Cut Unjustified Tax Loopholes Act or the CUT Loopholes Act - Authorizes the Secretary of the Treasury to impose restrictions on foreign jurisdictions or financial institutions operating in the United States that are of primary money laundering concern or that impede U.S. tax enforcement.
Amends the Internal Revenue Code to: (1) establish a rebuttable presumption against the validity of transactions by institutions that do not comply with reporting requirements under the Foreign Account Tax Compliance Act; (2) treat certain foreign corporations managed and controlled primarily in the United States as domestic corporations for tax purposes; (3) require tax withholding agents and financial institutions to report certain information about beneficial owners of foreign-owned financial accounts; (4) treat swap payments sent offshore as taxable U.S. source income; (5) allow the use of tax return information to evaluate foreign financial account reports; (6) increase penalties for promoting abusive tax shelters and for aiding and abetting the understatement of tax liability; (7) prohibit tax advisor contingent fee agreements for obtaining a tax savings or benefit; (8) impose additional requirements for third party summonses used to obtain information in tax investigations that do not identify the person with respect to whose liability the summons is issued (i.e., John Doe summons); (9) limit the employer tax deduction for stock options granted to employees to the value of such options as recorded on the employer's books at the time such options were granted; and (10) apply the $1 million limitation on the employer tax deduction for employee remuneration to stock option compensation.
Amends the Securities Exchange Act of 1934 to: (1) require corporations registered with the Securities and Exchange Commission (SEC) to report annually, on a country-by country basis, on employees, sales, financing, tax obligations, and tax payments; and (2) authorize a fine of up to $1 million for failure to disclose any holdings or transactions involving equity or debt instruments known to involve a foreign entity that would otherwise be subject to disclosure requirements.
Requires the Secretary to publish a proposed rule in the Federal Register requiring private and venture capital funds to establish anti-money laundering programs and submit suspicious activity reports.
Extends anti-money laundering requirements to persons engaged in the business of forming new businesses or other legal entities.
Requires federal banking agencies and the SEC to develop examination techniques to detect and prevent abusive tax shelter activities or the aiding or abetting of tax evasion by financial institutions.
Requires the Secretary to: (1) disclose tax return information to federal financial regulators for purposes of tax shelter investigations; (2) disclose to Congress documents relating to a determination to grant, deny, revoke, or restore the tax-exempt status of an organization; and (3) expand the standards applicable to tax practitioners for issuing written advice on transactions which have a potential for tax avoidance or evasion.
Imposes new restrictions on U.S. corporations and other entities with foreign income with respect to: (1) tax deductions allocable to deferred foreign income, (2) the recalculation of foreign income taxes, (3) intangible property transferred overseas, and (4) tax evasion activities by U.S. corporations reincorporating in a foreign country.
[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 2075 Introduced in Senate (IS)]
112th CONGRESS
2d Session
S. 2075
To close unjustified corporate tax loopholes, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 7, 2012
Mr. Levin (for himself and Mr. Conrad) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To close unjustified corporate tax loopholes, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Cut Unjustified
Tax Loopholes Act'' or ``CUT Loopholes Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--ENDING OFFSHORE TAX ABUSES
Subtitle A--Deterring the Use of Tax Havens for Tax Evasion
Sec. 101. Authorizing special measures against foreign jurisdictions,
financial institutions, and others that
impede United States tax enforcement.
Sec. 102. Strengthening the Foreign Account Tax Compliance Act (FATCA).
Sec. 103. Treatment of foreign corporations managed and controlled in
the United States as domestic corporations.
Sec. 104. Reporting United States beneficial owners of foreign owned
financial accounts.
Sec. 105. Swap payments made from the United States to persons
offshore.
Sec. 106. Tax on income of controlled foreign corporation deposited in
financial account located in the United
States.
Subtitle B--Other Measures to Combat Tax Haven and Tax Shelter Abuses
Sec. 111. Country-by-country reporting.
Sec. 112. Penalty for failing to disclose offshore holdings.
Sec. 113. Deadline for anti-money laundering rule for private funds and
venture capital funds.
Sec. 114. Anti-money laundering requirements for formation agents.
Sec. 115. Strengthening John Doe summons proceedings.
Sec. 116. Improving enforcement of foreign financial account reporting.
Subtitle C--Combating Tax Shelter Promoters
Sec. 121. Penalty for promoting abusive tax shelters.
Sec. 122. Penalty for aiding and abetting the understatement of tax
liability.
Sec. 123. Prohibited fee arrangement.
Sec. 124. Preventing tax shelter activities by financial institutions.
Sec. 125. Information sharing for enforcement purposes.
Sec. 126. Disclosure of information to Congress.
Sec. 127. Tax opinion standards for tax practitioners.
Subtitle D--Reformation of U.S. International Tax System
Sec. 131. Allocation of expenses and taxes on basis of repatriation of
foreign income.
Sec. 132. Excess income from transfers of intangibles to low-taxed
affiliates treated as subpart F income.
Sec. 133. Limitations on income shifting through intangible property
transfers.
Sec. 134. Limitation on earnings stripping by expatriated entities.
TITLE II--ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS FOR STOCK OPTIONS
Sec. 201. Consistent treatment of stock options by corporations.
Sec. 202. Application of executive pay deduction limit.
TITLE I--ENDING OFFSHORE TAX ABUSES
Subtitle A--Deterring the Use of Tax Havens for Tax Evasion
SEC. 101. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS,
FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED
STATES TAX ENFORCEMENT.
(a) In General.--Section 5318A of title 31, United States Code, is
amended--
(1) by striking the section heading and inserting the
following new heading:
``Sec. 5318A. Special measures for jurisdictions, financial
institutions, or international transactions that are of
primary money laundering concern or impede United States
tax enforcement'';
(2) in subsection (a), by striking all before paragraph (1)
and inserting the following:
``(a) Special Measures To Counter Money Laundering and Efforts To
Impede United States Tax Enforcement.--'';
(3) in subsection (c), by striking all before paragraph (1)
and inserting the following:
``(c) Consultations and Information To Be Considered in Finding
Jurisdictions, Institutions, Types of Accounts, or Transactions To Be
of Primary Money Laundering Concern or To Be Impeding United States Tax
Enforcement.--'';
(4) in subsection (a)(1), by inserting ``or is impeding
United States tax enforcement'' after ``primary money
laundering concern'';
(5) in subsection (a)(4)--
(A) in subparagraph (A)--
(i) by inserting ``in matters involving
money laundering,'' before ``shall consult'';
and
(ii) by striking ``and'' at the end;
(B) by redesignating subparagraph (B) as
subparagraph (C); and
(C) by inserting after subparagraph (A) the
following new subparagraph:
``(B) in matters involving United States tax
enforcement, shall consult with the Commissioner of the
Internal Revenue Service, the Secretary of State, the
Attorney General of the United States, and in the sole
discretion of the Secretary, such other agencies and
interested parties as the Secretary may find to be
appropriate; and'';
(6) in each of paragraphs (1)(A), (2), (3), and (4) of
subsection (b), by inserting ``or to be impeding United States
tax enforcement'' after ``primary money laundering concern''
each place that term appears;
(7) in subsection (b), by striking paragraph (5) and
inserting the following new paragraph:
``(5) Prohibitions or conditions on opening or maintaining
certain correspondent or payable-through accounts or
authorizing certain payment cards.--If the Secretary finds a
jurisdiction outside of the United States, 1 or more financial
institutions operating outside of the United States, or 1 or
more classes of transactions within or involving a jurisdiction
outside of the United States to be of primary money laundering
concern or to be impeding United States tax enforcement, the
Secretary, in consultation with the Secretary of State, the
Attorney General of the United States, and the Chairman of the
Board of Governors of the Federal Reserve System, may prohibit,
or impose conditions upon--
``(A) the opening or maintaining in the United
States of a correspondent account or payable-through
account; or
``(B) the authorization, approval, or use in the
United States of a credit card, charge card, debit
card, or similar credit or debit financial instrument
by any domestic financial institution, financial
agency, or credit card company or association, for or
on behalf of a foreign banking institution, if such
correspondent account, payable-through account, credit
card, charge card, debit card, or similar credit or
debit financial instrument, involves any such
jurisdiction or institution, or if any such transaction
may be conducted through such correspondent account,
payable-through account, credit card, charge card,
debit card, or similar credit or debit financial
instrument.'';
(8) in subsection (c)(1), by inserting ``or is impeding
United States tax enforcement'' after ``primary money
laundering concern'';
(9) in subsection (c)(2)(A)--
(A) in clause (ii), by striking ``bank secrecy or
special regulatory advantages'' and inserting ``bank,
tax, corporate, trust, or financial secrecy or
regulatory advantages'';
(B) in clause (iii), by striking ``supervisory and
counter-money'' and inserting ``supervisory,
international tax enforcement, and counter-money'';
(C) in clause (v), by striking ``banking or
secrecy'' and inserting ``banking, tax, or secrecy'';
and
(D) in clause (vi), by inserting ``, tax treaty, or
tax information exchange agreement'' after ``treaty'';
(10) in subsection (c)(2)(B)--
(A) in clause (i), by inserting ``or tax evasion''
after ``money laundering''; and
(B) in clause (iii), by inserting ``, tax
evasion,'' after ``money laundering''; and
(11) in subsection (d), by inserting ``involving money
laundering, and shall notify, in writing, the Committee on
Finance of the Senate and the Committee on Ways and Means of
the House of Representatives of any such action involving
United States tax enforcement'' after ``such action''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 102. STRENGTHENING THE FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA).
(a) Reporting Activities With Respect to Passive Foreign Investment
Companies.--Section 1298(f) is amended by inserting ``, or who directly
or indirectly forms, transfers assets to, is a beneficiary of, has a
beneficial interest in, or receives money or property or the use
thereof from,'' after ``shareholder of''.
(b) Withholdable Payments to Foreign Financial Institutions.--
Section 1471(d) is amended--
(1) by inserting ``or transaction'' after ``any
depository'' in paragraph (2)(A), and
(2) by striking ``or any interest'' and all that follows in
paragraph (5)(C) and inserting ``derivatives, or any interest
(including a futures or forward contract, swap, or option) in
such securities, partnership interests, commodities, or
derivatives.''.
(c) Withholdable Payments to Other Foreign Financial
Institutions.--Section 1472 is amended--
(1) by inserting ``as a result of any customer
identification, anti-money laundering, anti-corruption, or
similar obligation to identify account holders,'' after
``reason to know,'' in subsection (b)(2), and
(2) by inserting ``as posing a low risk of tax evasion''
after ``this subsection'' in subsection (c)(1)(G).
(d) Definitions.--Clauses (i) and (ii) of section 1473(2)(A) are
each amended by inserting ``or as a beneficial owner'' after
``indirectly''.
(e) Special Rules.--Section 1474(c) is amended--
(1) by inserting ``, except that information provided under
sections 1471(c) or 1472(b) may be disclosed to any Federal law
enforcement agency, upon request or upon the initiation of the
Secretary, to investigate or address a possible violation of
United States law'' after ``shall apply'' in paragraph (1), and
(2) by inserting ``, or has had an agreement terminated
under such section,'' after ``section 1471(b)'' in paragraph
(2).
(f) Information With Respect to Foreign Financial Assets.--Section
6038D(a) is amended by inserting ``ownership or beneficial ownership''
after ``holds any''.
(g) Establishing Presumptions for Entities and Transactions
Involving Non-FATCA Institutions.--
(1) Presumptions for tax purposes.--
(A) In general.--Chapter 76 is amended by inserting
after section 7491 the following new subchapter:
``Subchapter F--Presumptions for Certain Legal Proceedings
``Sec. 7492. Presumptions pertaining to entities and transactions
involving non-FATCA institutions.
``SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND TRANSACTIONS
INVOLVING NON-FATCA INSTITUTIONS.
``(a) Control.--For purposes of any United States civil judicial or
administrative proceeding to determine or collect tax, there shall be a
rebuttable presumption that a United States person (other than an
entity with shares regularly traded on an established securities
market) who, directly or indirectly, formed, transferred assets to, was
a beneficiary of, had a beneficial interest in, or received money or
property or the use thereof from an entity, including a trust,
corporation, limited liability company, partnership, or foundation
(other than an entity with shares regularly traded on an established
securities market), that holds an account, or in any other manner has
assets, in a non-FATCA institution, exercised control over such entity.
The presumption of control created by this subsection shall not be
applied to prevent the Secretary from determining or arguing the
absence of control.
``(b) Transfers of Income.--For purposes of any United States civil
judicial or administrative proceeding to determine or collect tax,
there shall be a rebuttable presumption that any amount or thing of
value received by a United States person (other than an entity with
shares regularly traded on an established securities market) directly
or indirectly from an account or from an entity (other than an entity
with shares regularly traded on an established securities market) that
holds an account, or in any other manner has assets, in a non-FATCA
institution, constitutes income of such person taxable in the year of
receipt; and any amount or thing of value paid or transferred by or on
behalf of a United States person (other than an entity with shares
regularly traded on an established securities market) directly or
indirectly to an account, or entity (other than an entity with shares
regularly traded on an established securities market) that holds an
account, or in any other manner has assets, in a non-FATCA institution,
represents previously unreported income of such person taxable in the
year of the transfer.
``(c) Rebutting the Presumptions.--The presumptions established in
this section may be rebutted only by clear and convincing evidence,
including detailed documentary, testimonial, and transactional
evidence, establishing that--
``(1) in subsection (a), such taxpayer exercised no
control, directly or indirectly, over account or entity at the
time in question, and
``(2) in subsection (b), such amounts or things of value
did not represent income related to such United States person.
Any court having jurisdiction of a civil proceeding in which control of
such an offshore account or offshore entity or the income character of
such receipts or amounts transferred is an issue shall prohibit the
introduction by the taxpayer of any foreign based document that is not
authenticated in open court by a person with knowledge of such
document, or any other evidence supplied by a person outside the
jurisdiction of a United States court, unless such person appears
before the court.''.
(B) The table of subchapters for chapter 76 is
amended by inserting after the item relating to
subchapter E the following new item:
``subchapter f--presumptions for certain legal proceedings''.
(2) Definition of non-fatca institution.--Section 7701(a)
is amended by adding at the end the following new paragraph:
``(51) Non-fatca institution.--The term `non-FATCA
institution' means any financial institution that does not meet
the reporting requirements of section 1471(b).''.
(3) Presumptions for securities law purposes.--Section 21
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is
amended by adding at the end the following new subsection:
``(j) Presumptions Pertaining to Control and Beneficial
Ownership.--
``(1) Control.--For purposes of any civil judicial or
administrative proceeding under this title, there shall be a
rebuttable presumption that a United States person (other than
an entity with shares regularly traded on an established
securities market) who, directly or indirectly, formed,
transferred assets to, was a beneficiary of, had a beneficial
interest in, or received money or property or the use thereof
from an entity, including a trust, corporation, limited
liability company, partnership, or foundation (other than an
entity with shares regularly traded on an established
securities market), that holds an account, or in any other
manner has assets, in a non-FATCA institution (as defined in
section 7701(a)(51) of the Internal Revenue Code of 1986),
exercised control over such entity. The presumption of control
created by this paragraph shall not be applied to prevent the
Commission from determining or arguing the absence of control.
``(2) Beneficial ownership.--For purposes of any civil
judicial or administrative proceeding under this title, there
shall be a rebuttable presumption that securities that are
nominally owned by an entity, including a trust, corporation,
limited liability company, partnership, or foundation (other
than an entity with shares regularly traded on an established
securities market), and that are held in a non-FATCA
institution (as so defined), are beneficially owned by any
United States person (other than an entity with shares
regularly traded on an established securities market) who
directly or indirectly exercised control over such entity. The
presumption of beneficial ownership created by this paragraph
shall not be applied to prevent the Commission from determining
or arguing the absence of beneficial ownership.''.
(4) Presumption for reporting purposes relating to foreign
financial accounts.--Section 5314 of title 31, United States
Code, is amended by adding at the end the following new
subsection:
``(d) Rebuttable Presumption.--For purposes of this section, there
shall be a rebuttable presumption that any account with a non-FATCA
institution (as defined in section 7701(a)(51) of the Internal Revenue
Code of 1986) contains funds in an amount that is at least sufficient
to require a report prescribed by regulations under this section.''.
(5) Regulatory authority.--Not later than 180 days after
the date of the enactment of this Act, the Secretary of the
Treasury and the Chairman of the Securities and Exchange
Commission shall each adopt regulations or other guidance
necessary to implement the amendments made by this subsection.
The Secretary and the Chairman may by regulation or guidance
provide that the presumption of control shall not extend to
particular classes of transactions, such as corporate
reorganizations or transactions below a specified dollar
threshold, if either determines that applying such amendments
to such transactions is not necessary to carry out the purposes
of such amendments.
(h) Effective Date.--The amendments made by this section shall take
effect on the date which is 180 days after the date of the enactment of
this Act, whether or not regulations are issued under subsection
(g)(5).
SEC. 103. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN
THE UNITED STATES AS DOMESTIC CORPORATIONS.
(a) In General.--Section 7701 is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Certain Corporations Managed and Controlled in the United
States Treated as Domestic for Income Tax.--
``(1) In general.--Notwithstanding subsection (a)(4), in
the case of a corporation described in paragraph (2) if--
``(A) the corporation would not otherwise be
treated as a domestic corporation for purposes of this
title, but
``(B) the management and control of the corporation
occurs, directly or indirectly, primarily within the
United States,
then, solely for purposes of chapter 1 (and any other provision
of this title relating to chapter 1), the corporation shall be
treated as a domestic corporation.
``(2) Corporation described.--
``(A) In general.--A corporation is described in
this paragraph if--
``(i) the stock of such corporation is
regularly traded on an established securities
market, or
``(ii) the aggregate gross assets of such
corporation (or any predecessor thereof),
including assets under management for
investors, whether held directly or indirectly,
at any time during the taxable year or any
preceding taxable year is $50,000,000 or more.
``(B) General exception.--A corporation shall not
be treated as described in this paragraph if--
``(i) such corporation was treated as a
corporation described in this paragraph in a
preceding taxable year,
``(ii) such corporation--
``(I) is not regularly traded on an
established securities market, and
``(II) has, and is reasonably
expected to continue to have, aggregate
gross assets (including assets under
management for investors, whether held
directly or indirectly) of less than
$50,000,000, and
``(iii) the Secretary grants a waiver to
such corporation under this subparagraph.
``(C) Exception from gross assets test.--
Subparagraph (A)(ii) shall not apply to a corporation
which is a controlled foreign corporation (as defined
in section 957) and which is a member of an affiliated
group (as defined section 1504, but determined without
regard to section 1504(b)(3)) the common parent of
which--
``(i) is a domestic corporation (determined
without regard to this subsection), and
``(ii) has substantial assets (other than
cash and cash equivalents and other than stock
of foreign subsidiaries) held for use in the
active conduct of a trade or business in the
United States.
``(3) Management and control.--
``(A) In general.--The Secretary shall prescribe
regulations for purposes of determining cases in which
the management and control of a corporation is to be
treated as occurring primarily within the United
States.
``(B) Executive officers and senior management.--
Such regulations shall provide that--
``(i) the management and control of a
corporation shall be treated as occurring
primarily within the United States if
substantially all of the executive officers and
senior management of the corporation who
exercise day-to-day responsibility for making
decisions involving strategic, financial, and
operational policies of the corporation are
located primarily within the United States, and
``(ii) individuals who are not executive
officers and senior management of the
corporation (including individuals who are
officers or employees of other corporations in
the same chain of corporations as the
corporation) shall be treated as executive
officers and senior management if such
individuals exercise the day-to-day
responsibilities of the corporation described
in clause (i).
``(C) Corporations primarily holding investment
assets.--Such regulations shall also provide that the
management and control of a corporation shall be
treated as occurring primarily within the United States
if--
``(i) the assets of such corporation
(directly or indirectly) consist primarily of
assets being managed on behalf of investors,
and
``(ii) decisions about how to invest the
assets are made in the United States.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning on or after the date which is 2 years
after the date of the enactment of this Act, whether or not regulations
are issued under section 7701(p)(3) of the Internal Revenue Code of
1986, as added by this section.
SEC. 104. REPORTING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED
FINANCIAL ACCOUNTS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by inserting after section 6045B the following new
sections:
``SEC. 6045C. RETURNS REGARDING UNITED STATES BENEFICIAL OWNERS OF
FINANCIAL ACCOUNTS LOCATED IN THE UNITED STATES AND HELD
IN THE NAME OF A FOREIGN ENTITY.
``(a) Requirement of Return.--If--
``(1) any withholding agent under sections 1441 and 1442
has the control, receipt, custody, disposal, or payment of any
amount constituting gross income from sources within the United
States of any foreign entity, including a trust, corporation,
limited liability company, partnership, or foundation (other
than an entity with shares regularly traded on an established
securities market), and
``(2) such withholding agent determines for purposes of
titles 14, 18, or 31 of the United States Code that a United
States person has any beneficial interest in the foreign entity
or in the account in such entity's name (hereafter in this
section referred to as `United States beneficial owner'),
then the withholding agent shall make a return according to the forms
or regulations prescribed by the Secretary.
``(b) Required Information.--For purposes of subsection (a) the
information required to be included on the return shall include--
``(1) the name, address, and, if known, the taxpayer
identification number of the United States beneficial owner,
``(2) the known facts pertaining to the relationship of
such United States beneficial owner to the foreign entity and
the account,
``(3) the gross amount of income from sources within the
United States (including gross proceeds from brokerage
transactions), and
``(4) such other information as the Secretary may by forms
or regulations provide.
``(c) Statements To Be Furnished to Beneficial Owners With Respect
to Whom Information Is Required To Be Reported.--A withholding agent
required to make a return under subsection (a) shall furnish to each
United States beneficial owner whose name is required to be set forth
in such return a statement showing--
``(1) the name, address, and telephone number of the
information contact of the person required to make such return,
and
``(2) the information required to be shown on such return
with respect to such United States beneficial owner.
The written statement required under the preceding sentence shall be
furnished to the United States beneficial owner on or before January 31
of the year following the calendar year for which the return under
subsection (a) was required to be made. In the event the person filing
such return does not have a current address for the United States
beneficial owner, such written statement may be mailed to the address
of the foreign entity.
``SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS REGARDING ESTABLISHMENT
OF ACCOUNTS IN NON-FATCA INSTITUTIONS.
``(a) Requirement of Return.--Any financial institution directly or
indirectly opening a bank, brokerage, or other financial account for or
on behalf of an offshore entity, including a trust, corporation,
limited liability company, partnership, or foundation (other than an
entity with shares regularly traded on an established securities
market), in a non-FATCA institution (as defined in section 7701(a)(51))
at the direction of, on behalf of, or for the benefit of a United
States person shall make a return according to the forms or regulations
prescribed by the Secretary.
``(b) Required Information.--For purposes of subsection (a) the
information required to be included on the return shall include--
``(1) the name, address, and taxpayer identification number
of such United States person,
``(2) the name and address of the financial institution at
which a financial account is opened, the type of account, the
account number, the name under which the account was opened,
and the amount of the initial deposit,
``(3) if the account is held in the name of an entity, the
name and address of such entity, the type of entity, and the
name and address of any company formation agent or other
professional employed to form or acquire the entity, and
``(4) such other information as the Secretary may by forms
or regulations provide.
``(c) Statements To Be Furnished to United States Persons With
Respect to Whom Information Is Required To Be Reported.--A financial
institution required to make a return under subsection (a) shall
furnish to each United States person whose name is required to be set
forth in such return a statement showing--
``(1) the name, address, and telephone number of the
information contact of the person required to make such return,
and
``(2) the information required to be shown on such return
with respect to such United States person.
The written statement required under the preceding sentence shall be
furnished to such United States person on or before January 31 of the
year following the calendar year for which the return under subsection
(a) was required to be made.
``(d) Exemption.--The Secretary may by regulations exempt any class
of United States persons or any class of accounts or entities from the
requirements of this section if the Secretary determines that applying
this section to such persons, accounts, or entities is not necessary to
carry out the purposes of this section.''.
(b) Penalties.--
(1) Returns.--Section 6724(d)(1)(B) is amended by striking
``or'' at the end of clause (xxiv), by striking ``and'' at the
end of clause (xxv), and by adding after clause (xxv) the
following new clauses:
``(xxvi) section 6045C(a) (relating to
returns regarding United States beneficial
owners of financial accounts located in the
United States and held in the name of a foreign
entity), or
``(xxvii) section 6045D(a) (relating to
returns by financial institutions regarding
establishment of accounts at non-FATCA
institutions), and''.
(2) Payee statements.--Section 6724(d)(2) is amended by
striking ``or'' at the end of subparagraph (GG), by striking
the period at the end of subparagraph (HH), and by inserting
after subparagraph (HH) the following new subparagraphs:
``(II) section 6045C(c) (relating to returns
regarding United States beneficial owners of financial
accounts located in the United States and held in the
name of a foreign entity),
``(JJ) section 6045D(c) (relating to returns by
financial institutions regarding establishment of
accounts at non-FATCA institutions).''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by inserting after
the item relating to section 6045B the following new items:
``Sec. 6045C. Returns regarding United States beneficial owners of
financial accounts located in the United
States and held in the name of a foreign
entity.
``Sec. 6045D. Returns by financial institutions regarding establishment
of accounts at non-FATCA institutions.''.
(d) Additional Penalties.--
(1) Additional penalties on banks.--Section 5239(b)(1) of
the Revised Statutes (12 U.S.C. 93(b)(1)) is amended by
inserting ``or any of the provisions of section 6045D of the
Internal Revenue Code of 1986,'' after ``any regulation issued
pursuant to,''.
(2) Additional penalties on securities firms.--Section
21(d)(3)(A) of the Securities Exchange Act of 1934 (15 U.S.C.
78u(d)(3)(A)) is amended by inserting ``any of the provisions
of section 6045D of the Internal Revenue Code of 1986,'' after
``the rules or regulations thereunder,''.
(e) Regulatory Authority and Effective Date.--
(1) Regulatory authority.--Not later than 180 days after
the date of the enactment of this Act, the Secretary of the
Treasury shall adopt regulations, forms, or other guidance
necessary to implement this section.
(2) Effective date.--Section 6045C of the Internal Revenue
Code of 1986 (as added by this section) and the amendment made
by subsection (d)(1) shall take effect with respect to amounts
paid into foreign owned accounts located in the United States
after December 31 of the year of the date of the enactment of
this Act. Section 6045D of such Code (as so added) and the
amendment made by subsection (d)(2) shall take effect with
respect to accounts opened after December 31 of the year of the
date of the enactment of this Act.
SEC. 105. SWAP PAYMENTS MADE FROM THE UNITED STATES TO PERSONS
OFFSHORE.
(a) Tax on Swap Payments Received by Foreign Persons.--Section
871(a)(1) is amended--
(1) by inserting ``swap payments (as identified in section
1256(b)(2)(B)),'' after ``annuities,'' in subparagraph (A), and
(2) by adding at the end the following new sentence: ``In
the case of swap payments, the source of a swap payment is
determined by reference to the location of the payor.''.
(b) Tax on Swap Payments Received by Foreign Corporations.--Section
881(a) is amended--
(1) by inserting ``swap payments (as identified in section
1256(b)(2)(B)),'' after ``annuities,'' in paragraph (1), and
(2) by adding at the end the following new sentence: ``In
the case of swap payments, the source of a swap payment is
determined by reference to the location of the payor.''.
SEC. 106. TAX ON INCOME OF CONTROLLED FOREIGN CORPORATION DEPOSITED IN
FINANCIAL ACCOUNT LOCATED IN THE UNITED STATES.
Section 952(a) is amended by adding at the end the following new
sentence: ``Notwithstanding section 956(c)(2)(A), any property (as
defined in section 317(a)) of such controlled foreign corporation that
is deposited and maintained, directly or indirectly, for or on behalf
of such corporation in a financial account located in the United
States, including in a correspondent account of a financial
institution, is a constructive distribution with respect to the stock
which such United States shareholder owns.''.
Subtitle B--Other Measures to Combat Tax Haven and Tax Shelter Abuses
SEC. 111. COUNTRY-BY-COUNTRY REPORTING.
(a) In General.--Section 13 of the Securities Exchange Act of 1934
(15 U.S.C. 78m) is amended by adding at the end the following new
subsection:
``(r) Disclosure of Financial Performance on a Country-by-Country
Basis.--
``(1) Definitions.--In this subsection--
``(A) the term `issuer group' shall mean the
issuer, each subsidiary of the issuer, and each entity
under the control of the issuer;
``(B) the term `country of operation' shall mean
each country in which a member of the issuer group is
incorporated or organized, or maintains employees or
conducts business activities; and
``(C) the term `world-wide allocation of group
members' shall mean each member of the issuer group
listed according to their country of operation.
``(2) Country-by-country reporting.--The Commission shall
issue rules that require each issuer to include in an annual
report filed by the issuer with the Commission information
indicative of financial performance on a country-by-country
basis during the covered period, including--
``(A) a list of each country of operation;
``(B) the world-wide allocation of group members;
``(C) the financial performance of each member of
the issuer group in each country of operation, without
exception, including, and set forth according to--
``(i) total number of employees physically
working in the country of operation;
``(ii) total sales by the member of the
issuer group to third parties;
``(iii) total sales by the member of the
issuer group to other members of the issuer
group and total sales to each such member;
``(iv) total purchases by the member of the
issuer group from third parties;
``(v) total purchases by the member of the
issuer group from other members of the issuer
group and total purchases from each such
member;
``(vi) total financing payments made by the
member of the issuer group to third parties;
``(vii) total financing payments made by
the member of the issuer group to other members
of the issuer group and total financing
payments made to each such member;
``(viii) pre-tax gross revenues of the
member of the issuer group;
``(ix) pre-tax net revenues of the member
of the issuer group; and
``(x) such other financial information as
the Commission may determine is indicative of
the financial performance of the issuer;
``(D) the tax paid by each member of the issuer
group in each country of operation, without exception,
including, and set forth according to--
``(i) total Federal, regional, local, and
other tax assessed against each member of the
issuer group with respect to each country of
operation during the covered period;
``(ii) after taking into account any tax
deductions, tax credits, tax forgiveness, or
other tax benefits or waivers, total amount of
tax paid from the treasury of the member of the
issuer group to the government of each country
of operation during the covered period; and
``(iii) such other financial information as
the Commission may determine is necessary or
appropriate to inform the public of the tax
obligations of and payments by each member of
the issuer group; and
``(E) such other financial information as the
Commission may determine is necessary or appropriate in
the public interest or for the protection of
investors.''.
(b) Rulemaking.--
(1) Deadlines.--Not later than 180 days after the date of
the enactment of this Act, the Commission shall issue a
proposed rule to carry out this section and, not later than 270
days after the date of the enactment of this Act, shall issue a
final rule to carry out this section.
(2) Consultation.--In issuing the rules under this section,
the Commission shall consult with the Secretary of the Treasury
and the Commissioner of Internal Revenue and, to the extent
practicable and in furtherance of its obligation to protect
investors, shall issue rules that support Federal efforts to
reduce offshore tax evasion and abuses.
(3) Interactive data format.--The rules issued under this
section shall require that the information provided by issuers
in their annual reports be submitted in an interactive data
format as provided in section 13(q)(2)(D) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(q)(2)(D)), and to the
extent practicable, the Commission shall make available online,
to the public, a compilation of such information.
(4) Aggregate data.--The rules may allow issuers to provide
the financial information required under section 13(r) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(r)), as added by
this section, aggregated at the level of each country of
operation instead of with respect to each member of the issuer
group individually, provided that the Commission retains the
authority, at its discretion, to require further
disaggregation.
(5) Effective date.--Each issuer shall be required to
comply with the requirements of section 13(r) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(r)), as added by this
section, not later than the date on which the issuer must file
with the Commission its first annual report that is due not
later than 1 year after the date on which the Commission issues
a final rule under this section.
SEC. 112. PENALTY FOR FAILING TO DISCLOSE OFFSHORE HOLDINGS.
(a) Securities Exchange Act of 1934.--Section 21(d)(3)(B) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by
adding at the end the following:
``(iv) Fourth tier.--Notwithstanding clauses (i),
(ii), and (iii), the amount of the penalty for each
such violation shall not exceed $1,000,000 for any
person if the violation described in subparagraph (A)
involved a knowing failure to disclose any holding or
transaction involving equity or debt instruments of an
issuer and known by such person to involve a foreign
entity, including any trust, corporation, limited
liability company, partnership, or foundation that is
directly or indirectly controlled by such person, and
which would have been otherwise subject to disclosure
by such person under this title.''.
(b) Securities Act of 1933.--Section 20(d)(2) of the Securities Act
of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the
following:
``(D) Fourth tier.--Notwithstanding subparagraphs
(A), (B), and (C), the amount of penalty for each such
violation shall not exceed $1,000,000 for any person,
if the violation described in paragraph (1) involved a
knowing failure to disclose any holding or transaction
involving equity or debt instruments of an issuer and
known by such person to involve a foreign entity,
including any trust, corporation, limited liability
company, partnership, or foundation, directly or
indirectly controlled by such person, and which would
have been otherwise subject to disclosure by such
person under this title.''.
(c) Investment Company Act of 1940.--Section 9(d)(2) of the
Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by
adding at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs
(A), (B), and (C), the amount of penalty for each such
violation shall not exceed $1,000,000 for any person,
if the violation described in paragraph (1) involved a
knowing failure to disclose any holding or transaction
involving equity or debt instruments of an issuer and
known by such person to involve a foreign entity,
including any trust, corporation, limited liability
company, partnership, or foundation, directly or
indirectly controlled by such person, and which would
have been otherwise subject to disclosure by such
person under this title.''.
(d) Investment Advisers Act of 1940.--Section 203(i)(2) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by
adding at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs
(A), (B), and (C), the amount of penalty for each such
violation shall not exceed $1,000,000 for any person,
if the violation described in paragraph (1) involved a
knowing failure to disclose any holding or transaction
involving equity or debt instruments of an issuer and
known by such person to involve a foreign entity,
including any trust, corporation, limited liability
company, partnership, or foundation, directly or
indirectly controlled by such person, and which would
have been otherwise subject to disclosure by such
person under this title.''.
SEC. 113. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR PRIVATE FUNDS AND
VENTURE CAPITAL FUNDS.
(a) In General.--
(1) Proposed rule.--Not later than 90 days after the date
of the enactment of this Act, the Secretary of the Treasury, in
consultation with the Chairman of the Securities and Exchange
Commission and the Chairman of the Commodity Futures Trading
Commission, shall publish a proposed rule in the Federal
Register requiring any private fund (as defined in paragraph
(29) of section 202(a) of the Investment Advisors Act of 1940
(15 U.S.C. 80b-2(a)) or venture capital fund (within the
meaning of subsection (l) of section 203 of such Act (15 U.S.C.
80b-3) to establish anti-money laundering programs and submit
suspicious activity reports under subsections (g) and (h) of
section 5318 of title 31, United States Code.
(2) Final rule.--Not later than 180 days after the date of
the enactment of this Act, the Secretary of the Treasury shall
publish a final rule in the Federal Register on the matter
described in paragraph (1).
(b) Contents.--The final rule published under this section shall
require, at a minimum, that to safeguard against terrorist financing
and money laundering, any such private fund or venture capital fund
shall--
(1) use risk-based due diligence policies, procedures, and
controls that are reasonably designed to ascertain the identity
of any foreign person (including the nominal and beneficial
owner or beneficiary of a foreign corporation, partnership,
trust, or other foreign entity) planning to supply or supplying
funds to be invested with the advice or assistance of such
private fund or venture capital fund; and
(2) be subject to section 5318(k)(2) of title 31, United
States Code.
SEC. 114. ANTI-MONEY LAUNDERING REQUIREMENTS FOR FORMATION AGENTS.
(a) Anti-Money Laundering Obligations for Formation Agents.--
Section 5312(a)(2) of title 31, United States Code, is amended, by--
(1) in subparagraph (Y), by striking ``or'' at the end;
(2) by redesignating subparagraph (Z) as subparagraph (AA);
and
(3) by inserting after subparagraph (Y) the following:
``(Z) persons engaged in the business of forming
new corporations, limited liability companies,
partnerships, trusts, or other legal entities; or''.
(b) Deadline for Anti-Money Laundering Rule for Formation Agents.--
(1) Proposed rule.--Not later than 120 days after the date
of the enactment of this Act, the Secretary of the Treasury, in
consultation with the Attorney General of the United States,
the Secretary of Homeland Security, and the Commissioner of
Internal Revenue, shall publish a proposed rule in the Federal
Register requiring persons described in section 5312(a)(2)(Z)
of title 31, United States Code, as added by this section, to
establish anti-money laundering programs under subsections (g)
and (h) of section 5318 of that title.
(2) Final rule.--Not later than 270 days after such date of
enactment, the Secretary of the Treasury shall publish a final
rule in the Federal Register on the matter described in
paragraph (1).
(3) Exclusions.--Any rule promulgated under this subsection
shall exclude from the category of persons engaged in the
business of forming new corporations or other entities--
(A) any government agency; and
(B) any attorney or law firm that uses a paid
formation agent operating within the United States to
form such corporations or other entities.
SEC. 115. STRENGTHENING JOHN DOE SUMMONS PROCEEDINGS.
(a) In General.--Subsection (f) of section 7609 is amended to read
as follows:
``(f) Additional Requirement in the Case of a John Doe Summons.--
``(1) General rule.--Any summons described in subsection
(c)(1) which does not identify the person with respect to whose
liability the summons is issued may be served only after a
court proceeding in which the Secretary establishes that--
``(A) the summons relates to the investigation of a
particular person or ascertainable group or class of
persons,
``(B) there is a reasonable basis for believing
that such person or group or class of persons may fail
or may have failed to comply with any provision of any
internal revenue law, and
``(C) the information sought to be obtained from
the examination of the records or testimony (and the
identity of the person or persons with respect to whose
liability the summons is issued) is not readily
available from other sources.
``(2) Exception.--Paragraph (1) shall not apply to any
summons which specifies that it is limited to information
regarding a United States correspondent account (as defined in
section 5318A(e)(1)(B) of title 31, United States Code) or a
United States payable-through account (as defined in section
5318A(e)(1)(C) of such title) of a financial institution that
is held at a non-FATCA institution (as defined in section
7701(a)(51)).
``(3) Presumption in cases involving non-fatca
institutions.--For purposes of this section, in any case in
which the particular person or ascertainable group or class of
persons have financial accounts in or transactions related to a
non-FATCA institution (as defined in section 7701(a)(51)),
there shall be a presumption that there is a reasonable basis
for believing that such person or group or class of persons may
fail or may have failed to comply with provisions of internal
revenue law.
``(4) Project john doe summonses.--
``(A) In general.--Notwithstanding the requirements
of paragraph (1), the Secretary may issue a summons
described in paragraph (1) if the summons--
``(i) relates to a project which is
approved under subparagraph (B),
``(ii) is issued to a person who is a
member of the group or class established under
subparagraph (B)(i), and
``(iii) is issued within 3 years of the
date on which such project was approved under
subparagraph (B).
``(B) Approval of projects.--A project may only be
approved under this subparagraph after a court
proceeding in which the Secretary establishes that--
``(i) any summons issues with respect to
the project will be issued to a member of an
ascertainable group or class of persons, and
``(ii) any summons issued with respect to
such project will meet the requirements of
paragraph (1).
``(C) Extension.--Upon application of the
Secretary, the court may extend the time for issuing
such summonses under subparagraph (A)(i) for additional
3-year periods, but only if the court continues to
exercise oversight of such project under subparagraph
(D).
``(D) Ongoing court oversight.--During any period
in which the Secretary is authorized to issue summonses
in relation to a project approved under subparagraph
(B) (including during any extension under subparagraph
(C)), the Secretary shall report annually to the court
on the use of such authority, provide copies of all
summonses with such report, and comply with the court's
direction with respect to the issuance of any John Doe
summons under such project.''.
(b) Jurisdiction of Court.--
(1) In general.--Paragraph (1) of section 7609(h) is
amended by inserting after the first sentence the following new
sentence: ``Any United States district court in which a member
of the group or class to which a summons may be issued resides
or is found shall have jurisdiction to hear and determine the
approval of a project under subsection (f)(2)(B).''.
(2) Conforming amendment.--The first sentence of section
7609(h)(1) is amended by striking ``(f)'' and inserting
``(f)(1)''.
(c) Effective Date.--The amendments made by this section shall
apply to summonses issued after the date of the enactment of this Act.
SEC. 116. IMPROVING ENFORCEMENT OF FOREIGN FINANCIAL ACCOUNT REPORTING.
(a) Clarifying the Connection of Foreign Financial Account
Reporting to Tax Administration.--Paragraph (4) of section 6103(b) is
amended by adding at the end the following new sentence:
``For purposes of subparagraph (A)(i), section 5314 of title
31, United States Code, and sections 5321 and 5322 of such
title (as such sections pertain to such section 5314), shall be
considered related statutes.''.
(b) Simplifying the Calculation of Foreign Financial Account
Reporting Penalties.--Section 5321(a)(5)(D)(ii) of title 31, United
States Code, is amended by striking ``the balance in the account at the
time of the violation'' and inserting ``the highest balance in the
account during the reporting period to which the violation relates''.
(c) Clarifying the Use of Suspicious Activity Reports Under the
Bank Secrecy Act for Civil Tax Law Enforcement.--Section 5319 of title
31, United States Code, is amended by inserting ``the civil and
criminal enforcement divisions of the Internal Revenue Service,'' after
``including''.
Subtitle C--Combating Tax Shelter Promoters
SEC. 121. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.
(a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 is
amended--
(1) by redesignating subsections (b) and (c) as subsections
(d) and (e), respectively,
(2) by striking ``a penalty'' and all that follows through
the period in the first sentence of subsection (a) and
inserting ``a penalty determined under subsection (b)'', and
(3) by inserting after subsection (a) the following new
subsections:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall not exceed 150 percent of the gross
income derived (or to be derived) from such activity by the
person or persons subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of an activity described in subsection (a),
each instance in which income was derived by the person or
persons subject to such penalty, and each person who
participated in such an activity.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to such activity, all
such persons shall be jointly and severally liable for the
penalty under such subsection.
``(c) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be considered an ordinary and
necessary expense in carrying on a trade or business for purposes of
this title and shall not be deductible by the person who is subject to
such penalty or who makes such payment.''.
(b) Conforming Amendment.--Section 6700(a) is amended by striking
the last sentence.
(c) Effective Date.--The amendments made by this section shall
apply to activities after the date of the enactment of this Act.
SEC. 122. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX
LIABILITY.
(a) In General.--Section 6701(a) is amended--
(1) by inserting ``the tax liability or'' after ``respect
to,'' in paragraph (1),
(2) by inserting ``aid, assistance, procurement, or advice
with respect to such'' before ``portion'' both places it
appears in paragraphs (2) and (3), and
(3) by inserting ``instance of aid, assistance,
procurement, or advice or each such'' before ``document'' in
the matter following paragraph (3).
(b) Amount of Penalty.--Subsection (b) of section 6701 is amended
to read as follows:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall not exceed 150 percent of the gross
income derived (or to be derived) from such aid, assistance,
procurement, or advice provided by the person or persons
subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of aid, assistance, procurement, or advice
described in subsection (a), each instance in which income was
derived by the person or persons subject to such penalty, and
each person who made such an understatement of the liability
for tax.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to providing such aid,
assistance, procurement, or advice, all such persons shall be
jointly and severally liable for the penalty under such
subsection.''.
(c) Penalty Not Deductible.--Section 6701 is amended by adding at
the end the following new subsection:
``(g) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be considered an ordinary and
necessary expense in carrying on a trade or business for purposes of
this title and shall not be deductible by the person who is subject to
such penalty or who makes such payment.''.
(d) Effective Date.--The amendments made by this section shall
apply to activities after the date of the enactment of this Act.
SEC. 123. PROHIBITED FEE ARRANGEMENT.
(a) In General.--Section 6701, as amended by this Act, is amended--
(1) by redesignating subsections (f) and (g) as subsections
(g) and (h), respectively,
(2) by striking ``subsection (a).'' in paragraphs (2) and
(3) of subsection (g) (as redesignated by paragraph (1)) and
inserting ``subsection (a) or (f).'', and
(3) by inserting after subsection (e) the following new
subsection:
``(f) Prohibited Fee Arrangement.--
``(1) In general.--Any person who makes an agreement for,
charges, or collects a fee which is for services provided in
connection with the internal revenue laws, and the amount of
which is calculated according to, or is dependent upon, a
projected or actual amount of--
``(A) tax savings or benefits, or
``(B) losses which can be used to offset other
taxable income,
shall pay a penalty with respect to each such fee activity in
the amount determined under subsection (b).
``(2) Rules.--The Secretary may issue rules to carry out
the purposes of this subsection and may provide exceptions for
fee arrangements that are in the public interest.''.
(b) Effective Date.--The amendments made by this section shall
apply to fee agreements, charges, and collections made after the date
of the enactment of this Act.
SEC. 124. PREVENTING TAX SHELTER ACTIVITIES BY FINANCIAL INSTITUTIONS.
(a) Examinations.--
(1) Development of examination techniques.--Each of the
Federal banking agencies and the Commission shall, in
consultation with the Internal Revenue Service, develop
examination techniques to detect potential violations of
section 6700 or 6701 of the Internal Revenue Code of 1986, by
depository institutions, brokers, dealers, and investment
advisers, as appropriate.
(2) Implementation.--Each of the Federal banking agencies
and the Commission shall implement the examination techniques
developed under paragraph (1) with respect to each of the
depository institutions, brokers, dealers, or investment
advisers subject to their enforcement authority. Such
examination shall, to the extent possible, be combined with any
examination by such agency otherwise required or authorized by
Federal law.
(b) Report to Internal Revenue Service.--In any case in which an
examination conducted under this section with respect to a financial
institution or other entity reveals a potential violation, such agency
shall promptly notify the Internal Revenue Service of such potential
violation for investigation and enforcement by the Internal Revenue
Service, in accordance with applicable provisions of law.
(c) Report to Congress.--The Federal banking agencies and the
Commission shall submit a joint written report to Congress in 2013 on
their progress in preventing violations of sections 6700 and 6701 of
the Internal Revenue Code of 1986, by depository institutions, brokers,
dealers, and investment advisers, as appropriate.
(d) Definitions.--For purposes of this section--
(1) the terms ``broker'', ``dealer'', and ``investment
adviser'' have the same meanings as in section 3 of the
Securities Exchange Act of 1934 (15 U.S.C. 78c);
(2) the term ``Commission'' means the Securities and
Exchange Commission;
(3) the term ``depository institution'' has the same
meaning as in section 3(c) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(c));
(4) the term ``Federal banking agencies'' has the same
meaning as in section 3(q) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(q)); and
(5) the term ``Secretary'' means the Secretary of the
Treasury.
SEC. 125. INFORMATION SHARING FOR ENFORCEMENT PURPOSES.
(a) Promotion of Prohibited Tax Shelters or Tax Avoidance
Schemes.--Section 6103(h) is amended by adding at the end the following
new paragraph:
``(7) Disclosure of returns and return information related
to promotion of prohibited tax shelters or tax avoidance
schemes.--
``(A) Written request.--Upon receipt by the
Secretary of a written request which meets the
requirements of subparagraph (B) from the head of the
United States Securities and Exchange Commission, an
appropriate Federal banking agency as defined under
section 1813(q) of title 12, United States Code, or the
Public Company Accounting Oversight Board, a return or
return information shall be disclosed to such
requestor's officers and employees who are personally
and directly engaged in an investigation, examination,
or proceeding by such requestor to evaluate, determine,
penalize, or deter conduct by a financial institution,
issuer, or public accounting firm, or associated
person, in connection with a potential or actual
violation of section 6700 (promotion of abusive tax
shelters), 6701 (aiding and abetting understatement of
tax liability), or activities related to promoting or
facilitating inappropriate tax avoidance or tax
evasion. Such disclosure shall be solely for use by
such officers and employees in such investigation,
examination, or proceeding. In the discretion of the
Secretary, such disclosure may take the form of the
participation of Internal Revenue Service employees in
a joint investigation, examination, or proceeding with
the Securities Exchange Commission, Federal banking
agency, or Public Company Accounting Oversight Board.
``(B) Requirements.--A request meets the
requirements of this subparagraph if it sets forth--
``(i) the nature of the investigation,
examination, or proceeding,
``(ii) the statutory authority under which
such investigation, examination, or proceeding
is being conducted,
``(iii) the name or names of the financial
institution, issuer, or public accounting firm
to which such return information relates,
``(iv) the taxable period or periods to
which such return information relates, and
``(v) the specific reason or reasons why
such disclosure is, or may be, relevant to such
investigation, examination or proceeding.
``(C) Financial institution.--For the purposes of
this paragraph, the term `financial institution' means
a depository institution, foreign bank, insured
institution, industrial loan company, broker, dealer,
investment company, investment advisor, or other entity
subject to regulation or oversight by the United States
Securities and Exchange Commission or an appropriate
Federal banking agency.''.
(b) Financial and Accounting Fraud Investigations.--Section 6103(i)
is amended by adding at the end the following new paragraph:
``(9) Disclosure of returns and return information for use
in financial and accounting fraud investigations.--
``(A) Written request.--Upon receipt by the
Secretary of a written request which meets the
requirements of subparagraph (B) from the head of the
United States Securities and Exchange Commission or the
Public Company Accounting Oversight Board, a return or
return information shall be disclosed to such
requestor's officers and employees who are personally
and directly engaged in an investigation, examination,
or proceeding by such requester to evaluate the
accuracy of a financial statement or report, or to
determine whether to require a restatement, penalize,
or deter conduct by an issuer, investment company, or
public accounting firm, or associated person, in
connection with a potential or actual violation of
auditing standards or prohibitions against false or
misleading statements or omissions in financial
statements or reports. Such disclosure shall be solely
for use by such officers and employees in such
investigation, examination, or proceeding.
``(B) Requirements.--A request meets the
requirements of this subparagraph if it sets forth--
``(i) the nature of the investigation,
examination, or proceeding,
``(ii) the statutory authority under which
such investigation, examination, or proceeding
is being conducted,
``(iii) the name or names of the issuer,
investment company, or public accounting firm
to which such return information relates,
``(iv) the taxable period or periods to
which such return information relates, and
``(v) the specific reason or reasons why
such disclosure is, or may be, relevant to such
investigation, examination or proceeding.''.
(c) Effective Date.--The amendments made by this section shall
apply to disclosures and to information and document requests made
after the date of the enactment of this Act.
SEC. 126. DISCLOSURE OF INFORMATION TO CONGRESS.
(a) Disclosure by Tax Return Preparer.--
(1) In general.--Subparagraph (B) of section 7216(b)(1) is
amended to read as follows:
``(B) pursuant to any 1 of the following documents,
if clearly identified:
``(i) The order of any Federal, State, or
local court of record.
``(ii) A subpoena issued by a Federal or
State grand jury.
``(iii) An administrative order, summons,
or subpoena which is issued in the performance
of its duties by--
``(I) any Federal agency, including
Congress or any committee or
subcommittee thereof, or
``(II) any State agency, body, or
commission charged under the laws of
the State or a political subdivision of
the State with the licensing,
registration, or regulation of tax
return preparers.''.
(2) Effective date.--The amendment made by this subsection
shall apply to disclosures made after the date of the enactment
of this Act pursuant to any document in effect on or after such
date.
(b) Disclosure by Secretary.--Paragraph (2) of section 6104(a) is
amended to read as follows:
``(2) Inspection by congress.--
``(A) In general.--Upon receipt of a written
request from a committee or subcommittee of Congress,
copies of documents related to a determination by the
Secretary to grant, deny, revoke, or restore an
organization's exemption from taxation under section
501 shall be provided to such committee or
subcommittee, including any application, notice of
status, or supporting information provided by such
organization to the Internal Revenue Service; any
letter, analysis, or other document produced by or for
the Internal Revenue Service evaluating, determining,
explaining, or relating to the tax exempt status of
such organization (other than returns, unless such
returns are available to the public under this section
or section 6103 or 6110); and any communication between
the Internal Revenue Service and any other party
relating to the tax exempt status of such organization.
``(B) Additional information.--Section 6103(f)
shall apply with respect to--
``(i) the application for exemption of any
organization described in subsection (c) or (d)
of section 501 which is exempt from taxation
under section 501(a) for any taxable year and
any application referred to in subparagraph (B)
of subsection (a)(1) of this section, and
``(ii) any other papers which are in the
possession of the Secretary and which relate to
such application,
as if such papers constituted returns.''.
(c) Effective Date.--The amendments made by this section shall
apply to disclosures and to information and document requests made
after the date of the enactment of this Act.
SEC. 127. TAX OPINION STANDARDS FOR TAX PRACTITIONERS.
Section 330(d) of title 31, United States Code, is amended to read
as follows:
``(d) The Secretary of the Treasury shall impose standards
applicable to the rendering of written advice with respect to any
listed transaction or any entity, plan, arrangement, or other
transaction which has a potential for tax avoidance or evasion. Such
standards shall address, but not be limited to, the following issues:
``(1) Independence of the practitioner issuing such written
advice from persons promoting, marketing, or recommending the
subject of the advice.
``(2) Collaboration among practitioners, or between a
practitioner and other party, which could result in such
collaborating parties having a joint financial interest in the
subject of the advice.
``(3) Avoidance of conflicts of interest which would impair
auditor independence.
``(4) For written advice issued by a firm, standards for
reviewing the advice and ensuring the consensus support of the
firm for positions taken.
``(5) Reliance on reasonable factual representations by the
taxpayer and other parties.
``(6) Appropriateness of the fees charged by the
practitioner for the written advice.
``(7) Preventing practitioners and firms from aiding or
abetting the understatement of tax liability by clients.
``(8) Banning the promotion of potentially abusive or
illegal tax shelters.''.
Subtitle D--Reformation of U.S. International Tax System
SEC. 131. ALLOCATION OF EXPENSES AND TAXES ON BASIS OF REPATRIATION OF
FOREIGN INCOME.
(a) In General.--Part III of subchapter N of chapter 1 is amended
by inserting after subpart G the following new subpart:
``Subpart H--Special Rules for Allocation of Foreign-Related Deductions
and Foreign Tax Credits
``Sec. 975. Deductions allocated to deferred foreign income may not
offset United States source income.
``Sec. 976. Amount of foreign taxes computed on overall basis.
``Sec. 977. Application of subpart.
``SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOREIGN INCOME MAY NOT
OFFSET UNITED STATES SOURCE INCOME.
``(a) Current Year Deductions.--For purposes of this chapter,
foreign-related deductions for any taxable year--
``(1) shall be taken into account for such taxable year
only to the extent that such deductions are allocable to
currently-taxed foreign income, and
``(2) to the extent not so allowed, shall be taken into
account in subsequent taxable years as provided in subsection
(b).
Foreign-related deductions shall be allocated to currently taxed
foreign income in the same proportion which currently taxed foreign
income bears to the sum of currently taxed foreign income and deferred
foreign income.
``(b) Deductions Related to Repatriated Deferred Foreign Income.--
``(1) In general.--If there is repatriated foreign income
for a taxable year, the portion of the previously deferred
deductions allocated to the repatriated foreign income shall be
taken into account for the taxable year as a deduction
allocated to income from sources outside the United States. Any
such amount shall not be included in foreign-related deductions
for purposes of applying subsection (a) to such taxable year.
``(2) Portion of previously deferred deductions.--For
purposes of paragraph (1), the portion of the previously
deferred deductions allocated to repatriated foreign income
is--
``(A) the amount which bears the same proportion to
such deductions, as
``(B) the repatriated income bears to the
previously deferred foreign income.
``(c) Definitions and Special Rule.--For purposes of this section--
``(1) Foreign-related deductions.--The term `foreign-
related deductions' means the total amount of deductions and
expenses which would be allocated or apportioned to gross
income from sources without the United States for the taxable
year if both the currently-taxed foreign income and deferred
foreign income were taken into account.
``(2) Currently-taxed foreign income.--The term `currently-
taxed foreign income' means the amount of gross income from
sources without the United States for the taxable year
(determined without regard to repatriated foreign income for
such year).
``(3) Deferred foreign income.--The term `deferred foreign
income' means the excess of--
``(A) the amount that would be includible in gross
income under subpart F of this part for the taxable
year if--
``(i) all controlled foreign corporations
were treated as one controlled foreign
corporation, and
``(ii) all earnings and profits of all
controlled foreign corporations were subpart F
income (as defined in section 952), over
``(B) the sum of--
``(i) all dividends received during the
taxable year from controlled foreign
corporations, plus
``(ii) amounts includible in gross income
under section 951(a).
``(4) Previously deferred foreign income.--The term
`previously deferred foreign income' means the aggregate amount
of deferred foreign income for all prior taxable years to which
this part applies, determined as of the beginning of the
taxable year, reduced by the repatriated foreign income for all
such prior taxable years.
``(5) Repatriated foreign income.--The term `repatriated
foreign income' means the amount included in gross income on
account of distributions out of previously deferred foreign
income.
``(6) Previously deferred deductions.--The term `previously
deferred deductions' means the aggregate amount of foreign-
related deductions not taken into account under subsection (a)
for all prior taxable years (determined as of the beginning of
the taxable year), reduced by any amounts taken into account
under subsection (b) for such prior taxable years.
``(7) Treatment of certain foreign taxes.--
``(A) Paid by controlled foreign corporation.--
Section 78 shall not apply for purposes of determining
currently-taxed foreign income and deferred foreign
income.
``(B) Paid by taxpayer.--For purposes of
determining currently-taxed foreign income, gross
income from sources without the United States shall be
reduced by the aggregate amount of taxes described in
the applicable paragraph of section 901(b) which are
paid by the taxpayer (without regard to sections 902
and 960) during the taxable year.
``(8) Coordination with section 976.--In determining
currently-taxed foreign income and deferred foreign income, the
amount of deemed foreign tax credits shall be determined with
regard to section 976.
``SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON OVERALL BASIS.
``(a) Current Year Allowance.--For purposes of this chapter, the
amount taken into account as foreign income taxes for any taxable year
shall be an amount which bears the same ratio to the total foreign
income taxes for that taxable year as--
``(1) the currently-taxed foreign income for such taxable
year, bears to
``(2) the sum of the currently-taxed foreign income and
deferred foreign income for such year.
The portion of the total foreign income taxes for any taxable year not
taken into account under the preceding sentence for a taxable year
shall only be taken into account as provided in subsection (b) (and
shall not be taken into account for purposes of applying sections 902
and 960).
``(b) Allowance Related to Repatriated Deferred Foreign Income.--
``(1) In general.--If there is repatriated foreign income
for any taxable year, the portion of the previously deferred
foreign income taxes paid or accrued during such taxable year
shall be taken into account for the taxable year as foreign
taxes paid or accrued. Any such taxes so taken into account
shall not be included in foreign income taxes for purposes of
applying subsection (a) to such taxable year.
``(2) Portion of previously deferred foreign income
taxes.--For purposes of paragraph (1), the portion of the
previously deferred foreign income taxes allocated to
repatriated deferred foreign income is--
``(A) the amount which bears the same proportion to
such taxes, as
``(B) the repatriated deferred income bears to the
previously deferred foreign income.
``(c) Definitions and Special Rule.--For purposes of this section--
``(1) Previously deferred foreign income taxes.--The term
`previously deferred foreign income taxes' means the aggregate
amount of total foreign income taxes not taken into account
under subsection (a) for all prior taxable years (determined as
of the beginning of the taxable year), reduced by any amounts
taken into account under subsection (b) for such prior taxable
years.
``(2) Total foreign income taxes.--The term `total foreign
income taxes' means the sum of foreign income taxes paid or
accrued during the taxable year (determined without regard to
section 904(c)) plus the increase in foreign income taxes that
would be paid or accrued during the taxable year under sections
902 and 960 if--
``(A) all controlled foreign corporations were
treated as one controlled foreign corporation, and
``(B) all earnings and profits of all controlled
foreign corporations were subpart F income (as defined
in section 952).
``(3) Foreign income taxes.--The term `foreign income
taxes' means any income, war profits, or excess profits taxes
paid by the taxpayer to any foreign country or possession of
the United States.
``(4) Currently-taxed foreign income and deferred foreign
income.--The terms `currently-taxed foreign income' and
`deferred foreign income' have the meanings given such terms by
section 975(c)).
``SEC. 977. APPLICATION OF SUBPART.
``This subpart--
``(1) shall be applied before subpart A, and
``(2) shall be applied separately with respect to the
categories of income specified in section 904(d)(1).''.
(b) Clerical Amendment.--The table of subparts for part III of
subpart N of chapter 1 is amended by inserting after the item relating
to subpart G the following new item:
``subpart h. special rules for allocation of foreign-related deductions
and foreign tax credits.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 132. EXCESS INCOME FROM TRANSFERS OF INTANGIBLES TO LOW-TAXED
AFFILIATES TREATED AS SUBPART F INCOME.
(a) In General.--Subsection (a) of section 954 is amended by
inserting after paragraph (3) the following new paragraph:
``(4) the foreign base company excess intangible income for
the taxable year (determined under subsection (f) and reduced
as provided in subsection (b)(5)), and''.
(b) Foreign Base Company Excess Intangible Income.--Section 954 is
amended by inserting after subsection (e) the following new subsection:
``(f) Foreign Base Company Excess Intangible Income.--For purposes
of subsection (a)(4) and this subsection:
``(1) Foreign base company excess intangible income
defined.--
``(A) In general.--The term `foreign base company
excess intangible income' means, with respect to any
covered intangible, the excess of--
``(i) the sum of--
``(I) gross income from the sale,
lease, license, or other disposition of
property in which such covered
intangible is used directly or
indirectly, and
``(II) gross income from the
provision of services related to such
covered intangible or in connection
with property in which such covered
intangible is used directly or
indirectly, over
``(ii) 150 percent of the costs properly
allocated and apportioned to the gross income
taken into account under clause (i) other than
expenses for interest and taxes and any
expenses which are not directly allocable to
such gross income.
``(B) Same country income not taken into account.--
If--
``(i) the sale, lease, license, or other
disposition of the property referred to in
subparagraph (A)(i)(I) is for use, consumption,
or disposition in the country under the laws of
which the controlled foreign corporation is
created or organized, or
``(ii) the services referred to in
subparagraph (A)(i)(II) are performed in such
country,
the gross income from such sale, lease, license, or
other disposition, or provision of services, shall not
be taken into account under subparagraph (A)(i).
``(2) Exception based on effective foreign income tax
rate.--
``(A) In general.--Foreign base company excess
intangible income shall not include the applicable
percentage of any item of income received by a
controlled foreign corporation if the taxpayer
establishes to the satisfaction of the Secretary that
such income was subject to an effective rate of income
tax imposed by a foreign country in excess of 5
percent.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the term `applicable percentage'
means the ratio (expressed as a percentage), not
greater than 100 percent, of--
``(i) the number of percentage points by
which the effective rate of income tax referred
to in subparagraph (A) exceeds 5 percentage
points, over
``(ii) 10 percentage points.
``(C) Treatment of losses in determining effective
rate of foreign income tax.--For purposes of
determining the effective rate of income tax imposed by
any foreign country--
``(i) such effective rate shall be
determined without regard to any losses carried
to the relevant taxable year, and
``(ii) to the extent the income with
respect to such intangible reduces losses in
the relevant taxable year, such effective rate
shall be treated as being the effective rate
which would have been imposed on such income
without regard to such losses.
``(3) Covered intangible.--The term `covered intangible'
means, with respect to any controlled foreign corporation, any
intangible property (as defined in section 936(h)(3)(B))--
``(A) which is sold, leased, licensed, or otherwise
transferred (directly or indirectly) to such controlled
foreign corporation from a related person, or
``(B) with respect to which such controlled foreign
corporation and one or more related persons has
(directly or indirectly) entered into any shared risk
or development agreement (including any cost sharing
agreement).
``(4) Related person.--The term `related person' has the
meaning given such term in subsection (d)(3).''.
(c) Separate Basket for Foreign Tax Credit.--Subsection (d) of
section 904 is amended by redesignating paragraph (7) as paragraph (8)
and by inserting after paragraph (6) the following new paragraph:
``(6) Separate application to foreign base company excess
intangible income.--
``(A) In general.--Subsections (a), (b), and (c) of
this section and sections 902, 907, and 960 shall be
applied separately with respect to each item of income
which is taken into account under section 954(a)(4) as
foreign base company excess intangible income.
``(B) Regulations.--The Secretary may issue such
regulations or other guidance as is necessary or
appropriate to carry out the purposes of this
subsection, including regulations or other guidance
which provides that related items of income may be
aggregated for purposes of this paragraph.''.
(d) Conforming Amendments.--
(1) Paragraph (4) of section 954(b) is amended by inserting
``foreign base company excess intangible income described in
subsection (a)(4) or'' before ``foreign base company oil-
related income'' in the last sentence thereof.
(2) Subsection (b) of section 954 is amended by adding at
the end the following new paragraph:
``(7) Foreign base company excess intangible income not
treated as another kind of base company income.--Income of a
corporation which is foreign base company excess intangible
income shall not be considered foreign base company income of
such corporation under paragraph (2), (3), or (5) of subsection
(a).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 133. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY
TRANSFERS.
(a) Clarification of Definition of Intangible Asset.--Clause (vi)
of section 936(h)(3)(B) is amended by inserting ``(including any
section 197 intangible described in subparagraph (A), (B), or (C)(i) of
subsection (d)(1) of such section)'' after ``item''.
(b) Clarification of Allowable Valuation Methods.--
(1) Foreign corporations.--Paragraph (2) of section 367(d)
is amended by adding at the end the following new subparagraph:
``(D) Regulatory authority.--For purposes of the
last sentence of subparagraph (A), the Secretary may
require--
``(i) the valuation of transfers of
intangible property on an aggregate basis, or
``(ii) the valuation of such a transfer on
the basis of the realistic alternatives to such
a transfer,
in any case in which the Secretary determines that such
basis is the most reliable means of valuation of such
transfers.''.
(2) Allocation among taxpayers.--Section 482 is amended by
adding at the end the following: ``For purposes of the
preceding sentence, the Secretary may require the valuation of
transfers of intangible property on an aggregate basis or the
valuation of such a transfer on the basis of the realistic
alternatives to such a transfer, in any case in which the
Secretary determines that such basis is the most reliable means
of valuation of such transfers.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transfers in taxable years beginning after the date of
the enactment of this Act.
(2) No inference.--Nothing in the amendment made by
subsection (a) shall be construed to create any inference with
respect to the application of section 936(h)(3) of the Internal
Revenue Code of 1986, or the authority of the Secretary of the
Treasury to provide regulations for such application, on or
before the date of the enactment of such amendment.
SEC. 134. LIMITATION ON EARNINGS STRIPPING BY EXPATRIATED ENTITIES.
(a) In General.--Subsection (j) of section 163 is amended--
(1) by redesignating paragraph (9) as paragraph (10), and
(2) by inserting after paragraph (8) the following new
paragraph:
``(9) Special rules for expatriated entities.--
``(A) In general.--In the case of a corporation to
which this subsection applies which is an expatriated
entity, this subsection shall apply to such corporation
with the following modifications:
``(i) Paragraph (2)(A) shall be applied
without regard to clause (ii) thereof.
``(ii) Paragraph (1)(B) shall be applied--
``(I) without regard to the
parenthetical, and
``(II) by substituting `in the 1st
succeeding taxable year and in the 2nd
through 10th succeeding taxable years
to the extent not previously taken into
account under this subparagraph' for
`in the succeeding taxable year'.
``(iii) Paragraph (2)(B) shall be applied--
``(I) without regard to clauses
(ii) and (iii), and
``(II) by substituting `25 percent
of the adjusted taxable income of the
corporation for such taxable year' for
the matter of clause (i)(II) thereof.
``(B) Expatriated entity.--For purposes of this
paragraph--
``(i) In general.--With respect to a
corporation and a taxable year, the term
`expatriated entity' has the meaning given such
term by section 7874(a)(2), determined as if
such section and the regulations under such
section as in effect on the first day of such
taxable year applied to all taxable years of
the corporation beginning after July 10, 1989.
``(ii) Exception for surrogates treated as
a domestic corporation.--The term `expatriated
entity' does not include a surrogate foreign
corporation which is treated as a domestic
corporation by reason of section 7874(b).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
TITLE II--ENDING EXCESSIVE CORPORATE TAX DEDUCTIONS FOR STOCK OPTIONS
SEC. 201. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.
(a) Consistent Treatment for Wage Deduction.--
(1) In general.--Section 83(h) is amended--
(A) by striking ``In the case of'' and inserting:
``(1) In general.--In the case of'', and
(B) by adding at the end the following new
paragraph:
``(2) Stock options.--In the case of property transferred
to a person in connection with a stock option, any deduction
related to such stock option shall be allowed only under
section 162(q) and paragraph (1) shall not apply.''.
(2) Treatment of compensation paid with stock options.--
Section 162 is amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Treatment of Compensation Paid With Stock Options.--
``(1) In general.--In the case of compensation for personal
services that is paid with stock options, the deduction under
subsection (a)(1) shall not exceed the amount the taxpayer has
treated as compensation cost with respect to such stock options
for the purpose of ascertaining income, profit, or loss in a
report or statement to shareholders, partners, or other
proprietors (or to beneficiaries), and shall be taken into
account in the same period that such compensation cost is
recognized for such purpose.
``(2) Special rules for controlled groups.--The Secretary
may prescribe rules for the application of paragraph (1) in
cases where the stock option is granted by--
``(A) a parent or subsidiary corporation (within
the meaning of section 424) of the taxpayer, or
``(B) another corporation.''.
(b) Consistent Treatment for Research Tax Credit.--Section
41(b)(2)(D) is amended by inserting at the end the following new
clause:
``(iv) Special rule for stock options.--The
amount which may be treated as wages for any
taxable year in connection with the issuance of
a stock option shall not exceed the amount
allowed for such taxable year as a compensation
deduction under section 162(q) with respect to
such stock option.''.
(c) Application of Amendments.--The amendments made by this section
shall apply to stock options exercised after the date of the enactment
of this Act, except that--
(1) such amendments shall not apply to stock options that
were granted before such date and that vested in taxable
periods beginning on or before June 15, 2005,
(2) for stock options that were granted before such date of
enactment and vested during taxable periods beginning after
June 15, 2005, and ending before such date of enactment, a
deduction under section 162(q) of the Internal Revenue Code of
1986 (as added by subsection (a)(2)) shall be allowed in the
first taxable period of the taxpayer that ends after such date
of enactment,
(3) for public entities reporting as small business issuers
and for non-public entities required to file public reports of
financial condition, paragraphs (1) and (2) shall be applied by
substituting ``December 15, 2005'' for ``June 15, 2005'', and
(4) no deduction shall be allowed under section 83(h) or
section 162(q) of such Code with respect to any stock option
the vesting date of which is changed to accelerate the time at
which the option may be exercised in order to avoid the
applicability of such amendments.
SEC. 202. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.
(a) In General.--Subparagraph (D) of section 162(m)(4) is amended
to read as follows:
``(D) Stock option compensation.--The term
`applicable employee remuneration' shall include any
compensation deducted under subsection (q), and such
compensation shall not qualify as performance-based
compensation under subparagraph (C).''.
(b) Effective Date.--The amendment made by this section shall apply
to stock options exercised or granted after the date of the enactment
of this Act.
<all>
Introduced in Senate
Sponsor introductory remarks on measure. (CR S389-390)
Read twice and referred to the Committee on Finance.
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