Home > 107th Congressional Bills > H.R. 1661 (rfs) To extend indefinitely the authority of the States of Washington, Oregon, and California to manage a Dungeness crab fishery until the effective date of a fishery management plan for the fishery under the Magnuson-Stevens Fishery Conservati...

H.R. 1661 (rfs) To extend indefinitely the authority of the States of Washington, Oregon, and California to manage a Dungeness crab fishery until the effective date of a fishery management plan for the fishery under the Magnuson-Stevens Fishery Conservati...

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  1st Session
                                H. R. 1661

   To provide balanced taxpayer protections in tax administrations, 
including elimination of abusive tax strategies, simplification of the 
          earned income tax credit, and taxpayer protections.



                             April 8, 2003

Mr. Rangel (for himself, Mr. Stark, Mr. Matsui, Mr. Levin, Mr. Cardin, 
     Mr. McDermott, Mr. Kleczka, Mr. Lewis of Georgia, Mr. Neal of 
 Massachusetts, Mr. McNulty, Mr. Jefferson, Mr. Becerra, Mr. Doggett, 
  Mr. Sandlin, and Mrs. Jones of Ohio) introduced the following bill; 
         which was referred to the Committee on Ways and Means


                                 A BILL

   To provide balanced taxpayer protections in tax administrations, 
including elimination of abusive tax strategies, simplification of the 
          earned income tax credit, and taxpayer protections.

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


    (a) Short Title.--This Act may be cited as the ``Taxpayer and 
Fairness Protection Act of 2003''.
    (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 for this Act is as 

Sec. 1. Short title; reference; table of contents.

Sec. 101. Findings and purpose.
                        Subtitle A--Tax Shelters

          Part I--Provisions Designed to Curtail Tax Shelters

Sec. 111. Clarification of economic substance doctrine.
Sec. 112. Penalty for failing to disclose reportable transaction.
Sec. 113. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 114. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 115. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 116. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 117. Disclosure of reportable transactions.
Sec. 118. Modifications to penalty for failure to register tax 
Sec. 119. Modification of penalty for failure to maintain lists of 
Sec. 120. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 121. Understatement of taxpayer's liability by income tax return 
Sec. 122. Penalty on failure to report interests in foreign financial 
Sec. 123. Frivolous tax submissions.
Sec. 124. Regulation of individuals practicing before the Department of 
Sec. 125. Penalty on promoters of tax shelters.
Sec. 126. Statute of limitations for taxable years for which listed 
                            transactions not reported.
Sec. 127. Denial of deduction for interest on underpayments 
                            attributable to nondisclosed reportable and 
                            noneconomic substance transactions.
                       Part II--Other Provisions

Sec. 131. Limitation on transfer or importation of built-in losses.
Sec. 132. Disallowance of certain partnership loss transfers.
Sec. 133. No reduction of basis under section 734 in stock held by 
                            partnership in corporate partner.
Sec. 134. Repeal of special rules for FASITS.
Sec. 135. Expanded disallowance of deduction for interest on 
                            convertible debt.
Sec. 136. Expanded authority to disallow tax benefits under section 
Sec. 137. Modifications of certain rules relating to controlled foreign 
Sec. 138. Basis for determining loss always reduced by nontaxed portion 
                            of dividends.
Sec. 139. Affirmation of consolidated return regulation authority.
Subtitle B--Prevention of corporate expatriation to avoid United States 
                               income tax

Sec. 151. Prevention of corporate expatriation to avoid United States 
                            income tax.

Sec. 201. Simplification of earned income tax credit.

                Subtitle A--Penalty and Interest Reforms

Sec. 301. Failure to pay estimated tax penalty converted to interest 
                            charge on accumulated unpaid balance.
Sec. 302. Abatement of interest.
Sec. 303. Deposits made to suspend running of interest on potential 
Sec. 304. Expansion of interest netting for individuals.
Sec. 305. Waiver of certain penalties for first-time unintentional 
                            minor errors.
Sec. 306. Frivolous tax submissions.
Sec. 307. Clarification of application of Federal tax deposit penalty.
             Subtitle B--Fairness of Collection Procedures

Sec. 311. Partial payment of tax liability in installment agreements.
Sec. 312. Extension of time for return of property.
Sec. 313. Individuals held harmless on wrongful levy, etc., on 
                            individual retirement plan.
Sec. 314. Seven-day threshold on tolling of statute of limitations 
                            during tax review.
Sec. 315. Study of liens and levies.
                 Subtitle C--Tax Administration Reforms

Sec. 331. Revisions relating to termination of employment of Internal 
                            Revenue Service employees for misconduct.
Sec. 332. Confirmation of authority of tax court to apply doctrine of 
                            equitable recoupment.
Sec. 333. Jurisdiction of Tax Court over collection due process cases.
Sec. 334. Office of Chief Counsel review of offers in compromise.
Sec. 335. Access of National Taxpayer Advocate to independent legal 
Sec. 336. Payment of motor fuel excise tax refunds by direct deposit.
Sec. 337. Family business tax simplification.
Sec. 338. Suspension of tax-exempt status of terrorist organizations.
Sec. 339. Tax refund anticipation loans.
Sec. 340. Fairness in tax audit coverage.
               Subtitle D--Confidentiality and Disclosure

Sec. 341. Collection activities with respect to joint return 
                            disclosable to either spouse based on oral 
Sec. 342. Taxpayer representatives not subject to examination on sole 
                            basis of representation of taxpayers.
Sec. 343. Disclosure in judicial or administrative tax proceedings of 
                            return and return information of persons 
                            who are not party to such proceedings.
Sec. 344. Prohibition of disclosure of taxpayer identification 
                            information with respect to disclosure of 
                            accepted offers-in-compromise.
Sec. 345. Compliance by contractors with confidentiality safeguards.
Sec. 346. Higher standards for requests for and consents to disclosure.
Sec. 347. Notice to taxpayer concerning administrative determination of 
                            browsing; annual report.
Sec. 348. Expanded disclosure in emergency circumstances.
Sec. 349. Disclosure of taxpayer identity for tax refund purposes.
Sec. 350. Disclosure to State officials of proposed actions related to 
                            section 501(c)(3) organizations.
Sec. 351. Confidentiality of taxpayer communications with the Office of 
                            the Taxpayer Advocate.
                       Subtitle E--Miscellaneous

Sec. 361. Clarification of definition of church tax inquiry.
Sec. 362. Expansion of declaratory judgment remedy to tax-exempt 
Sec. 363. Employee misconduct report to include summary of complaints 
                            by category.
Sec. 364. Annual report on awards of costs and certain fees in 
                            administrative and court proceedings.
Sec. 365. Annual report on abatement of penalties.
Sec. 366. Better means of communicating with taxpayers.
Sec. 367. Explanation of statute of limitations and consequences of 
                            failure to file.
Sec. 368. Amendment to Treasury auction reforms.
Sec. 369. Enrolled agents.
Sec. 370. Financial management service fees.
Sec. 371. Extension of Internal Revenue Service user fees.
                Subtitle F--Low-Income Taxpayer Clinics

Sec. 381. Low-income taxpayer clinics.
Sec. 382. Matching grants to low income return preparation clinics.
      Subtitle G--Federal-State Unemployment Assistance Agreements

Sec. 391. Applicability of certain Federal-State Agreements relating to 
                            unemployment assistance.



    (a) Findings.--The Congress hereby finds that:
            (1) Many corporate tax shelter transactions are complicated 
        ways of accomplishing nothing aside from claimed tax benefits, 
        and the legal opinions justifying those transactions take an 
        inappropriately narrow and restrictive view of well-developed 
        court doctrines under which--
                    (A) the taxation of a transaction is determined in 
                accordance with its substance and not merely its form,
                    (B) transactions which have no significant effect 
                on the taxpayer's economic or beneficial interests 
                except for tax benefits are treated as sham 
                transactions and disregarded,
                    (C) transactions involving multiple steps are 
                collapsed when those steps have no substantial economic 
                meaning and are merely designed to create tax benefits,
                    (D) transactions with no business purpose are not 
                given effect, and
                    (E) in the absence of a specific congressional 
                authorization, it is presumed that Congress did not 
                intend a transaction to result in a negative tax where 
                the taxpayer's economic position or rate of return is 
                better after tax than before tax.
            (2) Permitting aggressive and abusive tax shelters not only 
        results in large revenue losses but also undermines voluntary 
        compliance with the Internal Revenue Code of 1986.
    (b) Purpose.--The purpose of this title is to eliminate abusive tax 
shelters by denying tax attributes claimed to arise from transactions 
that do not meet a heightened economic substance requirement and by 
repealing the provision that permits legal opinions to be used to avoid 
penalties on tax underpayments resulting from transactions without 
significant economic substance or business purpose.

                        Subtitle A--Tax Shelters

          Part I--Provisions Designed to Curtail Tax Shelters


    (a) In General.--Section 7701 is amended by redesignating 
subsection (m) as subsection (n) and by inserting after subsection (l) 
the following new subsection:
    ``(m) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--In applying the economic 
                substance doctrine, the determination of whether a 
                transaction has economic substance shall be made as 
                provided in this paragraph.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects and, if there is any Federal 
                                tax effects, also apart from any 
                                foreign, State, or local tax effects) 
                                the taxpayer's economic position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 

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