[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 2075 Introduced in Senate (IS)]

112th CONGRESS
  2d Session
                                S. 2075

 To close unjustified corporate tax loopholes, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 7, 2012

 Mr. Levin (for himself and Mr. Conrad) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To close unjustified corporate tax loopholes, 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 ``Cut Unjustified 
Tax Loopholes Act'' or ``CUT Loopholes 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--ENDING OFFSHORE TAX ABUSES

      Subtitle A--Deterring the Use of Tax Havens for Tax Evasion

Sec. 101. Authorizing special measures against foreign jurisdictions, 
                            financial institutions, and others that 
                            impede United States tax enforcement.
Sec. 102. Strengthening the Foreign Account Tax Compliance Act (FATCA).
Sec. 103. Treatment of foreign corporations managed and controlled in 
                            the United States as domestic corporations.
Sec. 104. Reporting United States beneficial owners of foreign owned 
                            financial accounts.
Sec. 105. Swap payments made from the United States to persons 
                            offshore.
Sec. 106. Tax on income of controlled foreign corporation deposited in 
                            financial account located in the United 
                            States.
 Subtitle B--Other Measures to Combat Tax Haven and Tax Shelter Abuses

Sec. 111. Country-by-country reporting.
Sec. 112. Penalty for failing to disclose offshore holdings.
Sec. 113. Deadline for anti-money laundering rule for private funds and 
                            venture capital funds.
Sec. 114. Anti-money laundering requirements for formation agents.
Sec. 115. Strengthening John Doe summons proceedings.
Sec. 116. Improving enforcement of foreign financial account reporting.
              Subtitle C--Combating Tax Shelter Promoters

Sec. 121. Penalty for promoting abusive tax shelters.
Sec. 122. Penalty for aiding and abetting the understatement of tax 
                            liability.
Sec. 123. Prohibited fee arrangement.
Sec. 124. Preventing tax shelter activities by financial institutions.
Sec. 125. Information sharing for enforcement purposes.
Sec. 126. Disclosure of information to Congress.
Sec. 127. Tax opinion standards for tax practitioners.
        Subtitle D--Reformation of U.S. International Tax System

Sec. 131. Allocation of expenses and taxes on basis of repatriation of 
                            foreign income.
Sec. 132. Excess income from transfers of intangibles to low-taxed 
                            affiliates treated as subpart F income.
Sec. 133. Limitations on income shifting through intangible property 
                            transfers.
Sec. 134. Limitation on earnings stripping by expatriated entities.
 TITLE II--ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS FOR STOCK OPTIONS

Sec. 201. Consistent treatment of stock options by corporations.
Sec. 202. Application of executive pay deduction limit.

                  TITLE I--ENDING OFFSHORE TAX ABUSES

      Subtitle A--Deterring the Use of Tax Havens for Tax Evasion

SEC. 101. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS, 
              FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED 
              STATES TAX ENFORCEMENT.

    (a) In General.--Section 5318A of title 31, United States Code, is 
amended--
            (1) by striking the section heading and inserting the 
        following new heading:
``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 all before paragraph (1) 
        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 all before paragraph (1) 
        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 new subparagraph:
                    ``(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 new paragraph:
            ``(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.'';
            (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''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 102. STRENGTHENING THE FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA).

    (a) Reporting Activities With Respect to Passive Foreign Investment 
Companies.--Section 1298(f) is amended by inserting ``, or who directly 
or indirectly forms, transfers assets to, is a beneficiary of, has a 
beneficial interest in, or receives money or property or the use 
thereof from,'' after ``shareholder of''.
    (b) Withholdable Payments to Foreign Financial Institutions.--
Section 1471(d) is amended--
            (1) by inserting ``or transaction'' after ``any 
        depository'' in paragraph (2)(A), and
            (2) by striking ``or any interest'' and all that follows in 
        paragraph (5)(C) and inserting ``derivatives, or any interest 
        (including a futures or forward contract, swap, or option) in 
        such securities, partnership interests, commodities, or 
        derivatives.''.
    (c) Withholdable Payments to Other Foreign Financial 
Institutions.--Section 1472 is amended--
            (1) by inserting ``as a result of any customer 
        identification, anti-money laundering, anti-corruption, or 
        similar obligation to identify account holders,'' after 
        ``reason to know,'' in subsection (b)(2), and
            (2) by inserting ``as posing a low risk of tax evasion'' 
        after ``this subsection'' in subsection (c)(1)(G).
    (d) Definitions.--Clauses (i) and (ii) of section 1473(2)(A) are 
each amended by inserting ``or as a beneficial owner'' after 
``indirectly''.
    (e) Special Rules.--Section 1474(c) is amended--
            (1) by inserting ``, except that information provided under 
        sections 1471(c) or 1472(b) may be disclosed to any Federal law 
        enforcement agency, upon request or upon the initiation of the 
        Secretary, to investigate or address a possible violation of 
        United States law'' after ``shall apply'' in paragraph (1), and
            (2) by inserting ``, or has had an agreement terminated 
        under such section,'' after ``section 1471(b)'' in paragraph 
        (2).
    (f) Information With Respect to Foreign Financial Assets.--Section 
6038D(a) is amended by inserting ``ownership or beneficial ownership'' 
after ``holds any''.
    (g) Establishing Presumptions for Entities and Transactions 
Involving Non-FATCA Institutions.--
            (1) Presumptions for tax purposes.--
                    (A) 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 non-FATCA institutions.

``SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND TRANSACTIONS 
              INVOLVING NON-FATCA INSTITUTIONS.

    ``(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, had a beneficial interest in, 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), that holds an account, or in any other manner has 
assets, in a non-FATCA institution, 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 from an entity (other than an entity 
with shares regularly traded on an established securities market) that 
holds an account, or in any other manner has assets, in a non-FATCA 
institution, 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) that holds an 
account, or in any other manner has assets, in a non-FATCA institution, 
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 account or 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 account or 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.''.
                    (B) 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''.

            (2) Definition of non-fatca institution.--Section 7701(a) 
        is amended by adding at the end the following new paragraph:
            ``(51) Non-fatca institution.--The term `non-FATCA 
        institution' means any financial institution that does not meet 
        the reporting requirements of section 1471(b).''.
            (3) 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, had a beneficial 
        interest in, 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), that holds an account, or in any other 
        manner has assets, in a non-FATCA institution (as defined in 
        section 7701(a)(51) 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), and that are held in a non-FATCA 
        institution (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.''.
            (4) 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 new 
        subsection:
    ``(d) Rebuttable Presumption.--For purposes of this section, there 
shall be a rebuttable presumption that any account with a non-FATCA 
institution (as defined in section 7701(a)(51) 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.''.
            (5) 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 subsection. 
        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.
    (h) Effective Date.--The amendments made by this section shall take 
effect on the date which is 180 days after the date of the enactment of 
this Act, whether or not regulations are issued under subsection 
(g)(5).

SEC. 103. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN 
              THE UNITED STATES AS DOMESTIC CORPORATIONS.

    (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) Certain Corporations Managed and Controlled in the United 
States Treated as Domestic for Income Tax.--
            ``(1) In general.--Notwithstanding subsection (a)(4), in 
        the case of a corporation described in paragraph (2) if--
                    ``(A) the corporation would not otherwise be 
                treated as a domestic corporation for purposes of this 
                title, but
                    ``(B) the management and control of the corporation 
                occurs, directly or indirectly, primarily within the 
                United States,
        then, solely for purposes of chapter 1 (and any other provision 
        of this title relating to chapter 1), the corporation shall be 
        treated as a domestic corporation.
            ``(2) Corporation described.--
                    ``(A) In general.--A corporation is described in 
                this paragraph if--
                            ``(i) the stock of such corporation is 
                        regularly traded on an established securities 
                        market, or
                            ``(ii) the aggregate gross assets of such 
                        corporation (or any predecessor thereof), 
                        including assets under management for 
                        investors, whether held directly or indirectly, 
                        at any time during the taxable year or any 
                        preceding taxable year is $50,000,000 or more.
                    ``(B) General exception.--A corporation shall not 
                be treated as described in this paragraph if--
                            ``(i) such corporation was treated as a 
                        corporation described in this paragraph in a 
                        preceding taxable year,
                            ``(ii) such corporation--
                                    ``(I) is not regularly traded on an 
                                established securities market, and
                                    ``(II) has, and is reasonably 
                                expected to continue to have, aggregate 
                                gross assets (including assets under 
                                management for investors, whether held 
                                directly or indirectly) of less than 
                                $50,000,000, and
                            ``(iii) the Secretary grants a waiver to 
                        such corporation under this subparagraph.
                    ``(C) Exception from gross assets test.--
                Subparagraph (A)(ii) shall not apply to a corporation 
                which is a controlled foreign corporation (as defined 
                in section 957) and which is a member of an affiliated 
                group (as defined section 1504, but determined without 
                regard to section 1504(b)(3)) the common parent of 
                which--
                            ``(i) is a domestic corporation (determined 
                        without regard to this subsection), and
                            ``(ii) has substantial assets (other than 
                        cash and cash equivalents and other than stock 
                        of foreign subsidiaries) held for use in the 
                        active conduct of a trade or business in the 
                        United States.
            ``(3) Management and control.--
                    ``(A) In general.--The Secretary shall prescribe 
                regulations for purposes of determining cases in which 
                the management and control of a corporation is to be 
                treated as occurring primarily within the United 
                States.
                    ``(B) Executive officers and senior management.--
                Such regulations shall provide that--
                            ``(i) the management and control of a 
                        corporation shall be treated as occurring 
                        primarily within the United States if 
                        substantially all of the executive officers and 
                        senior management of the corporation who 
                        exercise day-to-day responsibility for making 
                        decisions involving strategic, financial, and 
                        operational policies of the corporation are 
                        located primarily within the United States, and
                            ``(ii) individuals who are not executive 
                        officers and senior management of the 
                        corporation (including individuals who are 
                        officers or employees of other corporations in 
                        the same chain of corporations as the 
                        corporation) shall be treated as executive 
                        officers and senior management if such 
                        individuals exercise the day-to-day 
                        responsibilities of the corporation described 
                        in clause (i).
                    ``(C) Corporations primarily holding investment 
                assets.--Such regulations shall also provide that the 
                management and control of a corporation shall be 
                treated as occurring primarily within the United States 
                if--
                            ``(i) the assets of such corporation 
                        (directly or indirectly) consist primarily of 
                        assets being managed on behalf of investors, 
                        and
                            ``(ii) decisions about how to invest the 
                        assets are made in the United States.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after the date which is 2 years 
after the date of the enactment of this Act, whether or not regulations 
are issued under section 7701(p)(3) of the Internal Revenue Code of 
1986, as added by this section.

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 6045B the following new 
sections:

``SEC. 6045C. RETURNS REGARDING UNITED STATES BENEFICIAL OWNERS OF 
              FINANCIAL ACCOUNTS LOCATED IN THE UNITED STATES AND HELD 
              IN THE NAME OF A FOREIGN ENTITY.

    ``(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.

``SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS REGARDING ESTABLISHMENT 
              OF ACCOUNTS IN NON-FATCA INSTITUTIONS.

    ``(a) Requirement of Return.--Any financial institution directly or 
indirectly opening a bank, brokerage, or other financial account for or 
on behalf of an offshore 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 a non-FATCA institution (as defined in section 7701(a)(51)) 
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) if the account is held in the name of an entity, the 
        name and address of such entity, 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 
        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 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.''.
    (b) Penalties.--
            (1) Returns.--Section 6724(d)(1)(B) is amended by striking 
        ``or'' at the end of clause (xxiv), by striking ``and'' at the 
        end of clause (xxv), and by adding after clause (xxv) the 
        following new clauses:
                            ``(xxvi) section 6045C(a) (relating to 
                        returns regarding United States beneficial 
                        owners of financial accounts located in the 
                        United States and held in the name of a foreign 
                        entity), or
                            ``(xxvii) section 6045D(a) (relating to 
                        returns by financial institutions regarding 
                        establishment of accounts at non-FATCA 
                        institutions), and''.
            (2) Payee statements.--Section 6724(d)(2) is amended by 
        striking ``or'' at the end of subparagraph (GG), by striking 
        the period at the end of subparagraph (HH), and by inserting 
        after subparagraph (HH) the following new subparagraphs:
                    ``(II) section 6045C(c) (relating to returns 
                regarding United States beneficial owners of financial 
                accounts located in the United States and held in the 
                name of a foreign entity),
                    ``(JJ) section 6045D(c) (relating to returns by 
                financial institutions regarding establishment of 
                accounts at non-FATCA institutions).''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6045B the following new items:

``Sec. 6045C. Returns regarding United States beneficial owners of 
                            financial accounts located in the United 
                            States and held in the name of a foreign 
                            entity.
``Sec. 6045D. Returns by financial institutions regarding establishment 
                            of accounts at non-FATCA institutions.''.
    (d) 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 6045D 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 6045D of the Internal Revenue Code of 1986,'' after 
        ``the rules or regulations thereunder,''.
    (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 shall adopt regulations, forms, or other guidance 
        necessary to implement this section.
            (2) Effective date.--Section 6045C of the Internal Revenue 
        Code of 1986 (as added by this section) and the amendment made 
        by subsection (d)(1) shall take effect with respect to amounts 
        paid into foreign owned accounts located in the United States 
        after December 31 of the year of the date of the enactment of 
        this Act. Section 6045D of such Code (as so added) and the 
        amendment made by subsection (d)(2) shall take effect with 
        respect to accounts opened after December 31 of the year of the 
        date of the enactment of this Act.

SEC. 105. SWAP PAYMENTS MADE FROM THE UNITED STATES TO PERSONS 
              OFFSHORE.

    (a) Tax on Swap Payments Received by Foreign Persons.--Section 
871(a)(1) is amended--
            (1) by inserting ``swap payments (as identified in section 
        1256(b)(2)(B)),'' after ``annuities,'' in subparagraph (A), and
            (2) by adding at the end the following new sentence: ``In 
        the case of swap payments, the source of a swap payment is 
        determined by reference to the location of the payor.''.
    (b) Tax on Swap Payments Received by Foreign Corporations.--Section 
881(a) is amended--
            (1) by inserting ``swap payments (as identified in section 
        1256(b)(2)(B)),'' after ``annuities,'' in paragraph (1), and
            (2) by adding at the end the following new sentence: ``In 
        the case of swap payments, the source of a swap payment is 
        determined by reference to the location of the payor.''.

SEC. 106. TAX ON INCOME OF CONTROLLED FOREIGN CORPORATION DEPOSITED IN 
              FINANCIAL ACCOUNT LOCATED IN THE UNITED STATES.

    Section 952(a) is amended by adding at the end the following new 
sentence: ``Notwithstanding section 956(c)(2)(A), any property (as 
defined in section 317(a)) of such controlled foreign corporation that 
is deposited and maintained, directly or indirectly, for or on behalf 
of such corporation in a financial account located in the United 
States, including in a correspondent account of a financial 
institution, is a constructive distribution with respect to the stock 
which such United States shareholder owns.''.

 Subtitle B--Other Measures to Combat Tax Haven and Tax Shelter Abuses

SEC. 111. COUNTRY-BY-COUNTRY REPORTING.

    (a) In General.--Section 13 of the Securities Exchange Act of 1934 
(15 U.S.C. 78m) is amended by adding at the end the following new 
subsection:
    ``(r) Disclosure of Financial Performance on a Country-by-Country 
Basis.--
            ``(1) Definitions.--In this subsection--
                    ``(A) the term `issuer group' shall mean the 
                issuer, each subsidiary of the issuer, and each entity 
                under the control of the issuer;
                    ``(B) the term `country of operation' shall mean 
                each country in which a member of the issuer group is 
                incorporated or organized, or maintains employees or 
                conducts business activities; and
                    ``(C) the term `world-wide allocation of group 
                members' shall mean each member of the issuer group 
                listed according to their country of operation.
            ``(2) Country-by-country reporting.--The Commission shall 
        issue rules that require each issuer to include in an annual 
        report filed by the issuer with the Commission information 
        indicative of financial performance on a country-by-country 
        basis during the covered period, including--
                    ``(A) a list of each country of operation;
                    ``(B) the world-wide allocation of group members;
                    ``(C) the financial performance of each member of 
                the issuer group in each country of operation, without 
                exception, including, and set forth according to--
                            ``(i) total number of employees physically 
                        working in the country of operation;
                            ``(ii) total sales by the member of the 
                        issuer group to third parties;
                            ``(iii) total sales by the member of the 
                        issuer group to other members of the issuer 
                        group and total sales to each such member;
                            ``(iv) total purchases by the member of the 
                        issuer group from third parties;
                            ``(v) total purchases by the member of the 
                        issuer group from other members of the issuer 
                        group and total purchases from each such 
                        member;
                            ``(vi) total financing payments made by the 
                        member of the issuer group to third parties;
                            ``(vii) total financing payments made by 
                        the member of the issuer group to other members 
                        of the issuer group and total financing 
                        payments made to each such member;
                            ``(viii) pre-tax gross revenues of the 
                        member of the issuer group;
                            ``(ix) pre-tax net revenues of the member 
                        of the issuer group; and
                            ``(x) such other financial information as 
                        the Commission may determine is indicative of 
                        the financial performance of the issuer;
                    ``(D) the tax paid by each member of the issuer 
                group in each country of operation, without exception, 
                including, and set forth according to--
                            ``(i) total Federal, regional, local, and 
                        other tax assessed against each member of the 
                        issuer group with respect to each country of 
                        operation during the covered period;
                            ``(ii) after taking into account any tax 
                        deductions, tax credits, tax forgiveness, or 
                        other tax benefits or waivers, total amount of 
                        tax paid from the treasury of the member of the 
                        issuer group to the government of each country 
                        of operation during the covered period; and
                            ``(iii) such other financial information as 
                        the Commission may determine is necessary or 
                        appropriate to inform the public of the tax 
                        obligations of and payments by each member of 
                        the issuer group; and
                    ``(E) such other financial information as the 
                Commission may determine is necessary or appropriate in 
                the public interest or for the protection of 
                investors.''.
    (b) Rulemaking.--
            (1) Deadlines.--Not later than 180 days after the date of 
        the enactment of this Act, the Commission shall issue a 
        proposed rule to carry out this section and, not later than 270 
        days after the date of the enactment of this Act, shall issue a 
        final rule to carry out this section.
            (2) Consultation.--In issuing the rules under this section, 
        the Commission shall consult with the Secretary of the Treasury 
        and the Commissioner of Internal Revenue and, to the extent 
        practicable and in furtherance of its obligation to protect 
        investors, shall issue rules that support Federal efforts to 
        reduce offshore tax evasion and abuses.
            (3) Interactive data format.--The rules issued under this 
        section shall require that the information provided by issuers 
        in their annual reports be submitted in an interactive data 
        format as provided in section 13(q)(2)(D) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78m(q)(2)(D)), and to the 
        extent practicable, the Commission shall make available online, 
        to the public, a compilation of such information.
            (4) Aggregate data.--The rules may allow issuers to provide 
        the financial information required under section 13(r) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78m(r)), as added by 
        this section, aggregated at the level of each country of 
        operation instead of with respect to each member of the issuer 
        group individually, provided that the Commission retains the 
        authority, at its discretion, to require further 
        disaggregation.
            (5) Effective date.--Each issuer shall be required to 
        comply with the requirements of section 13(r) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78m(r)), as added by this 
        section, not later than the date on which the issuer must file 
        with the Commission its first annual report that is due not 
        later than 1 year after the date on which the Commission issues 
        a final rule under this section.

SEC. 112. 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. 113. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR PRIVATE FUNDS AND 
              VENTURE CAPITAL FUNDS.

    (a) In General.--
            (1) Proposed rule.--Not later than 90 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 proposed rule in the Federal 
        Register requiring any private fund (as defined in paragraph 
        (29) of section 202(a) of the Investment Advisors Act of 1940 
        (15 U.S.C. 80b-2(a)) or venture capital fund (within the 
        meaning of subsection (l) of section 203 of such Act (15 U.S.C. 
        80b-3) 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.
            (2) Final rule.--Not later than 180 days after the date of 
        the enactment of this Act, the Secretary of the Treasury shall 
        publish a final rule in the Federal Register on the matter 
        described in paragraph (1).
    (b) Contents.--The final rule published under this section shall 
require, at a minimum, that to safeguard against terrorist financing 
and money laundering, any such private fund or venture capital fund 
shall--
            (1) use risk-based due diligence policies, procedures, and 
        controls that are reasonably designed to ascertain the identity 
        of any foreign person (including 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 such 
        private fund or venture capital fund; and
            (2) be subject to section 5318(k)(2) of title 31, United 
        States Code.

SEC. 114. 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, by--
            (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 engaged in the business of forming 
                new corporations, limited liability companies, 
                partnerships, trusts, or other legal entities; or''.
    (b) Deadline for Anti-Money Laundering Rule for Formation Agents.--
            (1) Proposed rule.--Not later than 120 days after the date 
        of the enactment of this Act, the Secretary of the Treasury, in 
        consultation with the Attorney General of the United States, 
        the Secretary of Homeland Security, and the Commissioner of 
        Internal Revenue, 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 subsections (g) 
        and (h) of section 5318 of that title.
            (2) Final rule.--Not later than 270 days after such date of 
        enactment, the Secretary of the Treasury shall publish a final 
        rule in the Federal Register on the matter described in 
        paragraph (1).
            (3) Exclusions.--Any rule promulgated under this subsection 
        shall exclude from the category of persons engaged in the 
        business of forming new corporations or other entities--
                    (A) any government agency; and
                    (B) any attorney or law firm that uses a paid 
                formation agent operating within the United States to 
                form such corporations or other entities.

SEC. 115. STRENGTHENING JOHN DOE SUMMONS PROCEEDINGS.

    (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 that 
        is held at a non-FATCA institution (as defined in section 
        7701(a)(51)).
            ``(3) Presumption in cases involving non-fatca 
        institutions.--For purposes of this section, in any case in 
        which the particular person or ascertainable group or class of 
        persons have financial accounts in or transactions related to a 
        non-FATCA institution (as defined in section 7701(a)(51)), 
        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 
                        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)(2)(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.

SEC. 116. 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) is 
amended by adding at the end the following new sentence:
        ``For purposes of subparagraph (A)(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 related statutes.''.
    (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''.

              Subtitle C--Combating Tax Shelter Promoters

SEC. 121. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

    (a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 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. 122. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

    (a) In General.--Section 6701(a) 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 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. 123. 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. 124. 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 2013 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. 125. INFORMATION SHARING FOR ENFORCEMENT PURPOSES.

    (a) Promotion of Prohibited Tax Shelters or Tax Avoidance 
Schemes.--Section 6103(h) 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) 
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 requester to evaluate the 
                accuracy of a financial statement or report, or to 
                determine whether to require a restatement, penalize, 
                or deter conduct by an issuer, investment company, or 
                public accounting firm, or associated person, in 
                connection with a potential or actual violation of 
                auditing standards or prohibitions against false or 
                misleading statements or omissions in financial 
                statements or reports. Such disclosure shall be solely 
                for use by such officers and employees in such 
                investigation, examination, or proceeding.
                    ``(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. 126. DISCLOSURE OF INFORMATION TO CONGRESS.

    (a) Disclosure by Tax Return Preparer.--
            (1) In general.--Subparagraph (B) of section 7216(b)(1) is 
        amended to read as follows:
                    ``(B) pursuant to any 1 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) 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. 127. 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.''.

        Subtitle D--Reformation of U.S. International Tax System

SEC. 131. ALLOCATION OF EXPENSES AND TAXES ON BASIS OF REPATRIATION OF 
              FOREIGN INCOME.

    (a) In General.--Part III of subchapter N of chapter 1 is amended 
by inserting after subpart G the following new subpart:

``Subpart H--Special Rules for Allocation of Foreign-Related Deductions 
                        and Foreign Tax Credits

``Sec. 975. Deductions allocated to deferred foreign income may not 
                            offset United States source income.
``Sec. 976. Amount of foreign taxes computed on overall basis.
``Sec. 977. Application of subpart.

``SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOREIGN INCOME MAY NOT 
              OFFSET UNITED STATES SOURCE INCOME.

    ``(a) Current Year Deductions.--For purposes of this chapter, 
foreign-related deductions for any taxable year--
            ``(1) shall be taken into account for such taxable year 
        only to the extent that such deductions are allocable to 
        currently-taxed foreign income, and
            ``(2) to the extent not so allowed, shall be taken into 
        account in subsequent taxable years as provided in subsection 
        (b).
Foreign-related deductions shall be allocated to currently taxed 
foreign income in the same proportion which currently taxed foreign 
income bears to the sum of currently taxed foreign income and deferred 
foreign income.
    ``(b) Deductions Related to Repatriated Deferred Foreign Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for a taxable year, the portion of the previously deferred 
        deductions allocated to the repatriated foreign income shall be 
        taken into account for the taxable year as a deduction 
        allocated to income from sources outside the United States. Any 
        such amount shall not be included in foreign-related deductions 
        for purposes of applying subsection (a) to such taxable year.
            ``(2) Portion of previously deferred deductions.--For 
        purposes of paragraph (1), the portion of the previously 
        deferred deductions allocated to repatriated foreign income 
        is--
                    ``(A) the amount which bears the same proportion to 
                such deductions, as
                    ``(B) the repatriated income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Foreign-related deductions.--The term `foreign-
        related deductions' means the total amount of deductions and 
        expenses which would be allocated or apportioned to gross 
        income from sources without the United States for the taxable 
        year if both the currently-taxed foreign income and deferred 
        foreign income were taken into account.
            ``(2) Currently-taxed foreign income.--The term `currently-
        taxed foreign income' means the amount of gross income from 
        sources without the United States for the taxable year 
        (determined without regard to repatriated foreign income for 
        such year).
            ``(3) Deferred foreign income.--The term `deferred foreign 
        income' means the excess of--
                    ``(A) the amount that would be includible in gross 
                income under subpart F of this part for the taxable 
                year if--
                            ``(i) all controlled foreign corporations 
                        were treated as one controlled foreign 
                        corporation, and
                            ``(ii) all earnings and profits of all 
                        controlled foreign corporations were subpart F 
                        income (as defined in section 952), over
                    ``(B) the sum of--
                            ``(i) all dividends received during the 
                        taxable year from controlled foreign 
                        corporations, plus
                            ``(ii) amounts includible in gross income 
                        under section 951(a).
            ``(4) Previously deferred foreign income.--The term 
        `previously deferred foreign income' means the aggregate amount 
        of deferred foreign income for all prior taxable years to which 
        this part applies, determined as of the beginning of the 
        taxable year, reduced by the repatriated foreign income for all 
        such prior taxable years.
            ``(5) Repatriated foreign income.--The term `repatriated 
        foreign income' means the amount included in gross income on 
        account of distributions out of previously deferred foreign 
        income.
            ``(6) Previously deferred deductions.--The term `previously 
        deferred deductions' means the aggregate amount of foreign-
        related deductions not taken into account under subsection (a) 
        for all prior taxable years (determined as of the beginning of 
        the taxable year), reduced by any amounts taken into account 
        under subsection (b) for such prior taxable years.
            ``(7) Treatment of certain foreign taxes.--
                    ``(A) Paid by controlled foreign corporation.--
                Section 78 shall not apply for purposes of determining 
                currently-taxed foreign income and deferred foreign 
                income.
                    ``(B) Paid by taxpayer.--For purposes of 
                determining currently-taxed foreign income, gross 
                income from sources without the United States shall be 
                reduced by the aggregate amount of taxes described in 
                the applicable paragraph of section 901(b) which are 
                paid by the taxpayer (without regard to sections 902 
                and 960) during the taxable year.
            ``(8) Coordination with section 976.--In determining 
        currently-taxed foreign income and deferred foreign income, the 
        amount of deemed foreign tax credits shall be determined with 
        regard to section 976.

``SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON OVERALL BASIS.

    ``(a) Current Year Allowance.--For purposes of this chapter, the 
amount taken into account as foreign income taxes for any taxable year 
shall be an amount which bears the same ratio to the total foreign 
income taxes for that taxable year as--
            ``(1) the currently-taxed foreign income for such taxable 
        year, bears to
            ``(2) the sum of the currently-taxed foreign income and 
        deferred foreign income for such year.
The portion of the total foreign income taxes for any taxable year not 
taken into account under the preceding sentence for a taxable year 
shall only be taken into account as provided in subsection (b) (and 
shall not be taken into account for purposes of applying sections 902 
and 960).
    ``(b) Allowance Related to Repatriated Deferred Foreign Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for any taxable year, the portion of the previously deferred 
        foreign income taxes paid or accrued during such taxable year 
        shall be taken into account for the taxable year as foreign 
        taxes paid or accrued. Any such taxes so taken into account 
        shall not be included in foreign income taxes for purposes of 
        applying subsection (a) to such taxable year.
            ``(2) Portion of previously deferred foreign income 
        taxes.--For purposes of paragraph (1), the portion of the 
        previously deferred foreign income taxes allocated to 
        repatriated deferred foreign income is--
                    ``(A) the amount which bears the same proportion to 
                such taxes, as
                    ``(B) the repatriated deferred income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Previously deferred foreign income taxes.--The term 
        `previously deferred foreign income taxes' means the aggregate 
        amount of total foreign income taxes not taken into account 
        under subsection (a) for all prior taxable years (determined as 
        of the beginning of the taxable year), reduced by any amounts 
        taken into account under subsection (b) for such prior taxable 
        years.
            ``(2) Total foreign income taxes.--The term `total foreign 
        income taxes' means the sum of foreign income taxes paid or 
        accrued during the taxable year (determined without regard to 
        section 904(c)) plus the increase in foreign income taxes that 
        would be paid or accrued during the taxable year under sections 
        902 and 960 if--
                    ``(A) all controlled foreign corporations were 
                treated as one controlled foreign corporation, and
                    ``(B) all earnings and profits of all controlled 
                foreign corporations were subpart F income (as defined 
                in section 952).
            ``(3) Foreign income taxes.--The term `foreign income 
        taxes' means any income, war profits, or excess profits taxes 
        paid by the taxpayer to any foreign country or possession of 
        the United States.
            ``(4) Currently-taxed foreign income and deferred foreign 
        income.--The terms `currently-taxed foreign income' and 
        `deferred foreign income' have the meanings given such terms by 
        section 975(c)).

``SEC. 977. APPLICATION OF SUBPART.

    ``This subpart--
            ``(1) shall be applied before subpart A, and
            ``(2) shall be applied separately with respect to the 
        categories of income specified in section 904(d)(1).''.
    (b) Clerical Amendment.--The table of subparts for part III of 
subpart N of chapter 1 is amended by inserting after the item relating 
to subpart G the following new item:

``subpart h. special rules for allocation of foreign-related deductions 
                      and foreign tax credits.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 132. EXCESS INCOME FROM TRANSFERS OF INTANGIBLES TO LOW-TAXED 
              AFFILIATES TREATED AS SUBPART F INCOME.

    (a) In General.--Subsection (a) of section 954 is amended by 
inserting after paragraph (3) the following new paragraph:
            ``(4) the foreign base company excess intangible income for 
        the taxable year (determined under subsection (f) and reduced 
        as provided in subsection (b)(5)), and''.
    (b) Foreign Base Company Excess Intangible Income.--Section 954 is 
amended by inserting after subsection (e) the following new subsection:
    ``(f) Foreign Base Company Excess Intangible Income.--For purposes 
of subsection (a)(4) and this subsection:
            ``(1) Foreign base company excess intangible income 
        defined.--
                    ``(A) In general.--The term `foreign base company 
                excess intangible income' means, with respect to any 
                covered intangible, the excess of--
                            ``(i) the sum of--
                                    ``(I) gross income from the sale, 
                                lease, license, or other disposition of 
                                property in which such covered 
                                intangible is used directly or 
                                indirectly, and
                                    ``(II) gross income from the 
                                provision of services related to such 
                                covered intangible or in connection 
                                with property in which such covered 
                                intangible is used directly or 
                                indirectly, over
                            ``(ii) 150 percent of the costs properly 
                        allocated and apportioned to the gross income 
                        taken into account under clause (i) other than 
                        expenses for interest and taxes and any 
                        expenses which are not directly allocable to 
                        such gross income.
                    ``(B) Same country income not taken into account.--
                If--
                            ``(i) the sale, lease, license, or other 
                        disposition of the property referred to in 
                        subparagraph (A)(i)(I) is for use, consumption, 
                        or disposition in the country under the laws of 
                        which the controlled foreign corporation is 
                        created or organized, or
                            ``(ii) the services referred to in 
                        subparagraph (A)(i)(II) are performed in such 
                        country,
                the gross income from such sale, lease, license, or 
                other disposition, or provision of services, shall not 
                be taken into account under subparagraph (A)(i).
            ``(2) Exception based on effective foreign income tax 
        rate.--
                    ``(A) In general.--Foreign base company excess 
                intangible income shall not include the applicable 
                percentage of any item of income received by a 
                controlled foreign corporation if the taxpayer 
                establishes to the satisfaction of the Secretary that 
                such income was subject to an effective rate of income 
                tax imposed by a foreign country in excess of 5 
                percent.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the term `applicable percentage' 
                means the ratio (expressed as a percentage), not 
                greater than 100 percent, of--
                            ``(i) the number of percentage points by 
                        which the effective rate of income tax referred 
                        to in subparagraph (A) exceeds 5 percentage 
                        points, over
                            ``(ii) 10 percentage points.
                    ``(C) Treatment of losses in determining effective 
                rate of foreign income tax.--For purposes of 
                determining the effective rate of income tax imposed by 
                any foreign country--
                            ``(i) such effective rate shall be 
                        determined without regard to any losses carried 
                        to the relevant taxable year, and
                            ``(ii) to the extent the income with 
                        respect to such intangible reduces losses in 
                        the relevant taxable year, such effective rate 
                        shall be treated as being the effective rate 
                        which would have been imposed on such income 
                        without regard to such losses.
            ``(3) Covered intangible.--The term `covered intangible' 
        means, with respect to any controlled foreign corporation, any 
        intangible property (as defined in section 936(h)(3)(B))--
                    ``(A) which is sold, leased, licensed, or otherwise 
                transferred (directly or indirectly) to such controlled 
                foreign corporation from a related person, or
                    ``(B) with respect to which such controlled foreign 
                corporation and one or more related persons has 
                (directly or indirectly) entered into any shared risk 
                or development agreement (including any cost sharing 
                agreement).
            ``(4) Related person.--The term `related person' has the 
        meaning given such term in subsection (d)(3).''.
    (c) Separate Basket for Foreign Tax Credit.--Subsection (d) of 
section 904 is amended by redesignating paragraph (7) as paragraph (8) 
and by inserting after paragraph (6) the following new paragraph:
            ``(6) Separate application to foreign base company excess 
        intangible income.--
                    ``(A) In general.--Subsections (a), (b), and (c) of 
                this section and sections 902, 907, and 960 shall be 
                applied separately with respect to each item of income 
                which is taken into account under section 954(a)(4) as 
                foreign base company excess intangible income.
                    ``(B) Regulations.--The Secretary may issue such 
                regulations or other guidance as is necessary or 
                appropriate to carry out the purposes of this 
                subsection, including regulations or other guidance 
                which provides that related items of income may be 
                aggregated for purposes of this paragraph.''.
    (d) Conforming Amendments.--
            (1) Paragraph (4) of section 954(b) is amended by inserting 
        ``foreign base company excess intangible income described in 
        subsection (a)(4) or'' before ``foreign base company oil-
        related income'' in the last sentence thereof.
            (2) Subsection (b) of section 954 is amended by adding at 
        the end the following new paragraph:
            ``(7) Foreign base company excess intangible income not 
        treated as another kind of base company income.--Income of a 
        corporation which is foreign base company excess intangible 
        income shall not be considered foreign base company income of 
        such corporation under paragraph (2), (3), or (5) of subsection 
        (a).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 133. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY 
              TRANSFERS.

    (a) Clarification of Definition of Intangible Asset.--Clause (vi) 
of section 936(h)(3)(B) is amended by inserting ``(including any 
section 197 intangible described in subparagraph (A), (B), or (C)(i) of 
subsection (d)(1) of such section)'' after ``item''.
    (b) Clarification of Allowable Valuation Methods.--
            (1) Foreign corporations.--Paragraph (2) of section 367(d) 
        is amended by adding at the end the following new subparagraph:
                    ``(D) Regulatory authority.--For purposes of the 
                last sentence of subparagraph (A), the Secretary may 
                require--
                            ``(i) the valuation of transfers of 
                        intangible property on an aggregate basis, or
                            ``(ii) the valuation of such a transfer on 
                        the basis of the realistic alternatives to such 
                        a transfer,
                in any case in which the Secretary determines that such 
                basis is the most reliable means of valuation of such 
                transfers.''.
            (2) Allocation among taxpayers.--Section 482 is amended by 
        adding at the end the following: ``For purposes of the 
        preceding sentence, the Secretary may require the valuation of 
        transfers of intangible property on an aggregate basis or the 
        valuation of such a transfer on the basis of the realistic 
        alternatives to such a transfer, in any case in which the 
        Secretary determines that such basis is the most reliable means 
        of valuation of such transfers.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transfers in taxable years beginning after the date of 
        the enactment of this Act.
            (2) No inference.--Nothing in the amendment made by 
        subsection (a) shall be construed to create any inference with 
        respect to the application of section 936(h)(3) of the Internal 
        Revenue Code of 1986, or the authority of the Secretary of the 
        Treasury to provide regulations for such application, on or 
        before the date of the enactment of such amendment.

SEC. 134. LIMITATION ON EARNINGS STRIPPING BY EXPATRIATED ENTITIES.

    (a) In General.--Subsection (j) of section 163 is amended--
            (1) by redesignating paragraph (9) as paragraph (10), and
            (2) by inserting after paragraph (8) the following new 
        paragraph:
            ``(9) Special rules for expatriated entities.--
                    ``(A) In general.--In the case of a corporation to 
                which this subsection applies which is an expatriated 
                entity, this subsection shall apply to such corporation 
                with the following modifications:
                            ``(i) Paragraph (2)(A) shall be applied 
                        without regard to clause (ii) thereof.
                            ``(ii) Paragraph (1)(B) shall be applied--
                                    ``(I) without regard to the 
                                parenthetical, and
                                    ``(II) by substituting `in the 1st 
                                succeeding taxable year and in the 2nd 
                                through 10th succeeding taxable years 
                                to the extent not previously taken into 
                                account under this subparagraph' for 
                                `in the succeeding taxable year'.
                            ``(iii) Paragraph (2)(B) shall be applied--
                                    ``(I) without regard to clauses 
                                (ii) and (iii), and
                                    ``(II) by substituting `25 percent 
                                of the adjusted taxable income of the 
                                corporation for such taxable year' for 
                                the matter of clause (i)(II) thereof.
                    ``(B) Expatriated entity.--For purposes of this 
                paragraph--
                            ``(i) In general.--With respect to a 
                        corporation and a taxable year, the term 
                        `expatriated entity' has the meaning given such 
                        term by section 7874(a)(2), determined as if 
                        such section and the regulations under such 
                        section as in effect on the first day of such 
                        taxable year applied to all taxable years of 
                        the corporation beginning after July 10, 1989.
                            ``(ii) Exception for surrogates treated as 
                        a domestic corporation.--The term `expatriated 
                        entity' does not include a surrogate foreign 
                        corporation which is treated as a domestic 
                        corporation by reason of section 7874(b).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

 TITLE II--ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS FOR STOCK OPTIONS

SEC. 201. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.

    (a) Consistent Treatment for Wage Deduction.--
            (1) In general.--Section 83(h) is amended--
                    (A) by striking ``In the case of'' and inserting:
            ``(1) In general.--In the case of'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Stock options.--In the case of property transferred 
        to a person in connection with a stock option, any deduction 
        related to such stock option shall be allowed only under 
        section 162(q) and paragraph (1) shall not apply.''.
            (2) Treatment of compensation paid with stock options.--
        Section 162 is amended by redesignating subsection (q) as 
        subsection (r) and by inserting after subsection (p) the 
        following new subsection:
    ``(q) Treatment of Compensation Paid With Stock Options.--
            ``(1) In general.--In the case of compensation for personal 
        services that is paid with stock options, the deduction under 
        subsection (a)(1) shall not exceed the amount the taxpayer has 
        treated as compensation cost with respect to such stock options 
        for the purpose of ascertaining income, profit, or loss in a 
        report or statement to shareholders, partners, or other 
        proprietors (or to beneficiaries), and shall be taken into 
        account in the same period that such compensation cost is 
        recognized for such purpose.
            ``(2) Special rules for controlled groups.--The Secretary 
        may prescribe rules for the application of paragraph (1) in 
        cases where the stock option is granted by--
                    ``(A) a parent or subsidiary corporation (within 
                the meaning of section 424) of the taxpayer, or
                    ``(B) another corporation.''.
    (b) Consistent Treatment for Research Tax Credit.--Section 
41(b)(2)(D) is amended by inserting at the end the following new 
clause:
                            ``(iv) Special rule for stock options.--The 
                        amount which may be treated as wages for any 
                        taxable year in connection with the issuance of 
                        a stock option shall not exceed the amount 
                        allowed for such taxable year as a compensation 
                        deduction under section 162(q) with respect to 
                        such stock option.''.
    (c) Application of Amendments.--The amendments made by this section 
shall apply to stock options exercised after the date of the enactment 
of this Act, except that--
            (1) such amendments shall not apply to stock options that 
        were granted before such date and that vested in taxable 
        periods beginning on or before June 15, 2005,
            (2) for stock options that were granted before such date of 
        enactment and vested during taxable periods beginning after 
        June 15, 2005, and ending before such date of enactment, a 
        deduction under section 162(q) of the Internal Revenue Code of 
        1986 (as added by subsection (a)(2)) shall be allowed in the 
        first taxable period of the taxpayer that ends after such date 
        of enactment,
            (3) for public entities reporting as small business issuers 
        and for non-public entities required to file public reports of 
        financial condition, paragraphs (1) and (2) shall be applied by 
        substituting ``December 15, 2005'' for ``June 15, 2005'', and
            (4) no deduction shall be allowed under section 83(h) or 
        section 162(q) of such Code with respect to any stock option 
        the vesting date of which is changed to accelerate the time at 
        which the option may be exercised in order to avoid the 
        applicability of such amendments.

SEC. 202. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.

    (a) In General.--Subparagraph (D) of section 162(m)(4) is amended 
to read as follows:
                    ``(D) Stock option compensation.--The term 
                `applicable employee remuneration' shall include any 
                compensation deducted under subsection (q), and such 
                compensation shall not qualify as performance-based 
                compensation under subparagraph (C).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to stock options exercised or granted after the date of the enactment 
of this Act.
                                 <all>