26CAC" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="HC10FAD5B68FA4A29A6382C93F33218C2"><enum>(p)</enum><header display-inline="yes-display-inline">Clarification of economic substance
doctrine</header>
<paragraph commented="no" display-inline="no-display-inline" id="H3AC5EB3614E14EAC8FA956A2C84E6C34"><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="HFCC836F49CEE4F8BB488003161A517AE"><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="H54041838DF9D4A519302081519883FA3"><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="HAE3851227B30453FAE16C35FF13D7955"><enum>(2)</enum><header display-inline="yes-display-inline">Special rule where taxpayer relies on
profit potential</header>
<subparagraph id="H85895028BF9B4ED3A877A026F8287EA4"><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="H6EE38C6E683A48539CC716204224D947"><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="HA5E903F8946044F096C9A206F4EB7F76"><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="HF9092863552C414CA3EF2D5E21617500"><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="H628FFFF473BE45DA93B6A618DE87062C"><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="HBE5D2F84E0364B809DC7D10728185C13"><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="H0153018528FA4A9C932C3D7530CBB9C5"><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="H6D66475BB30E42FC0079C1C735781BDD"><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="H788FBA6F7DD74BC7AEA08EF946BC8C24"><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="H83965C3AB145434EA5186CE49EF3EAA3"><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="H0B3B5657B1B44298BE2D980012FC00EC"><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="H9C441CB0DBFC4465B5AC67FFA5BB808" section-type="subsequent-section"><enum>212.</enum><header>Penalties for
underpayments</header>
<subsection commented="no" display-inline="no-display-inline" id="HCDF69CBA2F5849C1BAFB417C4F035E00"><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="HC552D3D496AA427FA0609BDEB2227265"><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> of the Internal Revenue Code of 1986 is amended by inserting after
paragraph (5) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H19941655C18742D590D62892AC8CD5DD" style="OLC">
<paragraph id="H3FFAA344FC054B44B734ABB49498FA37"><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="H0429FB11D9DC42869E002E7B6004F476"><enum>(2)</enum><header>Increased
penalty for nondisclosed transactions</header><text>Section 6662 of such Code
is amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HA8D1240CD9154F65A5639052EBB72245" style="OLC">
<subsection id="H6C8803A9E4434F029F3528175CE12975"><enum>(i)</enum><header>Increase in
penalty in case of nondisclosed noneconomic substance transactions</header>
<paragraph id="H39898C4AEC374B639C6951C1049D76F5"><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="HEFD9B298252A4D30845E379927FB86C8"><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="HF841DD250029433E9F346C371280D04C"><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="HBB5DC290DF4E4B388167094EAB95E03"><enum>(3)</enum><header>Conforming
amendment</header><text>Subparagraph (B) of section 6662A(e)(2) of such Code is
amended—</text>
<subparagraph id="HBACED6E3B1BB4CEC9E0224F9513B0054"><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="H2EDEC497C43749C5BA52092D1DD6A993"><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="H119648F5D5B5433900305167B4E5BB96"><enum>(b)</enum><header>Reasonable cause
exception not applicable to noneconomic substance transactions, tax shelters,
and certain large corporations</header><text>Subsection (c) of section 6664 of
such Code is amended—</text>
<paragraph id="H9C126CA5A4C444E8AEF6611F5EEEF167"><enum>(1)</enum><text>by redesignating
paragraphs (2) and (3) as paragraphs (3) and (4), respectively,</text>
</paragraph><paragraph id="H634BEBA04BC4428AA944614493A63163"><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="HCC235978AEFE4492908B152B78D7B8D1"><enum>(3)</enum><text>by inserting after
paragraph (1) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HCA802BC1FE0242889F1CDB057CA090B3" style="OLC">
<paragraph id="HCA386A96C83448AC007F8C431147C483"><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="H48C70202FB2843E988CED77E63F7E0FE"><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="H05C7B31C2BC14CA090E13C025D736D03"><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="H0D097067871E41DEA8776665B12D5300"><enum>(c)</enum><header>Application of
penalty for erroneous claim for refund or credit to noneconomic substance
transactions</header><text>Section 6676 of such Code 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="HB95EA46448B44E55B8DCBAF4BC786459" style="OLC">
<subsection id="HD7D8BB111ADF4E968F8280FEA46E0634"><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="H65E1C4BD55944F6781CD851DAB39A0F7"><enum>(d)</enum><header>Special
understatement reduction rule for certain large corporations</header>
<paragraph id="H027222920EC54F21B5D71D6EA5D518BE"><enum>(1)</enum><header>In
general</header><text>Paragraph (2) of section 6662(d) of such Code is amended
by adding at the end the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="HDB0AB07732B34D79849300A87FB5F560" style="OLC">
<subparagraph id="H73DB8FFBC120400B94B20400BDAB7881"><enum>(D)</enum><header>Special
reduction rule for certain large corporations</header>
<clause id="HC0BB875908C441D88ED787054C697E63"><enum>(i)</enum><header>In
general</header><text>In the case of any specified large corporation—</text>
<subclause id="H175B75F8B5AD42C3838EAF00E65F1DE8"><enum>(I)</enum><text>subparagraph (B)
shall not apply, and</text>
</subclause><subclause id="H7A5794C534C54FC1A436DBC9BD1B96E3"><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="H7B702876416A4009A4D24085A810BB53"><enum>(ii)</enum><header>Specified large
corporation</header>
<subclause id="H80CB66081E2346EAAAAC00D024D4ABBC"><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="H046B13BEEB1D4D3F8851F1F3468B68CD"><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="HB8217E313E6A43EBA53B667E1E1F4F04"><enum>(2)</enum><header>Conforming
amendment</header><text>Subparagraph (C) of section 6662(d)(2) of such Code 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="H60D9A3F29B564ECDB9A4CCFA190436C"><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>