[Congressional Record Volume 151, Number 106 (Friday, July 29, 2005)]
[Senate]
[Pages S9510-S9511]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself and Mr. Grassley):
  S. 1591. A bill to amend the Internal Revenue Code of 1986 to modify 
the rules relating to the suspension of interest and certain penalties 
where the taxpayer is not contacted by the Internal Revenue Service 
within 18 months; to the Committee on Finance.
  Mr. BAUCUS. Mr. President, last year, the Senate passed significant 
legislation aimed at shutting down tax shelters. We ramped up 
disclosure requirements that make it easier for IRS to find those who 
promoted and invested in these deals. We greatly increased penalties. 
We made law firms and accounting firms responsible for their part in 
perpetuating this distasteful business.
  Another thing we did was to take a break on interest expense away 
from participants in listed transactions and those who fail to disclose 
a reportable transaction.
  Usually, if the IRS audits your tax return and doesn't tell you about 
any adjustments to your tax bill within 18 months after the return is 
filed, the interest on that tax bill stops. It stops until the IRS does 
tell you what you owe. It is called ``the 18 month interest suspension 
rule'' and became law so taxpayers wouldn't have to pay excessive 
interest if the IRS took a long time to figure out what they owed.
  But, people who get involved with tax shelters play hide and seek 
with the IRS. They hope the game lasts until the time for auditing a 
tax return has passed. This means that the IRS often doesn't know a 
taxpayer has bought into a tax shelter until well after 18 months has 
gone by.
  And, this problem is made even worse by those who sell the shelters. 
Promoters are supposed to keep a list of those who buy their shelters. 
The IRS can ask for the list--it's one way the IRS can find those who 
get into these bad deals.
  But, often the promoter won't turn that list over to the IRS right 
away. Once again, it is well after that 18 month mark before the IRS 
learns about the investment and can do the audit.
  It is not right that taxpayers benefit from this 18 month interest 
suspension rule when the delays are the result of their own hand. 
Taxpayers involved in deals that abuse our tax system should not 
benefit from their own fun and games.
  That is why we took the interest suspension break away from these 
taxpayers in last year's Jobs Act. But we only took it away for 
interest charges after October 3, 2004.
  Today, my good friend Chuck Grassley and I introduce a proposal that 
takes this one step further and eliminates the interest suspension 
break for interest charges on or before October 3, 2004. Why should 
these folks get any break when they have manipulated the system in the 
first place?
  The only exception is for taxpayers who have decided to take the IRS 
up on a published settlement initiative to unwind their transaction. 
Those taxpayers would continue to qualify for suspension of their 
accrued interest expense through the October 3 date. The IRS has found 
these settlement initiatives are a useful way to get these old cases 
resolved and off the table. I think we should help this process along 
so the IRS can deal with other aspects of the tax gap.
  Our proposal also will plug up another unintended loophole in the 
interest suspension rules. Earlier this year, the IRS ruled that 
taxpayers filing amended returns showing a balance due more than 18 
months after the original return was filed were also entitled to 
interest suspension--this applies to all taxpayers, not just those with 
tax shelters. Since the IRS wouldn't have any way of knowing these 
taxpayers even owed more tax, it doesn't make sense to give them a 
break on interest charges.
  Over the past several years this country has experienced a scourge of 
tax shelters. With hard work, we have come a long way in our fight 
against them. We must be relentless in our quest to wipe them out. We 
need to remove any incentives that might encourage people to get into 
these abusive deals. Our proposal is one more blow in our fight to 
maintain fairness and integrity in our system of tax administration. We 
request your support for this bill.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

[[Page S9511]]

                                S. 1591

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

     SECTION 1. MODIFICATIONS OF SUSPENSION OF INTEREST AND 
                   PENALTIES WHERE INTERNAL REVENUE SERVICE FAILS 
                   TO CONTACT TAXPAYER.

       (a) Effective Date of Exception From Suspension Rules for 
     Certain Listed and Reportable Transactions.--
       (1) In general.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii) or 
     (iii), the amendments made by subsection (c) shall also apply 
     with respect to interest accruing on or before October 3, 
     2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, pursuant to a 
     published settlement initiative which is offered by the 
     Secretary of the Treasury to a group of similarly situated 
     taxpayers claiming benefits from the transaction, the 
     taxpayer has entered into a settlement agreement with respect 
     to the tax liability arising in connection with the 
     transaction.
       ``(iii) Closed transactions.--Clause (i) shall not apply to 
     a transaction if, as of July 29, 2005 (May 9, 2005 in the 
     case of a listed transaction)--

       ``(I) the assessment of all Federal income taxes for the 
     taxable year in which the tax liability to which the interest 
     relates arose is prevented by the operation of any law or 
     rule of law, or
       ``(II) a closing agreement under section 7121 has been 
     entered into with respect to the tax liability arising in 
     connection with the transaction.''.

       (2) Effective date.--The amendment made by this subsection 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.
       (b) Treatment of Amended Returns and Other Similar Notices 
     of Additional Tax Owed.--
       (1) In general.--Section 6404(g)(1) of the Internal Revenue 
     Code of 1986 (relating to suspension) is amended by adding at 
     the end the following new sentence: ``If, after the return 
     for a taxable year is filed, the taxpayer provides to the 
     Secretary 1 or more signed written documents showing that the 
     taxpayer owes an additional amount of tax for the taxable 
     year, clause (i) shall be applied by substituting the date 
     the last of the documents was provided for the date on which 
     the return is filed.''
       (2) Effective date.--The amendment made by this subsection 
     shall apply to documents provided on or after July 29, 2005.
                                 ______