[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 268 Introduced in Senate (IS)]

113th CONGRESS
  1st Session
                                 S. 268

  To reduce the deficit and protect important programs by ending tax 
                               loopholes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 11, 2013

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

_______________________________________________________________________

                                 A BILL


 
  To reduce the deficit and protect important programs by ending tax 
                               loopholes.

    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 
                            significantly 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.
 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 investment 
                            advisers.
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--Ending Offshore Tax Avoidance

Sec. 121. Allocation of expenses and taxes on basis of repatriation of 
                            foreign income.
Sec. 122. Excess income from transfers of intangibles to low-taxed 
                            affiliates treated as subpart F income.
Sec. 123. Limitations on income shifting through intangible property 
                            transfers.
Sec. 124. Limitation on earnings stripping by expatriated entities.
Sec. 125. Repeal of check-the-box rules for certain foreign entities 
                            and CFC look-thru rules.
Sec. 126. Prohibition on offshore loan abuse.
                TITLE II--STRENGTHENING TAX ENFORCEMENT

              Subtitle A--Combating Tax Shelter Promotion

Sec. 201. Penalty for promoting abusive tax shelters.
Sec. 202. Penalty for aiding and abetting the understatement of tax 
                            liability.
Sec. 203. Prohibited fee arrangement.
Sec. 204. Preventing tax shelter activities by financial institutions.
Sec. 205. Information sharing for enforcement purposes.
Sec. 206. Disclosure of information to Congress.
Sec. 207. Tax opinion standards for tax practitioners.
                Subtitle B--Simplify Tax Lien Procedure

Sec. 211. Short title.
Sec. 212. Findings and purpose.
Sec. 213. National tax lien filing system.
 TITLE III--ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS FOR STOCK OPTIONS

Sec. 301. Consistent treatment of stock options by corporations.
Sec. 302. Application of executive pay deduction limit.
        TITLE IV--CLOSING THE DERIVATIVES BLENDED RATE LOOPHOLE

Sec. 401. Short title.
Sec. 402. Modifications to treatment of section 1256 contracts.
Sec. 403. Modifications to treatment of dealers in securities and 
                            commodities.
            TITLE V--ENDING THE TAR SANDS OIL SPILL LOOPHOLE

Sec. 501. Short title.
Sec. 502. Requirements for contribution to the Oil Spill Liability 
                            Trust Fund.
Sec. 503. Extension of Oil Spill Liability Trust Fund financing rate.
Sec. 504. Technical amendment.
             TITLE VI--ENDING THE CARRIED INTEREST LOOPHOLE

Sec. 601. Short title; etc.
Sec. 602. Partnership interests transferred in connection with 
                            performance of services.
Sec. 603. Special rules for partners providing investment management 
                            services to partnerships.

                  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 SIGNIFICANTLY 
              IMPEDE UNITED STATES TAX ENFORCEMENT.

    Section 5318A of title 31, United States Code, is amended--
            (1) by striking the section heading and inserting the 
        following:
``Sec. 5318A. Special measures for jurisdictions, financial 
              institutions, or international transactions that are of 
              primary money laundering concern or significantly impede 
              United States tax enforcement'';
            (2) in subsection (a), by striking the subsection heading 
        and inserting the following:
    ``(a) Special Measures To Counter Money Laundering and Efforts to 
Significantly Impede United States Tax Enforcement.--'';
            (3) in subsection (c)--
                    (A) by striking the subsection heading and 
                inserting the following:
    ``(c) Consultations and Information To Be Considered in Finding 
Jurisdictions, Institutions, Types of Accounts, or Transactions To Be 
of Primary Money Laundering Concern or To Be Significantly Impeding 
United States Tax Enforcement.--''; and
                    (B) by inserting at the end of paragraph (2) 
                thereof the following new subparagraph:
                    ``(C) Other considerations.--The fact that a 
                jurisdiction or financial institution is cooperating 
                with the United States on implementing the requirements 
                specified in chapter 4 of the Internal Revenue Code of 
                1986 may be favorably considered in evaluating whether 
                such jurisdiction or financial institution is 
                significantly impeding United States tax 
                enforcement.'';
            (4) in subsection (a)(1), by inserting ``or is 
        significantly impeding United States tax enforcement'' after 
        ``primary money laundering concern'';
            (5) in subsection (a)(4)--
                    (A) in subparagraph (A)--
                            (i) by inserting ``in matters involving 
                        money laundering,'' before ``shall consult''; 
                        and
                            (ii) by striking ``and'' at the end;
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C); and
                    (C) by inserting after subparagraph (A) the 
                following:
                    ``(B) in matters involving United States tax 
                enforcement, shall consult with the Commissioner of the 
                Internal Revenue, 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 significantly impeding 
        United States tax enforcement'' after ``primary money 
        laundering concern'' each place that term appears;
            (7) in subsection (b), by striking paragraph (5) and 
        inserting the following:
            ``(5) Prohibitions or conditions on opening or maintaining 
        certain correspondent or payable-through accounts or 
        authorizing certain payment cards.--If the Secretary finds a 
        jurisdiction outside of the United States, 1 or more financial 
        institutions operating outside of the United States, or 1 or 
        more classes of transactions within or involving a jurisdiction 
        outside of the United States to be of primary money laundering 
        concern or to be significantly impeding United States tax 
        enforcement, the Secretary, in consultation with the Secretary 
        of State, the Attorney General of the United States, and the 
        Chairman of the Board of Governors of the Federal Reserve 
        System, may prohibit, or impose conditions upon--
                    ``(A) the opening or maintaining in the United 
                States of a correspondent account or payable-through 
                account; or
                    ``(B) the authorization, approval, or use in the 
                United States of a credit card, charge card, debit 
                card, or similar credit or debit financial instrument 
                by any domestic financial institution, financial 
                agency, or credit card company or association, for or 
                on behalf of a foreign banking institution, if such 
                correspondent account, payable-through account, credit 
                card, charge card, debit card, or similar credit or 
                debit financial instrument, involves any such 
                jurisdiction or institution, or if any such transaction 
                may be conducted through such correspondent account, 
                payable-through account, credit card, charge card, 
                debit card, or similar credit or debit financial 
                instrument.''; and
            (8) in subsection (c)(1), by inserting ``or is 
        significantly impeding United States tax enforcement'' after 
        ``primary money laundering concern'';
            (9) in subsection (c)(2)(A)--
                    (A) in clause (ii), by striking ``bank secrecy or 
                special regulatory advantages'' and inserting ``bank, 
                tax, corporate, trust, or financial secrecy or 
                regulatory advantages'';
                    (B) in clause (iii), by striking ``supervisory and 
                counter-money'' and inserting ``supervisory, 
                international tax enforcement, and counter-money'';
                    (C) in clause (v), by striking ``banking or 
                secrecy'' and inserting ``banking, tax, or secrecy''; 
                and
                    (D) in clause (vi), by inserting ``, tax treaty, or 
                tax information exchange agreement'' after ``treaty'';
            (10) in subsection (c)(2)(B)--
                    (A) in clause (i), by inserting ``or tax evasion'' 
                after ``money laundering''; and
                    (B) in clause (iii), by inserting ``, tax 
                evasion,'' after ``money laundering''; and
            (11) in subsection (d), by inserting ``involving money 
        laundering, and shall notify, in writing, the Committee on 
        Finance of the Senate and the Committee on Ways and Means of 
        the House of Representatives of any such action involving 
        United States tax enforcement'' after ``such action''.

SEC. 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 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 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 of the United States (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.''.

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

SEC. 111. COUNTRY-BY-COUNTRY REPORTING.

    (a) Country-by-Country Reporting.--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:
    ``(s) Disclosure of Financial Performance on a Country-by-Country 
Basis.--
            ``(1) Definitions.--In this subsection--
                    ``(A) the term `issuer group' means the issuer, 
                each subsidiary of the issuer, and each entity under 
                the control of the issuer; and
                    ``(B) the term `country of operation' means each 
                country in which a member of the issuer group is 
                incorporated, organized, maintains employees, or 
                conducts significant business activities.
            ``(2) Rules required.--The Commission shall issue rules 
        that require each issuer to include in an annual report filed 
        by the issuer with the Commission information on a country-by-
        country basis during the covered period, consisting of--
                    ``(A) a list of each country of operation and the 
                name of each entity of the issuer group domiciled in 
                each country of operation;
                    ``(B) the number of employees physically working in 
                each country of operation;
                    ``(C) the total pre-tax gross revenues of each 
                member of the issuer group in each country of 
                operation;
                    ``(D) the total amount of payments made to 
                governments 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; and
                            ``(ii) after any tax deductions, tax 
                        credits, tax forgiveness, or other tax benefits 
                        or waivers, the total amount of tax paid from 
                        the treasury of each member of the issuer group 
                        to the government of each country of operation 
                        during the covered period; 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.--The Securities and Exchange Commission (in 
        this section referred to as the ``Commission'') shall--
                    (A) not later than 270 days after the date of 
                enactment of this Act, issue a proposed rule to carry 
                out this section and the amendment made by this 
                section; and
                    (B) not later than 1 year after the date of 
                enactment of this Act, issue a final rule to carry out 
                this section and the amendment made by this section.
            (2) Data format.--The information required to be provided 
        by this section shall be provided by the issuer in a format 
        prescribed by the Commission, and shall be made available to 
        the public online, in such format as the Commission shall 
        prescribe.
            (3) Effective date.--Subsection (s) of section 13 of the 
        Securities Exchange Act of 1934, as added by this section, 
        shall become effective 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), for each 
                        violation, the amount of the penalty shall not 
                        exceed $1,000,000 for any natural person or 
                        $10,000,000 for any other person, if--
                                    ``(I) such person directly or 
                                indirectly controlled any foreign 
                                entity, including any trust, 
                                corporation, limited liability company, 
                                partnership, or foundation through 
                                which an issuer purchased, sold, or 
                                held equity or debt instruments;
                                    ``(II) such person knowingly or 
                                recklessly failed to disclose any such 
                                holding, purchase, or sale by the 
                                issuer; and
                                    ``(III) the holding, purchase, or 
                                sale would have been otherwise subject 
                                to disclosure by the issuer or 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), for each violation, the amount of 
                the penalty shall not exceed $1,000,000 for any natural 
                person or $10,000,000 for any other person, if--
                            ``(i) such person directly or indirectly 
                        controlled any foreign entity, including any 
                        trust, corporation, limited liability company, 
                        partnership, or foundation through which an 
                        issuer purchased, sold, or held equity or debt 
                        instruments;
                            ``(ii) such person knowingly or recklessly 
                        failed to disclose any such holding, purchase, 
                        or sale by the issuer; and
                            ``(iii) the holding, purchase, or sale 
                        would have been otherwise subject to disclosure 
                        by the issuer or such person under this 
                        title.''.
    (c) 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), for each violation, the amount of 
                the penalty shall not exceed $1,000,000 for any natural 
                person or $10,000,000 for any other person, if--
                            ``(i) such person directly or indirectly 
                        controlled any foreign entity, including any 
                        trust, corporation, limited liability company, 
                        partnership, or foundation through which an 
                        issuer purchased, sold, or held equity or debt 
                        instruments;
                            ``(ii) such person knowingly or recklessly 
                        failed to disclose any such holding, purchase, 
                        or sale by the issuer; and
                            ``(iii) the holding, purchase, or sale 
                        would have been otherwise subject to disclosure 
                        by the issuer or such person under this 
                        title.''.

SEC. 113. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR INVESTMENT 
              ADVISERS.

    (a) Anti-Money Laundering Obligations for Investment Advisers.--
Section 5312(a)(2) of title 31, United States Code, is amended--
            (1) in subparagraph (Y), by striking ``or'' at the end;
            (2) by redesigning subparagraph (Z) as subparagraph (BB); 
        and
            (3) by inserting after subparagraph (Y) the following:
                    ``(Z) an investment adviser;''.
    (b) Rules Required.--The Secretary of the Treasury shall--
            (1) in consultation with the Chairman of the Securities and 
        Exchange Commission and the Chairman of the Commodity Futures 
        Trading Commission, not later than 270 days after the date of 
        enactment of this Act, publish a proposed rule in the Federal 
        Register to carry out the amendments made by this section; and
            (2) not later than 180 days after the date of enactment of 
        this Act, publish a final rule in the Federal Register on the 
        matter described in paragraph (1).
    (c) Contents.--The final rule published under this section shall 
require, at a minimum, each investment adviser (as defined in section 
202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
2(a)(11))) registered with the Securities and Exchange Commission 
pursuant to section 203 of that Act (15 U.S.C. 80b-3)--
            (1) to submit suspicious activity reports and establish an 
        anti-money laundering program under subsections (g) and (h), 
        respectively, of section 5318 of title 31, United States Code; 
        and
            (2) to comply with--
                    (A) the customer identification program 
                requirements under section 5318(l) of title 31, United 
                States Code; and
                    (B) the due diligence requirements under section 
                5318(i) 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, as amended by 
section 113 of this Act, is amended by inserting after subparagraph (Z) 
the following:
                    ``(AA) any person 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.--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--
                    (A) not later than 120 days after the date of 
                enactment of this Act, publish a proposed rule in the 
                Federal Register requiring persons described in section 
                5312(a)(2)(AA) of title 31, United States Code, as 
                added by this section, to establish anti-money 
                laundering programs under section 5318(h) of that 
                title; and
                    (B) not later than 270 days after the date of 
                enactment of this Act, publish a final rule in the 
                Federal Register on the matter described in 
                subparagraph (A).
            (2) Exclusions.--The 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--Ending Offshore Tax Avoidance

SEC. 121. 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. 122. 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. 123. 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. 124. 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.

SEC. 125. REPEAL OF CHECK-THE-BOX RULES FOR CERTAIN FOREIGN ENTITIES 
              AND CFC LOOK-THRU RULES.

    (a) Check-the-Box Rules.--Paragraph (3) of section 7701(a) is 
amended--
            (1) by striking ``and'', and
            (2) by inserting after ``insurance companies'' the 
        following: ``, and any foreign business entity that--
                    ``(A) has a single owner that does not have limited 
                liability, or
                    ``(B) has one or more members all of which have 
                limited liability''.
    (b) Look-Thru Rule.--Subparagraph (C) of section 954(c)(6) is 
amended to read as follows:
                    ``(C) Termination.--Subparagraph (A) shall not 
                apply to dividends, interest, rents, and royalties 
                received or accrued after the date of the enactment of 
                the CUT Loopholes Act.''.

SEC. 126. PROHIBITION ON OFFSHORE LOAN ABUSE.

    (a) In General.--Subpart F of part III of subchapter N of chapter 1 
is amended by adding at the end the following new section:

``SEC. 966. INCOME INCLUSION FOR LOANS TO UNITED STATES SHAREHOLDERS 
              FROM CONTROLLED FOREIGN CORPORATIONS.

    ``(a) In General.--In the case of a United States shareholder, 
there shall be included in income for the taxable year an amount equal 
to the disqualified CFC loan amount.
    ``(b) Disqualified CFC Loan Amount.--
            ``(1) In general.--For purposes of this section, the 
        disqualified CFC loan amount for any taxable year is an amount 
        equal to the lesser of--
                    ``(A) the aggregate amount of obligations of the 
                United States shareholder which originated in such 
                taxable year and are held (directly or indirectly) by 
                controlled foreign corporations, or
                    ``(B) the foreign group earnings amount.
            ``(2) Exception.--In determining the amount of obligations 
        under subparagraph (A), there shall be excluded any obligation 
        described in section 956(c)(2)(C).
            ``(3) Carryforward of certain amounts.--If, for any taxable 
        year, the amount under subparagraph (A) exceeds the amount 
        under subparagraph (B), such excess shall be taken into account 
        as an obligation to which subparagraph (A) applies for the 
        succeeding taxable year.
            ``(4) Foreign group earnings amount.--For purposes of this 
        section, the term `foreign group earnings amount' means the 
        aggregate earnings and profits of all controlled foreign 
        corporations in the worldwide affiliated group (as defined in 
        section 864(f)(1)(C)) of the United States shareholder, 
        determined--
                    ``(A) as of the last day of the taxable year of the 
                United States shareholder, and
                    ``(B) without regard to any distributions made 
                during such taxable year.
    ``(c) Denial of Interest Deduction.--No deduction shall be allowed 
for interest paid or accrued with respect to obligations taken into 
account under subsection (b).
    ``(d) Treatment of Income Source.--Any amount included in income 
under subsection (a) shall be treated as income from sources within the 
United States.''.
    (b) Coordination With Section 956.--Paragraph (2) of section 956(c) 
is amended by striking ``and'' at the end of subparagraph (K), by 
striking the period at the end of subparagraph (L)(ii) and inserting 
``; and'', and by inserting after subparagraph (L) the following new 
subparagraph:
                    ``(M) any obligation which is taken into account in 
                determining the disqualified CFC loan amount under 
                section 966.''.
    (c) Clerical Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 966. Income inclusion for loans to certain United States 
                            shareholders from controlled foreign 
                            corporations.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations originated after the date of the enactment of this 
Act.

                TITLE II--STRENGTHENING TAX ENFORCEMENT

              Subtitle A--Combating Tax Shelter Promotion

SEC. 201. 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. 202. 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. 203. 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. 204. 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 2014 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. 205. 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 and 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. 206. 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. 207. 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 B--Simplify Tax Lien Procedure

SEC. 211. SHORT TITLE.

    This subtitle may be cited as the ``Tax Lien Simplification Act''.

SEC. 212. FINDINGS AND PURPOSE.

    (a) Findings.--Congress makes the following findings:
            (1) The present decentralized system for filing Federal tax 
        liens in local property offices, which was established before 
        the advent of modern computers, the Internet, and e-government 
        programs, is inefficient, burdensome, and expensive.
            (2) Current technology permits the creation of a 
        centralized Federal tax lien filing system which can provide 
        for enhanced public notice of and access to accurate tax lien 
        information in a manner that is more efficient, more timely, 
        and less burdensome than the existing tax lien filing system; 
        which would expedite the release of liens; and which would be 
        less expensive for both taxpayers and users.
    (b) Purpose.--The purpose of this subtitle is to simplify and 
modernize the process for filing notices of Federal tax liens, to 
improve public access to tax lien information, and to save taxpayer 
dollars by establishing a nationwide, Internet accessible, and fully 
searchable filing system for Federal tax liens which would replace the 
current system of local tax lien filings.

SEC. 213. NATIONAL TAX LIEN FILING SYSTEM.

    (a) Filing of Notice of Lien.--Subsection (f) of section 6323 is 
amended to read as follows:
    ``(f) Filing of Notice; Form.--
            ``(1) Filing of notice.--The notice referred to in 
        subsection (a) shall be filed in the Federal tax lien registry 
        operated under subsection (k). The filing of a notice of lien, 
        or a certificate of release, discharge, subordination, or 
        nonattachment of lien, or a notice of withdrawal of a notice of 
        lien, in the Federal tax lien registry shall be effective for 
        purposes of determining lien priority regardless of the nature 
        or location of the property interest to which the lien 
        attaches.
            ``(2) Form.--The form and content of the notice referred to 
        in subsection (a) shall be prescribed by the Secretary. Such 
        notice shall be valid notwithstanding any other provision of 
        law regarding the form or content of a notice of lien.
            ``(3) Other national filing systems.--Once the Federal tax 
        lien registry is operational under subsection (k), the filing 
        of a notice of lien shall be governed by this title and shall 
        not be subject to any other Federal law establishing a place or 
        places for the filing of liens or encumbrances under a national 
        filing system.''.
    (b) Refiling of Notice.--Paragraph (2) of section 6323(g) is 
amended to read as follows:
            ``(2) Refiling.--A notice of lien may be refiled in the 
        Federal tax lien registry operated under subsection (k).''.
    (c) Release of Tax Liens or Discharge of Property.--
            (1) In general.--Section 6325(a) is amended by inserting 
        ``, and shall cause the certificate of release to be filed in 
        the Federal tax lien registry operated under section 6323(k),'' 
        after ``internal revenue tax''.
            (2) Release of tax liens expedited from 30 to 20 days.--
        Section 6325(a) is amended by striking ``not later than 30 
        days'' and inserting ``not later than 20 days''.
            (3) Discharge of property from lien.--Section 6325(b) is 
        amended--
                    (A) by inserting ``, and shall cause the 
                certificate of discharge to be filed in the Federal tax 
                lien registry operated under section 6323(k),'' after 
                ``under this chapter'' in paragraph (1),
                    (B) by inserting ``, and shall cause the 
                certificate of discharge to be filed in such Federal 
                tax lien registry,'' after ``property subject to the 
                lien'' in paragraph (2),
                    (C) by inserting ``, and shall cause the 
                certificate of discharge to be filed in such Federal 
                tax lien registry,'' after ``property subject to the 
                lien'' in paragraph (3), and
                    (D) by inserting ``, and shall cause the 
                certificate of discharge of property to be filed in 
                such Federal tax lien registry,'' after ``certificate 
                of discharge of such property'' in paragraph (4).
            (4) Discharge of property from estate or gift tax lien.--
        Section 6325(c) is amended by inserting ``, and shall cause the 
        certificate of discharge to be filed in the Federal tax lien 
        registry operated under section 6323(k),'' after ``imposed by 
        section 6324''.
            (5) Subordination of lien.--Section 6325(d) is amended by 
        inserting ``, and shall cause the certificate of subordination 
        to be filed in the Federal tax lien registry operated under 
        section 6323(k),'' after ``subject to such lien''.
            (6) Nonattachment of lien.--Section 6325(e) is amended by 
        inserting ``, and shall cause the certificate of nonattachment 
        to be filed in the Federal tax lien registry operated under 
        section 6323(k),'' after ``property of such person''.
            (7) Effect of certificate.--Paragraphs (1) and (2)(B) of 
        section 6325(f) are each amended by striking ``in the same 
        office as the notice of lien to which it relates is filed (if 
        such notice of lien has been filed)'' and inserting ``in the 
        Federal tax lien registry operated under section 6323(k)''.
            (8) Release following administrative appeal.--Section 
        6326(b) is amended--
                    (A) by striking ``and shall include'' and insert 
                ``, shall include'', and
                    (B) by inserting ``, and shall cause the 
                certificate of release to be filed in the Federal tax 
                lien registry operated under section 6323(k),'' after 
                ``erroneous''.
            (9) Withdrawal of notice.--Section 6323(j)(1) is amended by 
        striking ``at the same office as the withdrawn notice'' and 
        inserting ``in the Federal tax lien registry operated under 
        section 6323(k)''.
            (10) Conforming amendments.--Section 6325 is amended by 
        striking subsection (g) and by redesignating subsection (h) as 
        subsection (g).
    (d) Federal Tax Lien Registry.--Section 6323 is amended by adding 
at the end the following new subsection:
    ``(k) Federal Tax Lien Registry.--
            ``(1) In general.--The Federal tax lien registry operated 
        under this subsection shall be established and maintained by 
        the Secretary and shall be accessible to and searchable by the 
        public through the Internet at no cost to access or search. The 
        registry shall identify the taxpayer to whom the Federal tax 
        lien applies and reflect the date and time the notice of lien 
        was filed, and shall be made searchable by, at a minimum, 
        taxpayer name, the State of the taxpayer's address as shown on 
        the notice of lien, the type of tax, and the tax period. The 
        registry shall also provide for the filing of certificates of 
        release, discharge, subordination, and nonattachment of Federal 
        tax liens, as authorized in sections 6325 and 6326, and may 
        provide for publishing such other documents or information with 
        respect to Federal tax liens as the Secretary may by regulation 
        provide under paragraph (2)(C).
            ``(2) Administrative action.--
                    ``(A) In general.--The Secretary shall issue 
                regulations or other guidance providing for the 
                maintenance, reliability, accessibility, and use of the 
                Federal tax lien registry established under paragraph 
                (1). Such regulations or guidance shall address, among 
                other matters, issues related to periods during which 
                the registry may be unavailable for use due to routine 
                maintenance or other activities.
                    ``(B) Fees.--The Secretary may charge a taxpayer's 
                account with a reasonable filing fee for each notice of 
                lien and each related certificate, notice, or other 
                filing recorded in the Federal tax lien registry with 
                respect to such taxpayer, in an amount determined by 
                the Secretary to be sufficient to defray the costs of 
                operating the registry. The Secretary may also charge a 
                reasonable fee to any person who requests and receives 
                under section 6323(d)(1) information or a certified 
                copy of a filing in the Federal tax lien registry to 
                defray the costs of providing such information or 
                copies.
                    ``(C) Filing of other items on registry.--The 
                Secretary may, by regulation, provide for the filing of 
                items on the registry other than Federal tax liens, 
                including criminal fine judgments under section 3613 of 
                title 18, United States Code, and civil judgments under 
                section 3201 of such title, if the Secretary determines 
                that it would be useful and appropriate to do so.''.
    (e) Certified Copies of Information From Registry.--Section 6323, 
as amended by subsection (d), is amended by adding at the end the 
following new subsection:
    ``(l) Certified Copies of Information From Federal Registry.--The 
Secretary shall make available in a certificate that can be admitted 
into evidence in the courts of the United States without extrinsic 
evidence of its authenticity the following information to any person 
that submits a request in a form specified by the Secretary:
            ``(1) Whether there is on file in the Federal tax lien 
        registry operated under subsection (k) at a date and time 
        specified by the Secretary, but not a date earlier than 3 days 
        before the creation of the certificate, any notice of a lien 
        that--
                    ``(A) designates a particular taxpayer,
                    ``(B) has not been fully satisfied, become legally 
                unenforceable, or been released or withdrawn, and
                    ``(C) if the request so states, has been fully 
                satisfied, become legally unenforceable, or been 
                released or withdrawn, and a record of which is 
                maintained on the registry at the time of filing of the 
                request,
            ``(2) the date and time of filing of and the information 
        provided in each notice of lien, and
            ``(3) if the request so states, the date and time of filing 
        of and the information provided in each certificate of release, 
        discharge, subordination, or non-attachment and each notice of 
        withdrawal recorded in the registry with respect to each notice 
        of lien.''.
    (f) Effective Date; Implementation of Registry.--
            (1) Effective date.--The amendments made by this section 
        shall take effect on the date determined by the Secretary of 
        the Treasury under paragraph (2)(E) and, except as provided in 
        paragraph (2)(F), shall apply to notices of liens filed after 
        such date.
            (2) Implementation of federal tax lien registry.--
                    (A) Pilot project.--Prior to the implementation of 
                the Federal tax lien registry under section 6323(k)(1) 
                of the Internal Revenue Code of 1986 (as added by this 
                section), the Secretary of the Treasury, or the 
                Secretary's delegate, shall conduct and shall complete 
                by not later than 2 years after the date of the 
                enactment of this Act 1 or more pilot projects to test 
                the accessibility, reliability, and effectiveness of 
                the electronic systems designed to operate the 
                registry.
                    (B) GAO review.--Within 3 months after the 
                completion of such a pilot project, the Government 
                Accountability Office shall provide a written 
                evaluation of the project results and provide such 
                evaluation to the Secretary of the Treasury, the 
                Commissioner of Internal Revenue, and appropriate 
                committees in Congress. The Secretary and Commissioner 
                shall cooperate with, and provide information requested 
                by, the Government Accountability Office to enable the 
                evaluation to be completed by the date specified.
                    (C) Nationwide test.--Upon the completion of 1 or 
                more such pilot projects and after making a 
                determination that the electronic systems designed to 
                operate the Federal tax lien registry are sufficiently 
                accessible, reliable, and effective, the Secretary of 
                the Treasury, or the Secretary's delegate, shall 
                conduct a nationwide test of the Federal tax lien 
                registry to evaluate its capabilities and 
                functionality.
                    (D) Data protection.--Prior to the implementation 
                of such registry, the Secretary of the Treasury, or the 
                Secretary's delegate, shall take appropriate steps to--
                            (i) secure and prevent tampering with the 
                        data recorded in the registry,
                            (ii) review the information currently 
                        provided in public lien filings and determine 
                        whether any such information should be excluded 
                        or protected from public viewing in such 
                        registry, and
                            (iii) develop a system, after consultation 
                        with the States, industry, and other interested 
                        parties, and after consideration of search 
                        criteria developed for other public filing 
                        systems including Article 9 of the Uniform 
                        Commercial Code, that will enable users of the 
                        registry, when examining tax lien information 
                        for a taxpayer with a common name, to identify 
                        through reasonable efforts the specific person 
                        to whom such tax lien relates.
                    (E) Declaration of registry effective date.--Upon 
                the successful completion of a nationwide test of the 
                Federal tax lien registry system, the Secretary of the 
                Treasury shall determine and announce publicly a date 
                upon which the registry shall take effect and become 
                operational.
                    (F) Orderly transition.--In order to permit an 
                orderly transition to the Federal tax lien registry, 
                the Secretary of the Treasury may by regulation 
                prescribe for the continued filing of notices of 
                Federal tax liens in the offices of the States, 
                counties, and other governmental subdivisions after the 
                determination of an effective date under subparagraph 
                (E) under the provisions of section 6323(f) as in 
                effect before such effective date, for an appropriate 
                period not to exceed 2 years after such effective date.

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

SEC. 301. 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. 302. 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.

        TITLE IV--CLOSING THE DERIVATIVES BLENDED RATE LOOPHOLE

SEC. 401. SHORT TITLE.

    This title may be cited as the ``Closing the Derivatives Blended 
Rate Loophole Act''.

SEC. 402. MODIFICATIONS TO TREATMENT OF SECTION 1256 CONTRACTS.

    (a) Elimination of Blended Capital Gain or Loss Treatment in Favor 
of Short-Term Capital Gain or Loss.--
            (1) In general.--Paragraph (3) of section 1256(a) is 
        amended to read as follows:
            ``(3) any gain or loss with respect to a section 1256 
        contract shall be treated as short-term capital gain or loss, 
        and''.
            (2) Conforming amendments.--Subsection (f) of section 1256 
        is amended by striking paragraphs (2), (3), and (4) and by 
        redesignating paragraph (5) as paragraph (2).
    (b) Conforming Amendments.--
            (1) Clause (iv) of section 988(c)(1)(E) is amended to read 
        as follows:
                            ``(iv) Treatment of certain currency 
                        contracts.--Except as provided in regulations, 
                        in the case of a qualified fund, any bank 
                        forward contract, any foreign currency futures 
                        contract traded on a foreign exchange, or to 
                        the extent provided in regulations any similar 
                        instrument, which is not otherwise a section 
                        1256 contract shall be treated as a section 
                        1256 contract for purposes of section 1256.''.
            (2) Subparagraph (A) of section 1212(c)(1) is amended by 
        striking ``preceding taxable year'' and all that follows and 
        inserting ``preceding taxable year, the amount so allowed shall 
        be treated as short-term capital loss from section 1256 
        contracts.''.
            (3) Subparagraph (A) of section 1212(c)(6) is amended by 
        striking ``preceding taxable year'' and all that follows and 
        inserting ``preceding taxable year, the amount allowed as a 
        carryback shall be treated as short-term gain for the loss 
        year.''.
            (4) Subparagraph (B) of section 1212(c)(6) is amended by 
        striking ``or long-term''.
            (5) Subsection (f) of section 1256 is amended by striking 
        paragraphs (3) and (4) and by redesignating paragraph (5) as 
        paragraph (3).
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after the date of the enactment of this Act.
            (2) Conforming amendments.--The amendments made by 
        paragraphs (2), (3), and (4) of subsection (b) shall apply to 
        losses for taxable years beginning after the date of the 
        enactment of this Act.

SEC. 403. MODIFICATIONS TO TREATMENT OF DEALERS IN SECURITIES AND 
              COMMODITIES.

    (a) Modification of Definition of Security.--Paragraph (2) of 
section 475(c) is amended by striking the second sentence.
    (b) Required Mark to Market for Dealers in Commodities.--Subsection 
(e) of section 475 is amended--
            (1) by striking ``In the case of a dealer in commodities 
        who elects the application of this subsection, this section 
        shall apply to commodities held by such dealer'' in paragraph 
        (1) and inserting ``This section shall apply to commodities 
        held by a dealer in commodities'', and
            (2) by striking paragraph (3).
    (c) Commodities Derivatives Dealers.--Clause (i) of section 
1221(b)(1)(B) is amended by striking ``a note, bond, or other evidence 
of indebtedness, or a section 1256 contract (as defined in section 
1256(b))'' and inserting ``or a note, bond, or other evidence of 
indebtedness)''.
    (d) Technical Amendment.--Paragraph (1) of section 1402(i) is 
amended by striking ``subsection (a)(3)(A)'' and inserting ``subsection 
(a)(3)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

            TITLE V--ENDING THE TAR SANDS OIL SPILL LOOPHOLE

SEC. 501. SHORT TITLE.

    This title may be cited as the ``Closing the Oil Spill Cleanup 
Loophole Act''.

SEC. 502. REQUIREMENTS FOR CONTRIBUTION TO THE OIL SPILL LIABILITY 
              TRUST FUND.

    (a) In General.--Paragraph (1) of section 4612(a) is amended to 
read as follows:
            ``(1) Crude oil.--The term `crude oil' includes crude oil 
        condensates, natural gasoline, shale oil, any bitumen or 
        bituminous mixture, any oil derived from a bitumen or 
        bituminous mixture, and any oil derived from kerogen-bearing 
        sources.''.
    (b) Regulatory Authority To Address Other Types of Crude Oil and 
Petroleum Products.--Subsection (a) of section 4612 is amended by 
adding at the end the following new paragraph:
            ``(10) Regulatory authority to address other types of crude 
        oil and petroleum products.--Under such regulations as the 
        Secretary may prescribe, after consultation with the 
        Administrator of the Environmental Protection Agency, the 
        Secretary may include as crude oil or as a petroleum product 
        subject to tax under section 4611, any fuel feedstock or 
        finished fuel product customarily transported by pipeline, 
        vessel, railcar, or tanker truck if the Secretary determines 
        that--
                    ``(A) the classification of such fuel feedstock or 
                finished fuel product is consistent with the definition 
                of oil under the Oil Pollution Act of 1990, and
                    ``(B) such fuel feedstock or finished fuel product 
                is produced in sufficient commercial quantities as to 
                pose a significant risk of hazard in the event of a 
                discharge.''.
    (c) Removing Restrictions Relating to Oil Wells and Extraction 
Methods.--Paragraph (2) of section 4612(a) is amended by striking 
``from a well located''.
    (d) Effective Date.--The amendments made by this section shall 
apply to oil and petroleum products received or entered during calendar 
quarters beginning more than 60 days after the date of the enactment of 
this Act, regardless of whether the Secretary of the Treasury has 
promulgated regulations implementing such amendments.

SEC. 503. EXTENSION OF OIL SPILL LIABILITY TRUST FUND FINANCING RATE.

    Section 4611 is amended by striking subsection (f).

SEC. 504. TECHNICAL AMENDMENT.

    Subclause (I) of section 4612(e)(2)(B)(ii) is amended by striking 
``tranferred'' and inserting ``transferred''.

             TITLE VI--ENDING THE CARRIED INTEREST LOOPHOLE

SEC. 601. SHORT TITLE; ETC.

    This title may be cited as the ``Carried Interest Fairness Act of 
2012''.

SEC. 602. PARTNERSHIP INTERESTS TRANSFERRED IN CONNECTION WITH 
              PERFORMANCE OF SERVICES.

    (a) Modification to Election To Include Partnership Interest in 
Gross Income in Year of Transfer.--Subsection (c) of section 83 is 
amended by redesignating paragraph (4) as paragraph (5) and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) Partnership interests.--Except as provided by the 
        Secretary--
                    ``(A) In general.--In the case of any transfer of 
                an interest in a partnership in connection with the 
                provision of services to (or for the benefit of) such 
                partnership--
                            ``(i) the fair market value of such 
                        interest shall be treated for purposes of this 
                        section as being equal to the amount of the 
                        distribution which the partner would receive if 
                        the partnership sold (at the time of the 
                        transfer) all of its assets at fair market 
                        value and distributed the proceeds of such sale 
                        (reduced by the liabilities of the partnership) 
                        to its partners in liquidation of the 
                        partnership, and
                            ``(ii) the person receiving such interest 
                        shall be treated as having made the election 
                        under subsection (b)(1) unless such person 
                        makes an election under this paragraph to have 
                        such subsection not apply.
                    ``(B) Election.--The election under subparagraph 
                (A)(ii) shall be made under rules similar to the rules 
                of subsection (b)(2).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to interests in partnerships transferred after the date of the 
enactment of this Act.

SEC. 603. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIPS.

    (a) In General.--Part I of subchapter K of chapter 1 is amended by 
adding at the end the following new section:

``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIPS.

    ``(a) Treatment of Distributive Share of Partnership Items.--For 
purposes of this title, in the case of an investment services 
partnership interest--
            ``(1) In general.--Notwithstanding section 702(b)--
                    ``(A) an amount equal to the net capital gain with 
                respect to such interest for any partnership taxable 
                year shall be treated as ordinary income, and
                    ``(B) subject to the limitation of paragraph (2), 
                an amount equal to the net capital loss with respect to 
                such interest for any partnership taxable year shall be 
                treated as an ordinary loss.
            ``(2) Recharacterization of losses limited to 
        recharacterized gains.--The amount treated as ordinary loss 
        under paragraph (1)(B) for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the aggregate amount treated as ordinary 
                income under paragraph (1)(A) with respect to the 
                investment services partnership interest for all 
                preceding partnership taxable years to which this 
                section applies, over
                    ``(B) the aggregate amount treated as ordinary loss 
                under paragraph (1)(B) with respect to such interest 
                for all preceding partnership taxable years to which 
                this section applies.
            ``(3) Allocation to items of gain and loss.--
                    ``(A) Net capital gain.--The amount treated as 
                ordinary income under paragraph (1)(A) shall be 
                allocated ratably among the items of long-term capital 
                gain taken into account in determining such net capital 
                gain.
                    ``(B) Net capital loss.--The amount treated as 
                ordinary loss under paragraph (1)(B) shall be allocated 
                ratably among the items of long-term capital loss and 
                short-term capital loss taken into account in 
                determining such net capital loss.
            ``(4) Terms relating to capital gains and losses.--For 
        purposes of this section--
                    ``(A) In general.--Net capital gain, long-term 
                capital gain, and long-term capital loss, with respect 
                to any investment services partnership interest for any 
                taxable year, shall be determined under section 1222, 
                except that such section shall be applied--
                            ``(i) without regard to the 
                        recharacterization of any item as ordinary 
                        income or ordinary loss under this section,
                            ``(ii) by only taking into account items of 
                        gain and loss taken into account by the holder 
                        of such interest under section 702 with respect 
                        to such interest for such taxable year, and
                            ``(iii) by treating property which is taken 
                        into account in determining gains and losses to 
                        which section 1231 applies as capital assets 
                        held for more than 1 year.
                    ``(B) Net capital loss.--The term `net capital 
                loss' means the excess of the losses from sales or 
                exchanges of capital assets over the gains from such 
                sales or exchanges. Rules similar to the rules of 
                clauses (i) through (iii) of subparagraph (A) shall 
                apply for purposes of the preceding sentence.
            ``(5) Special rules for dividends.--
                    ``(A) Individuals.--Any dividend allocated to any 
                investment services partnership interest shall not be 
                treated as qualified dividend income for purposes of 
                section 1(h).
                    ``(B) Corporations.--No deduction shall be allowed 
                under section 243 or 245 with respect to any dividend 
                allocated to any investment services partnership 
                interest.
            ``(6) Special rule for qualified small business stock.--
        Section 1202 shall not apply to any gain from the sale or 
        exchange of qualified small business stock (as defined in 
        section 1202(c)) allocated with respect to any investment 
        services partnership interest.
    ``(b) Dispositions of Partnership Interests.--
            ``(1) Gain.--
                    ``(A) In general.--Any gain on the disposition of 
                an investment services partnership interest shall be--
                            ``(i) treated as ordinary income, and
                            ``(ii) recognized notwithstanding any other 
                        provision of this subtitle.
                    ``(B) Gift and transfers at death.--In the case of 
                a disposition of an investment services partnership 
                interest by gift or by reason of death of the 
                taxpayer--
                            ``(i) subparagraph (A) shall not apply,
                            ``(ii) such interest shall be treated as an 
                        investment services partnership interest in the 
                        hands of the person acquiring such interest, 
                        and
                            ``(iii) any amount that would have been 
                        treated as ordinary income under this 
                        subsection had the decedent sold such interest 
                        immediately before death shall be treated as an 
                        item of income in respect of a decedent under 
                        section 691.
            ``(2) Loss.--Any loss on the disposition of an investment 
        services partnership interest shall be treated as an ordinary 
        loss to the extent of the excess (if any) of--
                    ``(A) the aggregate amount treated as ordinary 
                income under subsection (a) with respect to such 
                interest for all partnership taxable years to which 
                this section applies, over
                    ``(B) the aggregate amount treated as ordinary loss 
                under subsection (a) with respect to such interest for 
                all partnership taxable years to which this section 
                applies.
            ``(3) Election with respect to certain exchanges.--
        Paragraph (1)(A)(ii) shall not apply to the contribution of an 
        investment services partnership interest to a partnership in 
        exchange for an interest in such partnership if--
                    ``(A) the taxpayer makes an irrevocable election to 
                treat the partnership interest received in the exchange 
                as an investment services partnership interest, and
                    ``(B) the taxpayer agrees to comply with such 
                reporting and recordkeeping requirements as the 
                Secretary may prescribe.
            ``(4) Distributions of partnership property.--
                    ``(A) In general.--In the case of any distribution 
                of property by a partnership with respect to any 
                investment services partnership interest held by a 
                partner, the partner receiving such property shall 
                recognize gain equal to the excess (if any) of--
                            ``(i) the fair market value of such 
                        property at the time of such distribution, over
                            ``(ii) the adjusted basis of such property 
                        in the hands of such partner (determined 
                        without regard to subparagraph (C)).
                    ``(B) Treatment of gain as ordinary income.--Any 
                gain recognized by such partner under subparagraph (A) 
                shall be treated as ordinary income to the same extent 
                and in the same manner as the increase in such 
                partner's distributive share of the taxable income of 
                the partnership would be treated under subsection (a) 
                if, immediately prior to the distribution, the 
                partnership had sold the distributed property at fair 
                market value and all of the gain from such disposition 
                were allocated to such partner. For purposes of 
                applying subsection (a)(2), any gain treated as 
                ordinary income under this subparagraph shall be 
                treated as an amount treated as ordinary income under 
                subsection (a)(1)(A).
                    ``(C) Adjustment of basis.--In the case a 
                distribution to which subparagraph (A) applies, the 
                basis of the distributed property in the hands of the 
                distributee partner shall be the fair market value of 
                such property.
                    ``(D) Special rules with respect to mergers, 
                divisions, and technical terminations.--In the case of 
                a taxpayer which satisfies requirements similar to the 
                requirements of subparagraphs (A) and (B) of paragraph 
                (3), this paragraph and paragraph (1)(A)(ii) shall not 
                apply to the distribution of a partnership interest if 
                such distribution is in connection with a contribution 
                (or deemed contribution) of any property of the 
                partnership to which section 721 applies pursuant to a 
                transaction described in paragraph (1)(B) or (2) of 
                section 708(b).
    ``(c) Investment Services Partnership Interest.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' means any interest in an investment 
        partnership acquired or held by any person in connection with 
        the conduct of a trade or business described in paragraph (2) 
        by such person (or any person related to such person). An 
        interest in an investment partnership held by any person--
                    ``(A) shall not be treated as an investment 
                services partnership interest for any period before the 
                first date on which it is so held in connection with 
                such a trade or business,
                    ``(B) shall not cease to be an investment services 
                partnership interest merely because such person holds 
                such interest other than in connection with such a 
                trade or business, and
                    ``(C) shall be treated as an investment services 
                partnership interest if acquired from a related person 
                in whose hands such interest was an investment services 
                partnership interest.
            ``(2) Businesses to which this section applies.--A trade or 
        business is described in this paragraph if such trade or 
        business primarily involves the performance of any of the 
        following services with respect to assets held (directly or 
        indirectly) by the investment partnership referred to in 
        paragraph (1):
                    ``(A) Advising as to the advisability of investing 
                in, purchasing, or selling any specified asset.
                    ``(B) Managing, acquiring, or disposing of any 
                specified asset.
                    ``(C) Arranging financing with respect to acquiring 
                specified assets.
                    ``(D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
            ``(3) Investment partnership.--
                    ``(A) In general.--The term `investment 
                partnership' means any partnership if, at the end of 
                any calendar quarter ending after the date of enactment 
                of this section--
                            ``(i) substantially all of the assets of 
                        the partnership are specified assets 
                        (determined without regard to any section 197 
                        intangible within the meaning of section 
                        197(d)), and
                            ``(ii) more than half of the capital of the 
                        partnership is attributable to qualified 
                        capital interests which (in the hands of the 
                        owners of such interests) constitute property 
                        not held in connection with a trade or 
                        business.
                    ``(B) Special rules for determining if property not 
                held in connection with trade or business.--Except as 
                otherwise provided by the Secretary, for purposes of 
                determining whether any interest in a partnership 
                constitutes property not held in connection with a 
                trade or business under subparagraph (A)(ii)--
                            ``(i) any election under subsection (e) or 
                        (f) of section 475 shall be disregarded, and
                            ``(ii) paragraph (5)(B) shall not apply.
                    ``(C) Antiabuse rules.--The Secretary may issue 
                regulations or other guidance which prevent the 
                avoidance of the purposes of subparagraph (A), 
                including regulations or other guidance which treat 
                convertible and contingent debt (and other debt having 
                the attributes of equity) as a capital interest in the 
                partnership.
                    ``(D) Controlled groups of entities.--
                            ``(i) In general.--In the case of a 
                        controlled group of entities, if an interest in 
                        the partnership received in exchange for a 
                        contribution to the capital of the partnership 
                        by any member of such controlled group would 
                        (in the hands of such member) constitute 
                        property held in connection with a trade or 
                        business, then any interest in such partnership 
                        held by any member of such group shall be 
                        treated for purposes of subparagraph (A) as 
                        constituting (in the hands of such member) 
                        property held in connection with a trade or 
                        business.
                            ``(ii) Controlled group of entities.--For 
                        purposes of clause (i), the term `controlled 
                        group of entities' means a controlled group of 
                        corporations as defined in section 1563(a)(1), 
                        applied without regard to subsections (a)(4) 
                        and (b)(2) of section 1563. A partnership or 
                        any other entity (other than a corporation) 
                        shall be treated as a member of a controlled 
                        group of entities if such entity is controlled 
                        (within the meaning of section 954(d)(3)) by 
                        members of such group (including any entity 
                        treated as a member of such group by reason of 
                        this sentence).
                    ``(E) Special rule for corporations.--For purposes 
                of this paragraph, in the case of a corporation, the 
                determination of whether property is held in connection 
                with a trade or business shall be determined as if the 
                taxpayer were an individual.
            ``(4) Specified asset.--The term `specified asset' means 
        securities (as defined in section 475(c)(2) without regard to 
        the last sentence thereof), real estate held for rental or 
        investment, interests in partnerships, commodities (as defined 
        in section 475(e)(2)), cash or cash equivalents, or options or 
        derivative contracts with respect to any of the foregoing.
            ``(5) Related persons.--
                    ``(A) In general.--A person shall be treated as 
                related to another person if the relationship between 
                such persons is described in section 267(b) or 707(b).
                    ``(B) Attribution of partner services.--Any service 
                described in paragraph (2) which is provided by a 
                partner of a partnership shall be treated as also 
                provided by such partnership.
    ``(d) Exception for Certain Capital Interests.--
            ``(1) In general.--In the case of any portion of an 
        investment services partnership interest which is a qualified 
        capital interest, all items of gain and loss (and any 
        dividends) which are allocated to such qualified capital 
        interest shall not be taken into account under subsection (a) 
        if--
                    ``(A) allocations of items are made by the 
                partnership to such qualified capital interest in the 
                same manner as such allocations are made to other 
                qualified capital interests held by partners who do not 
                provide any services described in subsection (c)(2) and 
                who are not related to the partner holding the 
                qualified capital interest, and
                    ``(B) the allocations made to such other interests 
                are significant compared to the allocations made to 
                such qualified capital interest.
            ``(2) Authority to provide exceptions to allocation 
        requirements.--To the extent provided by the Secretary in 
        regulations or other guidance--
                    ``(A) Allocations to portion of qualified capital 
                interest.--Paragraph (1) may be applied separately with 
                respect to a portion of a qualified capital interest.
                    ``(B) No or insignificant allocations to nonservice 
                providers.--In any case in which the requirements of 
                paragraph (1)(B) are not satisfied, items of gain and 
                loss (and any dividends) shall not be taken into 
                account under subsection (a) to the extent that such 
                items are properly allocable under such regulations or 
                other guidance to qualified capital interests.
                    ``(C) Allocations to service providers' qualified 
                capital interests which are less than other 
                allocations.--Allocations shall not be treated as 
                failing to meet the requirement of paragraph (1)(A) 
                merely because the allocations to the qualified capital 
                interest represent a lower return than the allocations 
                made to the other qualified capital interests referred 
                to in such paragraph.
            ``(3) Special rule for changes in services and capital 
        contributions.--In the case of an interest in a partnership 
        which was not an investment services partnership interest and 
        which, by reason of a change in the services with respect to 
        assets held (directly or indirectly) by the partnership or by 
        reason of a change in the capital contributions to such 
        partnership, becomes an investment services partnership 
        interest, the qualified capital interest of the holder of such 
        partnership interest immediately after such change shall not, 
        for purposes of this subsection, be less than the fair market 
        value of such interest (determined immediately before such 
        change).
            ``(4) Special rule for tiered partnerships.--Except as 
        otherwise provided by the Secretary, in the case of tiered 
        partnerships, all items which are allocated in a manner which 
        meets the requirements of paragraph (1) to qualified capital 
        interests in a lower-tier partnership shall retain such 
        character to the extent allocated on the basis of qualified 
        capital interests in any upper-tier partnership.
            ``(5) Exception for no-self-charged carry and management 
        fee provisions.--Except as otherwise provided by the Secretary, 
        an interest shall not fail to be treated as satisfying the 
        requirement of paragraph (1)(A) merely because the allocations 
        made by the partnership to such interest do not reflect the 
        cost of services described in subsection (c)(2) which are 
        provided (directly or indirectly) to the partnership by the 
        holder of such interest (or a related person).
            ``(6) Special rule for dispositions.--In the case of any 
        investment services partnership interest any portion of which 
        is a qualified capital interest, subsection (b) shall not apply 
        to so much of any gain or loss as bears the same proportion to 
        the entire amount of such gain or loss as--
                    ``(A) the distributive share of gain or loss that 
                would have been allocated to the qualified capital 
                interest (consistent with the requirements of paragraph 
                (1)) if the partnership had sold all of its assets at 
                fair market value immediately before the disposition, 
                bears to
                    ``(B) the distributive share of gain or loss that 
                would have been so allocated to the investment services 
                partnership interest of which such qualified capital 
                interest is a part.
            ``(7) Qualified capital interest.--For purposes of this 
        section--
                    ``(A) In general.--The term `qualified capital 
                interest' means so much of a partner's interest in the 
                capital of the partnership as is attributable to--
                            ``(i) the fair market value of any money or 
                        other property contributed to the partnership 
                        in exchange for such interest (determined 
                        without regard to section 752(a)),
                            ``(ii) any amounts which have been included 
                        in gross income under section 83 with respect 
                        to the transfer of such interest, and
                            ``(iii) the excess (if any) of--
                                    ``(I) any items of income and gain 
                                taken into account under section 702 
                                with respect to such interest, over
                                    ``(II) any items of deduction and 
                                loss so taken into account.
                    ``(B) Adjustment to qualified capital interest.--
                            ``(i) Distributions and losses.--The 
                        qualified capital interest shall be reduced by 
                        distributions from the partnership with respect 
                        to such interest and by the excess (if any) of 
                        the amount described in subparagraph 
                        (A)(iii)(II) over the amount described in 
                        subparagraph (A)(iii)(I).
                            ``(ii) Special rule for contributions of 
                        property.--In the case of any contribution of 
                        property described in subparagraph (A)(i) with 
                        respect to which the fair market value of such 
                        property is not equal to the adjusted basis of 
                        such property immediately before such 
                        contribution, proper adjustments shall be made 
                        to the qualified capital interest to take into 
                        account such difference consistent with such 
                        regulations or other guidance as the Secretary 
                        may provide.
                    ``(C) Technical terminations, etc., disregarded.--
                No increase or decrease in the qualified capital 
                interest of any partner shall result from a 
                termination, merger, consolidation, or division 
                described in section 708, or any similar transaction.
            ``(8) Treatment of certain loans.--
                    ``(A) Proceeds of partnership loans not treated as 
                qualified capital interest of service providing 
                partners.--For purposes of this subsection, an 
                investment services partnership interest shall not be 
                treated as a qualified capital interest to the extent 
                that such interest is acquired in connection with the 
                proceeds of any loan or other advance made or 
                guaranteed, directly or indirectly, by any other 
                partner or the partnership (or any person related to 
                any such other partner or the partnership). The 
                preceding sentence shall not apply to the extent the 
                loan or other advance is repaid before the date of the 
                enactment of this section unless such repayment is made 
                with the proceeds of a loan or other advance described 
                in the preceding sentence.
                    ``(B) Reduction in allocations to qualified capital 
                interests for loans from nonservice-providing partners 
                to the partnership.--For purposes of this subsection, 
                any loan or other advance to the partnership made or 
                guaranteed, directly or indirectly, by a partner not 
                providing services described in subsection (c)(2) to 
                the partnership (or any person related to such partner) 
                shall be taken into account in determining the 
                qualified capital interests of the partners in the 
                partnership.
    ``(e) Other Income and Gain in Connection With Investment 
Management Services.--
            ``(1) In general.--If--
                    ``(A) a person performs (directly or indirectly) 
                investment management services for any investment 
                entity,
                    ``(B) such person holds (directly or indirectly) a 
                disqualified interest with respect to such entity, and
                    ``(C) the value of such interest (or payments 
                thereunder) is substantially related to the amount of 
                income or gain (whether or not realized) from the 
                assets with respect to which the investment management 
                services are performed,
        any income or gain with respect to such interest shall be 
        treated as ordinary income. Rules similar to the rules of 
        subsections (a)(5) and (d) shall apply for purposes of this 
        subsection.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Disqualified interest.--
                            ``(i) In general.--The term `disqualified 
                        interest' means, with respect to any investment 
                        entity--
                                    ``(I) any interest in such entity 
                                other than indebtedness,
                                    ``(II) convertible or contingent 
                                debt of such entity,
                                    ``(III) any option or other right 
                                to acquire property described in 
                                subclause (I) or (II), and
                                    ``(IV) any derivative instrument 
                                entered into (directly or indirectly) 
                                with such entity or any investor in 
                                such entity.
                            ``(ii) Exceptions.--Such term shall not 
                        include--
                                    ``(I) a partnership interest,
                                    ``(II) except as provided by the 
                                Secretary, any interest in a taxable 
                                corporation, and
                                    ``(III) except as provided by the 
                                Secretary, stock in an S corporation.
                    ``(B) Taxable corporation.--The term `taxable 
                corporation' means--
                            ``(i) a domestic C corporation, or
                            ``(ii) a foreign corporation substantially 
                        all of the income of which is--
                                    ``(I) effectively connected with 
                                the conduct of a trade or business in 
                                the United States, or
                                    ``(II) subject to a comprehensive 
                                foreign income tax (as defined in 
                                section 457A(d)(2)).
                    ``(C) Investment management services.--The term 
                `investment management services' means a substantial 
                quantity of any of the services described in subsection 
                (c)(2).
                    ``(D) Investment entity.--The term `investment 
                entity' means any entity which, if it were a 
                partnership, would be an investment partnership.
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as is necessary or appropriate to carry out the 
purposes of this section, including regulations or other guidance to--
            ``(1) provide modifications to the application of this 
        section (including treating related persons as not related to 
        one another) to the extent such modification is consistent with 
        the purposes of this section,
            ``(2) prevent the avoidance of the purposes of this 
        section, and
            ``(3) coordinate this section with the other provisions of 
        this title.
    ``(g) Cross-Reference.--For 40 percent penalty on certain 
underpayments due to the avoidance of this section, see section 
6662.''.
    (b) Application of Section 751 to Indirect Dispositions of 
Investment Services Partnership Interests.--
            (1) In general.--Subsection (a) of section 751 is amended 
        by striking ``or'' at the end of paragraph (1), by inserting 
        ``or'' at the end of paragraph (2), and by inserting after 
        paragraph (2) the following new paragraph:
            ``(3) investment services partnership interests held by the 
        partnership,''.
            (2) Certain distributions treated as sales or exchanges.--
        Subparagraph (A) of section 751(b)(1) is amended by striking 
        ``or'' at the end of clause (i), by inserting ``or'' at the end 
        of clause (ii), and by inserting after clause (ii) the 
        following new clause:
                            ``(iii) investment services partnership 
                        interests held by the partnership,''.
            (3) Application of special rules in the case of tiered 
        partnerships.--Subsection (f) of section 751 is amended--
                    (A) by striking ``or'' at the end of paragraph (1), 
                by inserting ``or'' at the end of paragraph (2), and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) an investment services partnership interest held by 
        the partnership,'', and
                    (B) by striking ``partner.'' and inserting 
                ``partner (other than a partnership in which it holds 
                an investment services partnership interest).''.
            (4) Investment services partnership interests; qualified 
        capital interests.--Section 751 is amended by adding at the end 
        the following new subsection:
    ``(g) Investment Services Partnership Interests.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' has the meaning given such term by 
        section 710(c).
            ``(2) Adjustments for qualified capital interests.--The 
        amount to which subsection (a) applies by reason of paragraph 
        (3) thereof shall not include so much of such amount as is 
        attributable to any portion of the investment services 
        partnership interest which is a qualified capital interest 
        (determined under rules similar to the rules of section 
        710(d)).
            ``(3) Exception for publicly traded partnerships.--In the 
        case of an exchange of an interest in a publicly traded 
        partnership (as defined in section 7704) to which subsection 
        (a) applies--
                    ``(A) this section shall be applied without regard 
                to subsections (a)(3), (b)(1)(A)(iii), and (f)(3), and
                    ``(B) such partnership shall be treated as owning 
                its proportionate share of the property of any other 
                partnership in which it is a partner.
            ``(4) Recognition of gains.--Any gain with respect to which 
        subsection (a) applies by reason of paragraph (3) thereof shall 
        be recognized notwithstanding any other provision of this 
        title.
            ``(5) Coordination with inventory items.--An investment 
        services partnership interest held by the partnership shall not 
        be treated as an inventory item of the partnership.
            ``(6) Prevention of double counting.--Under regulations or 
        other guidance prescribed by the Secretary, subsection (a)(3) 
        shall not apply with respect to any amount to which section 710 
        applies.
            ``(7) Valuation methods.--The Secretary shall prescribe 
        regulations or other guidance which provide the acceptable 
        methods for valuing investment services partnership interests 
        for purposes of this section.''.
    (c) Treatment for Purposes of Section 7704.--Subsection (d) of 
section 7704 is amended by adding at the end the following new 
paragraph:
            ``(6) Income from certain carried interests not 
        qualified.--
                    ``(A) In general.--Specified carried interest 
                income shall not be treated as qualifying income.
                    ``(B) Specified carried interest income.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `specified 
                        carried interest income' means--
                                    ``(I) any item of income or gain 
                                allocated to an investment services 
                                partnership interest (as defined in 
                                section 710(c)) held by the 
                                partnership,
                                    ``(II) any gain on the disposition 
                                of an investment services partnership 
                                interest (as so defined) or a 
                                partnership interest to which (in the 
                                hands of the partnership) section 751 
                                applies, and
                                    ``(III) any income or gain taken 
                                into account by the partnership under 
                                subsection (b)(4) or (e) of section 
                                710.
                            ``(ii) Exception for qualified capital 
                        interests.--A rule similar to the rule of 
                        section 710(d) shall apply for purposes of 
                        clause (i).
                    ``(C) Coordination with other provisions.--
                Subparagraph (A) shall not apply to any item described 
                in paragraph (1)(E) (or so much of paragraph (1)(F) as 
                relates to paragraph (1)(E)).
                    ``(D) Special rules for certain partnerships.--
                            ``(i) Certain partnerships owned by real 
                        estate investment trusts.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Such partnership is treated 
                                as publicly traded under this section 
                                solely by reason of interests in such 
                                partnership being convertible into 
                                interests in a real estate investment 
                                trust which is publicly traded.
                                    ``(II) Fifty percent or more of the 
                                capital and profits interests of such 
                                partnership are owned, directly or 
                                indirectly, at all times during the 
                                taxable year by such real estate 
                                investment trust (determined with the 
                                application of section 267(c)).
                                    ``(III) Such partnership meets the 
                                requirements of paragraphs (2), (3), 
                                and (4) of section 856(c).
                            ``(ii) Certain partnerships owning other 
                        publicly traded partnerships.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Substantially all of the 
                                assets of such partnership consist of 
                                interests in one or more publicly 
                                traded partnerships (determined without 
                                regard to subsection (b)(2)).
                                    ``(II) Substantially all of the 
                                income of such partnership is ordinary 
                                income or section 1231 gain (as defined 
                                in section 1231(a)(3)).
                    ``(E) Transitional rule.--Subparagraph (A) shall 
                not apply to any taxable year of the partnership 
                beginning before the date which is 10 years after the 
                date of the enactment of this paragraph.''.
    (d) Imposition of Penalty on Underpayments.--
            (1) In general.--Subsection (b) of section 6662 is amended 
        by inserting after paragraph (7) the following new paragraph:
            ``(8) The application of section 710(e) or the regulations 
        or other guidance prescribed under section 710(f) to prevent 
        the avoidance of the purposes of section 710.''.
            (2) Amount of penalty.--
                    (A) In general.--Section 6662 is amended by adding 
                at the end the following new subsection:
    ``(k) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of an 
underpayment to which this section applies by reason of subsection 
(b)(8), subsection (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
                    (B) Conforming amendment.--Subparagraph (B) of 
                section 6662A(e)(2) is amended by striking ``or (i)'' 
                and inserting ``, (i), or (k)''.
            (3) Special rules for application of reasonable cause 
        exception.--Subsection (c) of section 6664 is amended--
                    (A) by redesignating paragraphs (3) and (4) as 
                paragraphs (4) and (5), respectively;
                    (B) by striking ``paragraph (3)'' in paragraph 
                (5)(A), as so redesignated, and inserting ``paragraph 
                (4)''; and
                    (C) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) Special rule for underpayments attributable to 
        investment management services.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any portion of an underpayment to which section 6662 
                applies by reason of subsection (b)(8) unless--
                            ``(i) the relevant facts affecting the tax 
                        treatment of the item are adequately disclosed,
                            ``(ii) there is or was substantial 
                        authority for such treatment, and
                            ``(iii) the taxpayer reasonably believed 
                        that such treatment was more likely than not 
                        the proper treatment.
                    ``(B) Rules relating to reasonable belief.--Rules 
                similar to the rules of subsection (d)(3) shall apply 
                for purposes of subparagraph (A)(iii).''.
    (e) Income and Loss From Investment Services Partnership Interests 
Taken Into Account in Determining Net Earnings From Self-Employment.--
            (1) Internal revenue code.--
                    (A) In general.--Section 1402(a) is amended by 
                striking ``and'' at the end of paragraph (16), by 
                striking the period at the end of paragraph (17) and 
                inserting ``; and'', and by inserting after paragraph 
                (17) the following new paragraph:
            ``(18) notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(2) with respect to any entity, investment services 
        partnership income or loss (as defined in subsection (m)) of 
        such individual with respect to such entity shall be taken into 
        account in determining the net earnings from self-employment of 
        such individual.''.
                    (B) Investment services partnership income or 
                loss.--Section 1402 is amended by adding at the end the 
                following new subsection:
    ``(m) Investment Services Partnership Income or Loss.--For purposes 
of subsection (a)--
            ``(1) In general.--The term `investment services 
        partnership income or loss' means, with respect to any 
        investment services partnership interest (as defined in section 
        710(c)) or disqualified interest (as defined in section 
        710(e)), the net of--
                    ``(A) the amounts treated as ordinary income or 
                ordinary loss under subsections (b) and (e) of section 
                710 with respect to such interest,
                    ``(B) all items of income, gain, loss, and 
                deduction allocated to such interest, and
                    ``(C) the amounts treated as realized from the sale 
                or exchange of property other than a capital asset 
                under section 751 with respect to such interest.
            ``(2) Exception for qualified capital interests.--A rule 
        similar to the rule of section 710(d) shall apply for purposes 
        of applying paragraph (1)(B).''.
            (2) Social security act.--Section 211(a) of the Social 
        Security Act is amended by striking ``and'' at the end of 
        paragraph (15), by striking the period at the end of paragraph 
        (16) and inserting ``; and'', and by inserting after paragraph 
        (16) the following new paragraph:
            ``(17) Notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(2) of the Internal Revenue Code of 1986 with respect to 
        any entity, investment services partnership income or loss (as 
        defined in section 1402(m) of such Code) shall be taken into 
        account in determining the net earnings from self-employment of 
        such individual.''.
    (f) Conforming Amendments.--
            (1) Subsection (d) of section 731 is amended by inserting 
        ``section 710(b)(4) (relating to distributions of partnership 
        property),'' after ``to the extent otherwise provided by''.
            (2) Section 741 is amended by inserting ``or section 710 
        (relating to special rules for partners providing investment 
        management services to partnerships)'' before the period at the 
        end.
            (3) The table of sections for part I of subchapter K of 
        chapter 1 is amended by adding at the end the following new 
        item:

``Sec. 710. Special rules for partners providing investment management 
                            services to partnerships.''.
    (g) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after the date of the enactment of this 
        Act.
            (2) Partnership taxable years which include effective 
        date.--In applying section 710(a) of the Internal Revenue Code 
        of 1986 (as added by this section) in the case of any 
        partnership taxable year which includes the date of the 
        enactment of this Act, the amount of the net capital gain 
        referred to in such section shall be treated as being the 
        lesser of the net capital gain for the entire partnership 
        taxable year or the net capital gain determined by only taking 
        into account items attributable to the portion of the 
        partnership taxable year which is after such date.
            (3) Dispositions of partnership interests.--
                    (A) In general.--Section 710(b) of such Code (as 
                added by this section) shall apply to dispositions and 
                distributions after the date of the enactment of this 
                Act.
                    (B) Indirect dispositions.--The amendments made by 
                subsection (b) shall apply to transactions after the 
                date of the enactment of this Act.
            (4) Other income and gain in connection with investment 
        management services.--Section 710(e) of such Code (as added by 
        this section) shall take effect on the date of the enactment of 
        this Act.
                                 <all>