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108th CONGRESS
2d Session
S. 2210
To restrict the use of abusive tax shelters and offshore tax havens to
inappropriately avoid Federal taxation, and for other purposes.
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IN THE SENATE OF THE UNITED STATES
March 12, 2004
Mr. Levin (for himself and Mr. Coleman) introduced the following bill;
which was read twice and referred to the Committee on Finance
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A BILL
To restrict the use of abusive tax shelters and offshore tax havens to
inappropriately avoid Federal taxation, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Shelter and
Tax Haven Reform 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 for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--STRENGTHENING TAX SHELTER PENALTIES
Sec. 101. Penalty for promoting abusive tax shelters.
Sec. 102. Penalty for aiding and abetting the understatement of tax
liability.
Sec. 103. Penalty for failing to register tax shelter.
Sec. 104. Penalty for failing to maintain client list.
Sec. 105. Penalty for failing to disclose potentially abusive tax
shelter.
Sec. 106. Improved disclosure of potentially abusive tax shelters.
Sec. 107. Extension of statute of limitations for undisclosed tax
shelter.
Sec. 108. Expansion of injunctive relief to stop certain conduct
related to tax shelter or understatement of
tax liability.
Sec. 109. Penalty for failing to report interests in foreign financial
accounts.
TITLE II--PREVENTING ABUSIVE TAX SHELTERS
Sec. 201. Censure, civil fines, and tax opinion standards for tax
practitioners.
Sec. 202. Expansion of tax shelter exception to tax practitioner
privilege.
Sec. 203. Information sharing for enforcement purposes.
Sec. 204. Disclosure of information to Congress.
Sec. 205. Contingent fee prohibition.
Sec. 206. Sense of the Senate on tax enforcement priorities.
TITLE III--REQUIRING ECONOMIC SUBSTANCE
Sec. 301. Clarification of economic substance doctrine.
Sec. 302. Accuracy-related penalty for listed transactions and other
potentially abusive tax shelters having a
significant tax avoidance purpose.
Sec. 303. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 304. Denial of deduction for interest on underpayments
attributable to noneconomic substance
transactions.
TITLE IV--DETERRING UNCOOPERATIVE TAX HAVENS
Sec. 401. Disclosing payments to persons in uncooperative tax havens.
Sec. 402. Deterring uncooperative tax havens by restricting allowable
tax benefits.
TITLE I--STRENGTHENING TAX SHELTER PENALTIES
SEC. 101. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.
(a) Penalty for Promoting Abusive Tax Shelters.--Section 6700
(relating to promoting abusive tax shelters, etc.) 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 the greater of--
``(A) 150 percent of the gross income derived (or
to be derived) from such activity by the person or
persons subject to such penalty, and
``(B) if readily subject to calculation, the total
amount of underpayment by the taxpayer (including
penalties, interest, and taxes) in connection with such
activity.
``(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) Effective Date.--The amendments made by this section shall
apply to activities after the date of the enactment of this Act.
SEC. 102. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX
LIABILITY.
(a) In General.--Section 6701(a) (relating to imposition of
penalty) 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 (relating to
penalties for aiding and abetting understatement of tax liability) 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 the greater of--
``(i) 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,
and
``(ii) if readily subject to calculation,
the total amount of underpayment by the
taxpayer (including penalties, interest, and
taxes) in connection with the understatement of
the liability for tax.
``(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. 103. PENALTY FOR FAILURE TO REGISTER TAX SHELTER.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION ON POTENTIALLY ABUSIVE TAX
SHELTER OR LISTED TRANSACTION.
``(a) In General.--If a person who is required to file a return
under section 6111 with respect to any potentially abusive tax
shelter--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such shelter,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be not less than $50,000 and not more than
$100,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 100 percent of the gross income derived by
such person for providing aid, assistance, procurement,
advice, or other services with respect to the listed
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `150 percent'
for `100 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Certain Rules To Apply.--The provisions of section 6707A(d)
allowing the Commissioner of Internal Revenue to rescind a penalty
under certain circumstances shall apply to any penalty imposed under
this section.
``(d) Potentially Abusive Tax Shelters and Listed Transactions.--
The terms `potentially abusive tax shelter' and `listed transaction'
have the respective meanings given to such terms by section 6707A(c).
``(e) 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) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``regarding tax shelters'' and inserting ``on potentially
abusive tax shelter or listed transaction''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.
SEC. 104. PENALTY FOR FAILING TO MAINTAIN CLIENT LIST.
(a) In General.--Subsection (a) of section 6708 (relating to
failure to maintain lists of investors in potentially abusive tax
shelters) is amended to read as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day. If such person makes available an incomplete list upon
such request, such person shall pay a penalty of $100 per each
omitted name for each day of such omission after such 20th day.
``(2) Good cause exception.--No penalty shall be imposed by
paragraph (1) with respect to the failure on any day if, in the
judgment of the Secretary, such failure is due to good
cause.''.
(b) Penalty Not Deductible.--Section 6708 is amended by adding at
the end the following new 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.''.
(c) Effective Date.--The amendments made by this section shall
apply to requests made by the Secretary of the Treasury after the date
of the enactment of this Act.
SEC. 105. PENALTY FOR FAILING TO DISCLOSE POTENTIALLY ABUSIVE TAX
SHELTER.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE POTENTIALLY ABUSIVE TAX
SHELTER INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a potentially
abusive tax shelter which is required under section 6011 to be included
with such return or statement shall pay a penalty in the amount
determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--Except as provided in paragraph
3, the amount of the penalty under subsection (a) with respect
to a listed transaction shall be $100,000.
``(3) Increase in penalty for intentional nondisclosure.--
In the case of an intentional failure by any person under
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