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TITLE
VIII --REVENUE PROVISIONS
"(1)
IN GENERAL. --The taxable income of an expatriated
entity for any taxable year which includes any
portion of the applicable period shall in no event
be less than the inversion gain of the entity for
the taxable year. "(2)
EXPATRIATED ENTITY. --For purposes of this
subsection -- "(A)
IN GENERAL. --The term 'expatriated entity' means -- "(i)
the domestic corporation or partnership referred to
in subparagraph (B)(i) with respect to which a
foreign corporation is a surrogate foreign
corporation, and "(ii)
any "(B)
SURROGATE FOREIGN CORPORATION. --A foreign
corporation shall be treated as a surrogate foreign
corporation if, pursuant to a plan (or a series of
related transactions) -- "(i)
the entity completes after "(ii)
after the acquisition at least 60 percent of the
stock (by vote or value) of the entity is held -- "(I)
in the case of an acquisition with respect to a
domestic corporation, by former shareholders of the
domestic corporation by reason of holding stock in
the domestic corporation, or "(II)
in the case of an acquisition with respect to a
domestic partnership, by former partners of the
domestic partnership by reason of holding a capital
or profits interest in the domestic partnership, and "(iii)
after the acquisition the expanded affiliated group
which includes the entity does not have substantial
business activities in the foreign country in which,
or under the law of which, the entity is created or
organized, when compared to the total business
activities of such expanded affiliated group. An
entity otherwise described in clause (i) with
respect to any domestic corporation or partnership
trade or business shall be treated as not so
described if, on or before "(3)
COORDINATION WITH SUBSECTION (b). --Paragraph (1)
shall not apply to any entity which is treated as a
domestic corporation under subsection (b).
"(1)
EXPANDED AFFILIATED GROUP. --The term 'expanded
affiliated group' means an affiliated group as
defined in section 1504(a) but without regard to
section 1504(b)(3), except that section 1504(a)
shall be applied by substituting 'more than 50
percent' for 'at least 80 percent' each place it
appears. "(2)
CERTAIN STOCK DISREGARDED. --There shall not be
taken into account in determining ownership under
subsection (a)(2)(B)(ii) -- "(A)
stock held by members of the expanded affiliated
group which includes the foreign corporation, or "(B)
stock of such foreign corporation which is sold in a
public offering related to the acquisition described
in subsection (a)(2)(B)(i). "(3)
"(4)
CERTAIN TRANSFERS DISREGARDED. --The transfer of
properties or liabilities (including by contribution
or distribution) shall be disregarded if such
transfers are part of a plan a principal purpose of
which is to avoid the purposes of this section. "(5)
SPECIAL RULE FOR RELATED PARTNERSHIPS. --For
purposes of applying subsection (a)(2)(B)(ii) to the
acquisition of a trade or business of a domestic
partnership, except as provided in regulations, all
partnerships which are under common control (within
the meaning of section 482) shall be treated as 1
partnership. "(6)
REGULATIONS. --The Secretary shall prescribe such
regulations as may be appropriate to determine
whether a corporation is a surrogate foreign
corporation, including regulations -- "(A)
to treat warrants, options, contracts to acquire
stock, convertible debt interests, and other similar
interests as stock, and "(B)
to treat stock as not stock.
"(1)
APPLICABLE PERIOD. --The term 'applicable period'
means the period -- "(A)
beginning on the first date properties are acquired
as part of the acquisition described in subsection
(a)(2)(B)(i), and "(B)
ending on the date which is 10 years after the last
date properties are acquired as part of such
acquisition. "(2)
INVERSION GAIN. --The term 'inversion gain' means
the income or gain recognized by reason of the
transfer during the applicable period of stock or
other properties by an expatriated entity, and any
income received or accrued during the applicable
period by reason of a license of any property by an
expatriated entity -- "(A)
as part of the acquisition described in subsection
(a)(2)(B)(i), or "(B)
after such acquisition if the transfer or license is
to a foreign related person. Subparagraph
(B) shall not apply to property described in section
1221(a)(1) in the hands of the expatriated entity. "(3)
FOREIGN RELATED PERSON. --The term 'foreign related
person' means, with respect to any expatriated
entity, a foreign person which -- "(A)
is related (within the meaning of section 267(b) or
707(b)(1)) to such entity, or "(B)
is under the same common control (within the meaning
of section 482) as such entity.
"(1)
CREDITS NOT ALLOWED AGAINST TAX ON INVERSION GAIN.
--Credits (other than the credit allowed by section
901) shall be allowed against the tax imposed by
this chapter on an expatriated entity for any
taxable year described in subsection (a) only to the
extent such tax exceeds the product of -- "(A)
the amount of the inversion gain for the taxable
year, and "(B)
the highest rate of tax specified in section
11(b)(1). For
purposes of determining the credit allowed by
section 901, inversion gain shall be treated as from
sources within the United States. "(2)
SPECIAL RULES FOR PARTNERSHIPS. --In the case of an
expatriated entity which is a partnership -- "(A)
subsection (a)(1) shall apply at the partner rather
than the partnership level, "(B)
the inversion gain of any partner for any taxable
year shall be equal to the sum of -- "(i)
the partner's distributive share of inversion gain
of the partnership for such taxable year, plus "(ii)
gain recognized for the taxable year by the partner
by reason of the transfer during the applicable
period of any partnership interest of the partner in
such partnership to the surrogate foreign
corporation, and "(C)
the highest rate of tax specified in the rate
schedule applicable to the partner under this
chapter shall be substituted for the rate of tax
referred to in paragraph (1). "(3)
COORDINATION WITH SECTION 172 "(4)
STATUTE OF LIMITATIONS. -- "(A)
IN GENERAL. --The statutory period for the
assessment of any deficiency attributable to the
inversion gain of any taxpayer for any pre-inversion
year shall not expire before the expiration of 3
years from the date the Secretary is notified by the
taxpayer (in such manner as the Secretary may
prescribe) of the acquisition described in
subsection (a)(2)(B)(i) to which such gain relates
and such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which
would otherwise prevent such assessment. "(B)
"(i)
any portion of the applicable period is included in
such taxable year, and "(ii)
such year ends before the taxable year in which the
acquisition described in subsection (a)(2)(B)(i) is
completed.
"(1)
the use of related persons, pass-through or other
noncorporate entities, or other intermediaries, or "(2)
transactions designed to have persons cease to be
(or not become) members of expanded affiliated
groups or related persons.".
"Sec.
7874. Rules relating to expatriated entities and
their foreign parents.".
"CHAPTER
45 --PROVISIONS RELATING TO EXPATRIATED ENTITIES "Sec.
4985. Stock compensation of insiders in expatriated
corporations.
"(1)
the rate of tax specified in section 1(h)(1)(C),
multiplied by "(2)
the value (determined under subsection (b)) of the
specified stock compensation held (directly or
indirectly) by or for the benefit of such individual
or a member of such individual's family (as defined
in section 267) at any time during the 12-month
period beginning on the date which is 6 months
before the expatriation date.
"(1)
IN GENERAL. --The value of specified stock
compensation shall be -- "(A)
in the case of a stock option (or other similar
right) or a stock appreciation right, the fair value
of such option or right, and "(B)
in any other case, the fair market value of such
compensation. "(2)
DATE FOR DETERMINING VALUE. --The determination of
value shall be made -- "(A)
in the case of specified stock compensation held on
the expatriation date, on such date, "(B)
in the case of such compensation which is canceled
during the 6 months before the expatriation date, on
the day before such cancellation, and "(C)
in the case of such compensation which is granted
after the expatriation date, on the date such
compensation is granted.
"(1)
any stock option which is exercised on the
expatriation date or during the 6-month period
before such date and to the stock acquired in such
exercise, if income is recognized under section 83
on or before the expatriation date with respect to
the stock acquired pursuant to such exercise, and "(2)
any other specified stock compensation which is
exercised, sold, exchanged, distributed, cashed-out,
or otherwise paid during such period in a
transaction in which income, gain, or loss is
recognized in full.
"(1)
DISQUALIFIED INDIVIDUAL. --The term 'disqualified
individual' means, with respect to a corporation,
any individual who, at any time during the 12-month
period beginning on the date which is 6 months
before the expatriation date -- "(A)
is subject to the requirements of section 16(a) of
the Securities Exchange Act of 1934 with respect to
such corporation or any member of the expanded
affiliated group which includes such corporation, or "(B)
would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section. "(2)
EXPATRIATED CORPORATION; EXPATRIATION DATE. -- "(A)
EXPATRIATED CORPORATION. --The term 'expatriated
corporation' means any corporation which is an
expatriated entity (as defined in section
7874(a)(2)). Such term includes any predecessor or
successor of such a corporation. "(B)
EXPATRIATION DATE. --The term 'expatriation date'
means, with respect to a corporation, the date on
which the corporation first becomes an expatriated
corporation. "(3)
SPECIFIED STOCK COMPENSATION. -- "(A)
IN GENERAL. --The term 'specified stock
compensation' means payment (or right to payment)
granted by the expatriated corporation (or by any
member of the expanded affiliated group which
includes such corporation) to any person in
connection with the performance of services by a
disqualified individual for such corporation or
member if the value of such payment or right is
based on (or determined by reference to) the value
(or change in value) of stock in such corporation
(or any such member). "(B)
EXCEPTIONS. --Such term shall not include -- "(i)
any option to which part II of subchapter D of
chapter 1 applies, or "(ii)
any payment or right to payment from a plan referred
to in section 280G(b)(6). "(4)
EXPANDED AFFILIATED GROUP. --The term 'expanded
affiliated group' means an affiliated group (as
defined in section 1504(a) without regard to section
1504(b)(3)); except that section 1504(a) shall be
applied by substituting 'more than 50 percent' for
'at least 80 percent' each place it appears.
"(1)
CANCELLATION OF RESTRICTION. --The cancellation of a
restriction which by its terms will never lapse
shall be treated as a grant. "(2)
PAYMENT OR REIMBURSEMENT OF TAX BY CORPORATION
TREATED AS SPECIFIED STOCK COMPENSATION. --Any
payment of the tax imposed by this section directly
or indirectly by the expatriated corporation or by
any member of the expanded affiliated group which
includes such corporation -- "(A)
shall be treated as specified stock compensation,
and "(B)
shall not be allowed as a deduction under any
provision of chapter 1. "(3)
CERTAIN RESTRICTIONS IGNORED. --Whether there is
specified stock compensation, and the value thereof,
shall be determined without regard to any
restriction other than a restriction which by its
terms will never lapse. "(4)
PROPERTY TRANSFERS. --Any transfer of property shall
be treated as a payment and any right to a transfer
of property shall be treated as a right to a
payment. "(5)
OTHER ADMINISTRATIVE PROVISIONS. --For purposes of
subtitle F, any tax imposed by this section shall be
treated as a tax imposed by subtitle A.
"(G)
COORDINATION WITH EXCISE TAX ON SPECIFIED STOCK
COMPENSATION. --The dollar limitation contained in
paragraph (1) with respect to any covered employee
shall be reduced (but not below zero) by the amount
of any payment (with respect to such employee) of
the tax imposed by section 4985 directly or
indirectly by the expatriated corporation (as
defined in such section) or by any member of the
expanded affiliated group (as defined in such
section) which includes such corporation.".
"Chapter
45. Provisions relating to expatriated
entities.".
"(1)
IN GENERAL. --Every nonresident alien individual to
whom this section applies and who, within the
10-year period immediately preceding the close of
the taxable year, lost United States citizenship
shall be taxable for such taxable year in the manner
provided in subsection (b) if the tax imposed
pursuant to such subsection (after any reduction in
such tax under the last sentence of such subsection)
exceeds the tax which, without regard to this
section, is imposed pursuant to section 871. "(2)
INDIVIDUALS SUBJECT TO THIS SECTION. --This section
shall apply to any individual if -- "(A)
the average annual net income tax (as defined in
section 38(c)(1)) of such individual for the period
of 5 taxable years ending before the date of the
loss of United States citizenship is greater than
$124,000, "(B)
the net worth of the individual as of such date is
$2,000,000 or more, or "(C)
such individual fails to certify under penalty of
perjury that he has met the requirements of this
title for the 5 preceding taxable years or fails to
submit such evidence of such compliance as the
Secretary may require. In
the case of the loss of United States citizenship in
any calendar year after 2004, such $124,000 amount
shall be increased by an amount equal to such dollar
amount multiplied by the cost-of-living adjustment
determined under section 1(f)(3) for such calendar
year by substituting '2003' for '1992' in
subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest
multiple of $1,000.".
"(1)
IN GENERAL. --Subparagraphs (A) and (B) of
subsection (a)(2) shall not apply to an individual
described in paragraph (2) or (3). "(2)
DUAL CITIZENS. -- "(A)
IN GENERAL. --An individual is described in this
paragraph if -- "(i)
the individual became at birth a citizen of the
United States and a citizen of another country and
continues to be a citizen of such other country, and "(ii)
the individual has had no substantial contacts with
the United States. "(B)
SUBSTANTIAL CONTACTS. --An individual shall be
treated as having no substantial contacts with the
United States only if the individual -- "(i)
was never a resident of the United States (as
defined in section 7701(b)), "(ii)
has never held a United States passport, and "(iii)
was not present in the United States for more than
30 days during any calendar year which is 1 of the
10 calendar years preceding the individual's loss of
United States citizenship. "(3)
CERTAIN MINORS. --An individual is described in this
paragraph if -- "(A)
the individual became at birth a citizen of the
United States, "(B)
neither parent of such individual was a citizen of
the United States at the time of such birth, "(C)
the individual's loss of United States citizenship
occurs before such individual attains age 181/2 ,
and "(D)
the individual was not present in the United States
for more than 30 days during any calendar year which
is 1 of the 10 calendar years preceding the
individual's loss of United States
citizenship.".
"(1)
gives notice of an expatriating act or termination
of residency (with the requisite intent to
relinquish citizenship or terminate residency) to
the Secretary of State or the Secretary of Homeland
Security, and "(2)
provides a statement in accordance with section
6039G.".
"(1)
IN GENERAL. --This section shall not apply to any
individual to whom this section would otherwise
apply for any taxable year during the 10-year period
referred to in subsection (a) in which such
individual is physically present in the United
States at any time on more than 30 days in the
calendar year ending in such taxable year, and such
individual shall be treated for purposes of this
title as a citizen or resident of the United States,
as the case may be, for such taxable year. "(2)
EXCEPTION. -- "(A)
IN GENERAL. --In the case of an individual described
in any of the following subparagraphs of this
paragraph, a day of physical presence in the United
States shall be disregarded if the individual is
performing services in the United States on such day
for an employer. The preceding sentence shall not
apply if -- "(i)
such employer is related (within the meaning of
section 267 and 707) to such individual, or "(ii)
such employer fails to meet such requirements as the
Secretary may prescribe by regulations to prevent
the avoidance of the purposes of this paragraph. Not
more than 30 days during any calendar year may be
disregarded under this subparagraph. "(B)
INDIVIDUALS WITH TIES TO OTHER COUNTRIES. --An
individual is described in this subparagraph if -- "(i)
the individual becomes (not later than the close of
a reasonable period after loss of United States
citizenship or termination of residency) a citizen
or resident of the country in which -- "(I)
such individual was born, "(II)
if such individual is married, such individual's
spouse was born, or "( "(ii)
the individual becomes fully liable for income tax
in such country. "(C)
MINIMAL PRIOR PHYSICAL PRESENCE IN THE UNITED
STATES. --An individual is described in this
subparagraph if, for each year in the 10-year period
ending on the date of loss of United States
citizenship or termination of residency, the
individual was physically present in the United
States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this
subparagraph.".
"(A)
CERTAIN INDIVIDUALS. --Paragraph (2) shall not apply
in the case of a donor to whom section 877(b)
applies for the taxable year which includes the date
of the transfer. "(B)
CREDIT FOR FOREIGN
"(A)
IN GENERAL. --In the case of a transfer of stock in
a foreign corporation described in subparagraph (B)
by a donor to whom section 877(b) applies for the
taxable year which includes the date of the transfer
-- "(i)
section 2511(a) shall be applied without regard to
whether such stock is situated within the United
States, and "(ii)
the value of such stock for purposes of this chapter
shall be its U.S.-asset value determined under
subparagraph (C). "(B)
FOREIGN CORPORATION DESCRIBED. --A foreign
corporation is described in this subparagraph with
respect to a donor if -- "(i)
the donor owned (within the meaning of section
958(a)) at the time of such transfer 10 percent or
more of the total combined voting power of all
classes of stock entitled to vote of the foreign
corporation, and "(ii)
such donor owned (within the meaning of section
958(a)), or is considered to have owned (by applying
the ownership rules of section 958(b)), at the time
of such transfer, more than 50 percent of -- "(I)
the total combined voting power of all classes of
stock entitled to vote of such corporation, or "(II)
the total value of the stock of such corporation. "(C)
U.S.-ASSET VALUE. --For purposes of subparagraph
(A), the U.S.-asset value of stock shall be the
amount which bears the same ratio to the fair market
value of such stock at the time of transfer as -- "(i)
the fair market value (at such time) of the assets
owned by such foreign corporation and situated in
the United States, bears to "(ii)
the total fair market value (at such time) of all
assets owned by such foreign corporation.".
"(1)
the taxpayer's "(2)
the mailing address of such individual's principal
foreign residence, "(3)
the foreign country in which such individual is
residing, "(4)
the foreign country of which such individual is a
citizen, "(5)
information detailing the income, assets, and
liabilities of such individual, "(6)
the number of days during any portion of which that
the individual was physically present in the United
States during the taxable year, and "(7)
such other information as the Secretary may
prescribe.".
"(1)
an individual is required to file a statement under
subsection (a) for any taxable year, and "(2)
fails to file such a statement with the Secretary on
or before the date such statement is required to be
filed or fails to include all the information
required to be shown on the statement or includes
incorrect information,
"(1)
a description of the acquisition, "(2)
the name and address of each shareholder of the
acquired corporation who is required to recognize
gain (if any) as a result of the acquisition, "(3)
the amount of money and the fair market value of
other property transferred to each such shareholder
as part of such acquisition, and "(4)
such other information as the Secretary may
prescribe.
"(1)
REPORTING. --Any person who holds stock as a nominee
for another person shall furnish in the manner
prescribed by the Secretary to such other person the
information provided by the corporation under
subsection (d). "(2)
REPORTING TO NOMINEES. --In the case of stock held
by any person as a nominee, references in this
section (other than in subsection (c)) to a
shareholder shall be treated as a reference to the
nominee.
"(1)
the name, address, and phone number of the
information contact of the person required to make
such return, "(2)
the information required to be shown on such return
with respect to such shareholder, and "(3)
such other information as the Secretary may
prescribe.
"(ii)
section 6043A(a) (relating to returns relating to
taxable mergers and acquisitions),".
"(F)
subsections (b) and (d) of section 6043A (relating
to returns relating to taxable mergers and
acquisitions).".
"Sec.
6043A. Returns relating to taxable mergers and
acquisitions.".
Subtitle
B --Provisions Relating to Tax Shelters
Part
I --Taxpayer-Related Provisions
"(1)
IN GENERAL. --Except as provided in paragraph (2),
the amount of the penalty under subsection (a) shall
be -- "(A)
$10,000 in the case of a natural person, and "(B)
$50,000 in any other case. "(2)
LISTED TRANSACTION. --The amount of the penalty
under subsection (a) with respect to a listed
transaction shall be -- "(A)
$100,000 in the case of a natural person, and "(B)
$200,000 in any other case.
"(1)
REPORTABLE TRANSACTION. --The term 'reportable
transaction' means any transaction with respect to
which information is required to be included with a
return or statement because, as determined under
regulations prescribed under section 6011, such
transaction is of a type which the Secretary
determines as having a potential for tax avoidance
or evasion. "(2)
LISTED TRANSACTION. --The term 'listed transaction'
means a reportable transaction which is the same as,
or substantially similar to, a transaction
specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
"(1)
IN GENERAL. --The Commissioner of Internal Revenue
may rescind all or any portion of any penalty
imposed by this section with respect to any
violation if -- "(A)
the violation is with respect to a reportable
transaction other than a listed transaction, and "(B)
rescinding the penalty would promote compliance with
the requirements of this title and effective tax
administration. "(2)
NO JUDICIAL APPEAL. --Notwithstanding any other
provision of law, any determination under this
subsection may not be reviewed in any judicial
proceeding. "(3)
RECORDS. --If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the
Office of the Commissioner the opinion of the
Commissioner with respect to the determination,
including -- "(A)
a statement of the facts and circumstances relating
to the violation, "(B)
the reasons for the rescission, and "(C)
the amount of the penalty rescinded.
"(1)
which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act
of 1934 or is required to be consolidated with
another person for purposes of such reports, and "(2)
which -- "(A)
is required to pay a penalty under this section with
respect to a listed transaction, "(B)
is required to pay a penalty under section 6662A
with respect to any reportable transaction at a rate
prescribed under section 6662A(c), or "(C)
is required to pay a penalty under section 6662(h)
with respect to any reportable transaction and would
(but for section 6662A(e)(2)(C)) have been subject
to penalty under section 6662A at a rate prescribed
under section 6662A(c),
"Sec.
6707A. Penalty for failure to include reportable
transaction information with return.".
"(1)
IN GENERAL. --The term 'reportable transaction
understatement' means the sum of -- "(A)
the product of -- "(i)
the amount of the increase (if any) in taxable
income which results from a difference between the
proper tax treatment of an item to which this
section applies and the taxpayer's treatment of such
item (as shown on the taxpayer's return of tax), and "(ii)
the highest rate of tax imposed by section 1
(section 11 in the case of a taxpayer which is a
corporation), and "(B)
the amount of the decrease (if any) in the aggregate
amount of credits determined under subtitle A which
results from a difference between the taxpayer's
treatment of an item to which this section applies
(as shown on the taxpayer's return of tax) and the
proper tax treatment of such item. For
purposes of subparagraph (A), any reduction of the
excess of deductions allowed for the taxable year
over gross income for such year, and any reduction
in the amount of capital losses which would (without
regard to section 1211) be allowed for such year,
shall be treated as an increase in taxable income. "(2)
ITEMS TO WHICH SECTION APPLIES. --This section shall
apply to any item which is attributable to -- "(A)
any listed transaction, and "(B)
any reportable transaction (other than a listed
transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
"(1)
COORDINATION WITH PENALTIES, "(A)
the amount of such understatement (determined
without regard to this paragraph) shall be increased
by the aggregate amount of reportable transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and "(B)
the addition to tax under section 6662(a) shall
apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements. "(2)
COORDINATION WITH OTHER PENALTIES. -- "(A)
APPLICATION OF FRAUD PENALTY. --References to an
underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement. "(B)
NO DOUBLE PENALTY. --This section shall not apply to
any portion of an understatement on which a penalty
is imposed under section 6663. "(C)
COORDINATION WITH VALUATION PENALTIES. -- "(i)
SECTION 6662(e). --Section 6662(e) shall not apply
to any portion of an understatement on which a
penalty is imposed under this section. "(ii)
SECTION 6662(h). --This section shall not apply to
any portion of an understatement on which a penalty
is imposed under section 6662(h). "(3)
SPECIAL RULE FOR AMENDED RETURNS. --Except as
provided in regulations, in no event shall any tax
treatment included with an amendment or supplement
to a return of tax be taken into account in
determining the amount of any reportable transaction
understatement if the amendment or supplement is
filed after the earlier of the date the taxpayer is
first contacted by the Secretary regarding the
examination of the return or such other date as is
specified by the Secretary.".
"The
excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies.".
"(1)
IN GENERAL. --No penalty shall be imposed under
section 6662A with respect to any portion of a
reportable transaction understatement if it is shown
that there was a reasonable cause for such portion
and that the taxpayer acted in good faith with
respect to such portion. "(2)
SPECIAL RULES. --Paragraph (1) shall not apply to
any reportable transaction understatement unless -- "(A)
the relevant facts affecting the tax treatment of
the item are adequately disclosed in accordance with
the regulations prescribed under section 6011, "(B)
there is or was substantial authority for such
treatment, and "(C)
the taxpayer reasonably believed that such treatment
was more likely than not the proper treatment. A
taxpayer failing to adequately disclose in
accordance with section 6011 shall be treated as
meeting the requirements of subparagraph (A) if the
penalty for such failure was rescinded under section
6707A(d). "(3)
RULES RELATING TO REASONABLE BELIEF. --For purposes
of paragraph (2)(C) -- "(A)
IN GENERAL. --A taxpayer shall be treated as having
a reasonable belief with respect to the tax
treatment of an item only if such belief -- "(i)
is based on the facts and law that exist at the time
the return of tax which includes such tax treatment
is filed, and "(ii)
relates solely to the taxpayer's chances of success
on the merits of such treatment and does not take
into account the possibility that a return will not
be audited, such treatment will not be raised on
audit, or such treatment will be resolved through
settlement if it is raised. "(B)
CERTAIN OPINIONS "(i)
IN GENERAL. --An opinion of a tax advisor may not be
relied upon to establish the reasonable belief of a
taxpayer if -- "(I)
the tax advisor is described in clause (ii), or "(II)
the opinion is described in clause (iii). "(ii)
DISQUALIFIED TAX ADVISORS. --A tax advisor is
described in this clause if the tax advisor -- "(I)
is a material advisor (within the meaning of section
6111(b)(1)) and participates in the organization,
management, promotion, or sale of the transaction or
is related (within the meaning of section 267(b) or
707(b)(1)) to any person who so participates, "(II)
is compensated directly or indirectly by a material
advisor with respect to the transaction, "( "(IV)
as determined under regulations prescribed by the
Secretary, has a disqualifying financial interest
with respect to the transaction. "(iii)
DISQUALIFIED OPINIONS. --For purposes of clause (i),
an opinion is disqualified if the opinion -- "(I)
is based on unreasonable factual or legal
assumptions (including assumptions as to future
events), "(II)
unreasonably relies on representations, statements,
findings, or agreements of the taxpayer or any other
person, "( "(IV)
fails to meet any other requirement as the Secretary
may prescribe.".
"(C)
REDUCTION NOT TO APPLY TO TAX SHELTERS. -- "(i)
IN GENERAL. --Subparagraph (B) shall not apply to
any item attributable to a tax shelter. "(ii)
TAX SHELTER. --For purposes of clause (i), the term
'tax shelter' means -- "(I)
a partnership or other entity, "(II)
any investment plan or arrangement, or "( if
a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.".
"Sec.
6662. Imposition of accuracy-related penalty on
underpayments. "Sec.
6662A. Imposition of accuracy-related penalty on
understatements with respect to reportable
transactions.".
"(1)
between a federally authorized tax practitioner and
-- "(A)
any person, "(B)
any director, officer, employee, agent, or
representative of the person, or "(C)
any other person holding a capital or profits
interest in the person, and "(2)
in connection with the promotion of the direct or
indirect participation of the person in any tax
shelter (as defined in section 6662(d)(2)(C)(ii)).".
"(10)
LISTED TRANSACTIONS. --If a taxpayer fails to
include on any return or statement for any taxable
year any information with respect to a listed
transaction (as defined in section 6707A(c)(2))
which is required under section 6011 to be included
with such return or statement, the time for
assessment of any tax imposed by this title with
respect to such transaction shall not expire before
the date which is 1 year after the earlier of -- "(A)
the date on which the Secretary is furnished the
information so required, or "(B)
the date that a material advisor (as defined in
section 6111) meets the requirements of section 6112
with respect to a request by the Secretary under
section 6112(b) relating to such transaction with
respect to such taxpayer.".
"(1)
information identifying and describing the
transaction, "(2)
information describing any potential tax benefits
expected to result from the transaction, and "(3)
such other information as the Secretary may
prescribe.
"(1)
MATERIAL ADVISOR. -- "(A)
IN GENERAL. --The term 'material advisor' means any
person -- "(i)
who provides any material aid, assistance, or advice
with respect to organizing, managing, promoting,
selling, implementing, insuring, or carrying out any
reportable transaction, and "(ii)
who directly or indirectly derives gross income in
excess of the threshold amount (or such other amount
as may be prescribed by the Secretary) for such
advice or assistance. "(B)
THRESHOLD AMOUNT. --For purposes of subparagraph
(A), the threshold amount is -- "(i)
$50,000 in the case of a reportable transaction
substantially all of the tax benefits from which are
provided to natural persons, and "(ii)
$250,000 in any other case. "(2)
REPORTABLE TRANSACTION. --The term 'reportable
transaction' has the meaning given to such term by
section 6707A(c).
"(1)
that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2
or more persons would otherwise be required to meet
such requirements, "(2)
exemptions from the requirements of this section,
and "(3)
such rules as may be necessary or appropriate to
carry out the purposes of this section.".
"Sec.
6111. Disclosure of reportable transactions.".
"(1)
identifying each person with respect to whom such
advisor acted as a material advisor with respect to
such transaction, and "(2)
containing such other information as the Secretary
may by regulations require.".
"Sec.
6112. Material advisors of reportable transactions
must keep lists of advisees, etc.".
"Sec.
6708. Failure to maintain lists of advisees with
respect to reportable transactions.".
"(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 transaction,
"(1)
IN GENERAL. --Except as provided in paragraph (2),
the penalty imposed under subsection (a) with
respect to any failure shall be $50,000. "(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)
50 percent of the gross income derived by such
person with respect to aid, assistance, or advice
which is provided with respect to the listed
transaction before the date the return is filed
under section 6111. Subparagraph
(B) shall be applied by substituting '75 percent'
for '50 percent' in the case of an intentional
failure or act described in subsection (a).
"(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) within
20 business days after the date of such request,
such person shall pay a penalty of $10,000 for each
day of such failure after such 20th day. "(2)
REASONABLE CAUSE EXCEPTION. --No penalty shall be
imposed by paragraph (1) with respect to the failure
on any day if such failure is due to reasonable
cause.".
"(B)
SPECIAL RULE FOR CORPORATIONS. --In the case of a
corporation other than an S corporation or a
personal holding company (as defined in section
542), there is a substantial understatement of
income tax for any taxable year if the amount of the
understatement for the taxable year exceeds the
lesser of -- "(i)
10 percent of the tax required to be shown on the
return for the taxable year (or, if greater,
$10,000), or "(ii)
$10,000,000.".
"(3)
SECRETARIAL LIST. --The Secretary may prescribe a
list of positions which the Secretary believes do
not meet the 1 or more of the standards specified in
paragraph (2)(B)(i), section 6664(d)(2), and section
6694(a)(1). Such list (and any revisions thereof)
shall be published in the Federal Register or the
Internal Revenue Bulletin.".
"(1)
that the person has engaged in any specified
conduct, and "(2)
that injunctive relief is appropriate to prevent
recurrence of such conduct,
"(1)
subject to penalty under section 6700, 6701, 6707,
or 6708, or "(2)
in violation of any requirement under regulations
issued under section 330 of title 31, United States
Code.".
"Sec.
7408. Actions to enjoin specified conduct related to
tax shelters and reportable transactions.".
"(5)
FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION. -- "(A)
PENALTY AUTHORIZED. --The Secretary of the Treasury
may impose a civil money penalty on any person who
violates, or causes any violation of, any provision
of section 5314. "(B)
AMOUNT OF PENALTY. -- "(i)
IN GENERAL. --Except as provided in subparagraph
(C), the amount of any civil penalty imposed under
subparagraph (A) shall not exceed $10,000. "(ii)
REASONABLE CAUSE EXCEPTION. --No penalty shall be
imposed under subparagraph (A) with respect to any
violation if -- "(I)
such violation was due to reasonable cause, and "(II)
the amount of the transaction or the balance in the
account at the time of the transaction was properly
reported. "(C)
WILLFUL VIOLATIONS. --In the case of any person
willfully violating, or willfully causing any
violation of, any provision of section 5314 -- "(i)
the maximum penalty under subparagraph (B)(i) shall
be increased to the greater of -- "(I)
$100,000, or "(II)
50 percent of the amount determined under
subparagraph (D), and "(ii)
subparagraph (B)(ii) shall not apply. "(D)
AMOUNT. --The amount determined under this
subparagraph is -- "(i)
in the case of a violation involving a transaction,
the amount of the transaction, or "(ii)
in the case of a violation involving a failure to
report the existence of an account or any
identifying information required to be provided with
respect to an account, the balance in the account at
the time of the violation.".
Part
II --Other Provisions
"(7)
CROSS REFERENCE. -- "For treatment of stripped interests in certain accounts or entities
holding preferred stock, see section 1286(f).".
"(1)
IN GENERAL. --In no event shall a credit be allowed
under subsection (a) for any withholding tax (as
defined in subsection (k)) on any item of income or
gain with respect to any property if -- "(A)
such property is held by the recipient of the item
for 15 days or less during the 31-day period
beginning on the date which is 15 days before the
date on which the right to receive payment of such
item arises, or "(B)
to the extent that the recipient of the item is
under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with
respect to positions in substantially similar or
related property. This
paragraph shall not apply to any dividend to which
subsection (k) applies. "(2)
EXCEPTION FOR TAXES PAID BY DEALERS. -- "(A)
IN GENERAL. --Paragraph (1) shall not apply to any
qualified tax with respect to any property held in
the active conduct in a foreign country of a
business as a dealer in such property. "(B)
QUALIFIED TAX. --For purposes of subparagraph (A),
the term 'qualified tax' means a tax paid to a
foreign country (other than the foreign country
referred to in subparagraph (A)) if -- "(i)
the item to which such tax is attributable is
subject to taxation on a net basis by the country
referred to in subparagraph (A), and "(ii)
such country allows a credit against its net basis
tax for the full amount of the tax paid to such
other foreign country. "(C)
DEALER. --For purposes of subparagraph (A), the term
'dealer' means -- "(i)
with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would not
apply by reason of paragraph (4) thereof if such
security were stock, and "(ii)
with respect to any other property, any person with
respect to whom such property is described in
section 1221(a)(1). "(D)
REGULATIONS. --The Secretary may prescribe such
regulations as may be appropriate to carry out this
paragraph, including regulations to prevent the
abuse of the exception provided by this paragraph
and to treat other taxes as qualified taxes. "(3)
EXCEPTIONS. --The Secretary may by regulation
provide that paragraph (1) shall not apply to
property where the Secretary determines that the
application of paragraph (1) to such property is not
necessary to carry out the purposes of this
subsection. "(4)
CERTAIN RULES TO APPLY. --Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k)
shall apply for purposes of this subsection. "(5)
DETERMINATION OF HOLDING PERIOD. --Holding periods
shall be determined for purposes of this subsection
without regard to section 1235 or any similar
rule.".
"(C)
if any property so contributed has a built-in loss
-- "(i)
such built-in loss shall be taken into account only
in determining the amount of items allocated to the
contributing partner, and "(ii)
except as provided in regulations, in determining
the amount of items allocated to other partners, the
basis of the contributed property in the hands of
the partnership shall be treated as being equal to
its fair market value at the time of contribution. For
purposes of subparagraph (C), the term 'built-in
loss' means the excess of the adjusted basis of the
property (determined without regard to subparagraph
(C)(ii)) over its fair market value at the time of
contribution.".
"(1)
IN GENERAL. --For purposes of this section, a
partnership has a substantial built-in loss with
respect to a transfer of an interest in a
partnership if the partnership's adjusted basis in
the partnership property exceeds by more than
$250,000 the fair market value of such property. "(2)
REGULATIONS. --The Secretary shall prescribe such
regulations as may be appropriate to carry out the
purposes of paragraph (1) and section 734(d),
including regulations aggregating related
partnerships and disregarding property acquired by
the partnership in an attempt to avoid such
purposes.".
"(1)
NO ADJUSTMENT OF PARTNERSHIP BASIS. --For purposes
of this section, an electing investment partnership
shall not be treated as having a substantial
built-in loss with respect to any transfer occurring
while the election under paragraph (6)(A) is in
effect. "(2)
LOSS DEFERRAL FOR TRANSFEREE PARTNER. --In the case
of a transfer of an interest in an electing
investment partnership, the transferee partner's
distributive share of losses (without regard to
gains) from the sale or exchange of partnership
property shall not be allowed except to the extent
that it is established that such losses exceed the
loss (if any) recognized by the transferor (or any
prior transferor to the extent not fully offset by a
prior disallowance under this paragraph) on the
transfer of the partnership interest. "(3)
NO REDUCTION IN PARTNERSHIP BASIS. --Losses
disallowed under paragraph (2) shall not decrease
the transferee partner's basis in the partnership
interest. "(4)
EFFECT OF TERMINATION OF PARTNERSHIP. --This
subsection shall be applied without regard to any
termination of a partnership under section
708(b)(1)(B). "(5)
CERTAIN BASIS REDUCTIONS TREATED AS LOSSES. --In the
case of a transferee partner whose basis in property
distributed by the partnership is reduced under
section 732(a)(2), the amount of the loss recognized
by the transferor on the transfer of the partnership
interest which is taken into account under paragraph
(2) shall be reduced by the amount of such basis
reduction. "(6)
ELECTING INVESTMENT PARTNERSHIP. --For purposes of
this subsection, the term 'electing investment
partnership' means any partnership if -- "(A)
the partnership makes an election to have this
subsection apply, "(B)
the partnership would be an investment company under
section 3(a)(1)(A) of the Investment Company Act of
1940 but for an exemption under paragraph (1) or (7)
of section 3(c) of such Act, "(C)
such partnership has never been engaged in a trade
or business, "(D)
substantially all of the assets of such partnership
are held for investment, "(E)
at least 95 percent of the assets contributed to
such partnership consist of money, "(F)
no assets contributed to such partnership had an
adjusted basis in excess of fair market value at the
time of contribution, "(G)
all partnership interests of such partnership are
issued by such partnership pursuant to a private
offering before the date which is 24 months after
the date of the first capital contribution to such
partnership, "(H)
the partnership agreement of such partnership has
substantive restrictions on each partner's ability
to cause a redemption of the partner's interest, and "(I)
the partnership agreement of such partnership
provides for a term that is not in excess of 15
years. The
election described in subparagraph (A), once made,
shall be irrevocable except with the consent of the
Secretary. "(7)
REGULATIONS. --The Secretary shall prescribe such
regulations as may be appropriate to carry out the
purposes of this subsection, including regulations
for applying this subsection to tiered
partnerships.".
"(1)
NO ADJUSTMENT OF PARTNERSHIP BASIS. --For purposes
of this section, a securitization partnership shall
not be treated as having a substantial built-in loss
with respect to any transfer. "(2)
SECURITIZATION PARTNERSHIP. --For purposes of
paragraph (1), the term 'securitization partnership'
means any partnership the sole business activity of
which is to issue securities which provide for a
fixed principal (or similar) amount and which are
primarily serviced by the cash flows of a discrete
pool (either fixed or revolving) of receivables or
other financial assets that by their terms convert
into cash in a finite period, but only if the
sponsor of the pool reasonably believes that the
receivables and other financial assets comprising
the pool are not acquired so as to be disposed
of.".
"Sec.
743. Special rules where section 754 election or
substantial built-in loss.".
"(1)
IN GENERAL. --For purposes of this section, there is
a substantial basis reduction with respect to a
distribution if the sum of the amounts described in
subparagraphs (A) and (B) of subsection (b)(2)
exceeds $250,000. "(2)
REGULATIONS. -- "For regulations to carry out this subsection, see section
743(d)(2).".
"Sec.
734. Adjustment to basis of undistributed
partnership property where section 754 election or
substantial basis reduction.".
"(1)
no allocation may be made to stock in a corporation
(or any person related (within the meaning of
sections 267(b) and 707(b)(1)) to such corporation)
which is a partner in the partnership, and "(2)
any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection
(a) to other partnership property.
"(iii)
represents an increase in the principal amount under
the original terms of an obligation described in
clause (i) or (ii) if such increase -- "(I)
is attributable to an advance made to the obligor
pursuant to the original terms of the obligation, "(II)
occurs after the startup day, and "(
"(B)
QUALIFIED RESERVE FUND. --For purposes of
subparagraph (A), the term 'qualified reserve fund'
means any reasonably required reserve to -- "(i)
provide for full payment of expenses of the REMIC or
amounts due on regular interests in the event of
defaults on qualified mortgages or lower than
expected returns on cash flow investments, or "(ii)
provide a source of funds for the purchase of
obligations described in clause (ii) or (iii) of
paragraph (3)(A). The
aggregate fair market value of the assets held in
any such reserve shall not exceed 50 percent of the
aggregate fair market value of all of the assets of
the REMIC on the startup day, and the amount of any
such reserve shall be promptly and appropriately
reduced to the extent the amount held in such
reserve is no longer reasonably required for
purposes specified in clause (i) or (ii) of this
subparagraph.".
"(1)
LIMITATION ON IMPORTATION OF BUILT-IN LOSSES. -- "(A)
IN GENERAL. --If in any transaction described in
subsection (a) or (b) there would (but for this
subsection) be an importation of a net built-in
loss, the basis of each property described in
subparagraph (B) which is acquired in such
transaction shall (notwithstanding subsections (a)
and (b)) be its fair market value immediately after
such transaction. "(B)
PROPERTY DESCRIBED. --For purposes of subparagraph
(A), property is described in this subparagraph if
-- "(i)
gain or loss with respect to such property is not
subject to tax under this subtitle in the hands of
the transferor immediately before the transfer, and "(ii)
gain or loss with respect to such property is
subject to such tax in the hands of the transferee
immediately after such transfer. In
any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating
each partner in such partnership as holding such
partner's proportionate share of the property of
such partnership. "(C)
IMPORTATION OF "(2)
LIMITATION ON TRANSFER OF BUILT-IN LOSSES IN SECTION
351 TRANSACTIONS. -- "(A)
IN GENERAL. --If -- "(i)
property is transferred by a transferor in any
transaction which is described in subsection (a) and
which is not described in paragraph (1) of this
subsection, and "(ii)
the transferee's aggregate adjusted bases of such
property so transferred would (but for this
paragraph) exceed the fair market value of such
property immediately after such transaction, then,
notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so
transferred shall not exceed the fair market value
of such property immediately after such transaction. "(B)
ALLOCATION OF BASIS REDUCTION. --The aggregate
reduction in basis by reason of subparagraph (A)
shall be allocated among the property so transferred
in proportion to their respective built-in losses
immediately before the transaction. "(C)
ELECTION TO APPLY LIMITATION TO TRANSFEROR'S STOCK
BASIS. -- "(i)
IN GENERAL. --If the transferor and transferee of a
transaction described in subparagraph (A) both elect
the application of this subparagraph -- "(I)
subparagraph (A) shall not apply, and "(II)
the transferor's basis in the stock received for
property to which subparagraph (A) does not apply by
reason of the election shall not exceed its fair
market value immediately after the transfer. "(ii)
ELECTION. --An election under clause (i) shall be
included with the return of tax for the taxable year
in which the transaction occurred, shall be in such
form and manner as the Secretary may prescribe, and,
once made, shall be irrevocable.".
"(1)
IN GENERAL. --If property is received by a corporate
distributee in a distribution in a complete
liquidation to which section 332 applies (or in a
transfer described in section 337(b)(1)), the basis
of such property in the hands of such distributee
shall be the same as it would be in the hands of the
transferor; except that the basis of such property
in the hands of such distributee shall be the fair
market value of the property at the time of the
distribution -- "(A)
in any case in which gain or loss is recognized by
the liquidating corporation with respect to such
property, or "(B)
in any case in which the liquidating corporation is
a foreign corporation, the corporate distributee is
a domestic corporation, and the corporate
distributee's aggregate adjusted bases of property
described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such
property immediately after such liquidation.".
"(A)
obligations of the United States, money, or deposits
with -- "(i)
any bank (as defined by section 2(c) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(c)),
without regard to subparagraphs (C) and (G) of
paragraph (2) of such section), or "(ii)
any corporation not described in clause (i) with
respect to which a bank holding company (as defined
by section 2(a) of such Act) or financial holding
company (as defined by section 2(p) of such Act)
owns directly or indirectly more than 80 percent by
vote or value of the stock of such
corporation;".
"(10)
PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE. --If a
taxpayer acquired property in an exchange to which
section 1031 applied, subsection (a) shall not apply
to the sale or exchange of such property if it
occurs during the 5-year period beginning with the
date of the acquisition of such property.".
"(B)
SPECIAL RULE FOR CERTAIN FOREIGN ENTITIES. -- "(i)
IN GENERAL. --In the case of any debt instrument
having original issue discount which is held by a
related foreign person which is a controlled foreign
corporation (as defined in section 957) or a passive
foreign investment company (as defined in section
1297), a deduction shall be allowable to the issuer
with respect to such original issue discount for any
taxable year before the taxable year in which paid
only to the extent such original issue discount is
includible (determined without regard to properly
allocable deductions and qualified deficits under
section 952(c)(1)(B)) during such prior taxable year
in the gross income of a United States person who
owns (within the meaning of section 958(a)) stock in
such corporation. "(ii)
SECRETARIAL AUTHORITY. --The Secretary may by
regulation exempt transactions from the application
of clause (i), including any transaction which is
entered into by a payor in the ordinary course of a
trade or business in which the payor is
predominantly engaged.".
"(A)
IN GENERAL. --The Secretary", and
"(B)
SPECIAL RULE FOR CERTAIN FOREIGN ENTITIES. -- "(i)
IN GENERAL. --Notwithstanding subparagraph (A), in
the case of any item payable to a controlled foreign
corporation (as defined in section 957) or a passive
foreign investment company (as defined in section
1297), a deduction shall be allowable to the payor
with respect to such amount for any taxable year
before the taxable year in which paid only to the
extent that an amount attributable to such item is
includible (determined without regard to properly
allocable deductions and qualified deficits under
section 952(c)(1)(B)) during such prior taxable year
in the gross income of a United States person who
owns (within the meaning of section 958(a)) stock in
such corporation. "(ii)
SECRETARIAL AUTHORITY. --The Secretary may by
regulation exempt transactions from the application
of clause (i), including any transaction which is
entered into by a payor in the ordinary course of a
trade or business in which the payor is
predominantly engaged and in which the payment of
the accrued amounts occurs within 812 months after
accrual or within such other period as the Secretary
may prescribe.".
"(1)
IN GENERAL. --For purposes of section 6611 (relating
to interest on overpayments), except as provided in
paragraph (4), a deposit which is returned to a
taxpayer shall be treated as a payment of tax for
any period to the extent (and only to the extent)
attributable to a disputable tax for such period.
Under regulations prescribed by the Secretary, rules
similar to the rules of section 6611(b)(2) shall
apply. "(2)
DISPUTABLE TAX. -- "(A)
IN GENERAL. --For purposes of this section, the term
'disputable tax' means the amount of tax specified
at the time of the deposit as the taxpayer's
reasonable estimate of the maximum amount of any tax
attributable to disputable items. "(B)
"(3)
OTHER DEFINITIONS. --For purposes of paragraph (2)
-- "(A)
DISPUTABLE ITEM. --The term 'disputable item' means
any item of income, gain, loss, deduction, or credit
if the taxpayer -- "(i)
has a reasonable basis for its treatment of such
item, and "(ii)
reasonably believes that the Secretary also has a
reasonable basis for disallowing the taxpayer's
treatment of such item. "(B)
30- "(4)
"(1)
PAYMENT OF TAX. --Except as otherwise provided by
the taxpayer, deposits shall be treated as used for
the payment of tax in the order deposited. "(2)
RETURNS OF DEPOSITS. --Deposits shall be treated as
returned to the taxpayer on a last-in, first-out
basis.".
"Sec.
6603. Deposits made to suspend running of interest
on potential underpayments, etc.".
"(4)
CAPITALIZATION ALLOWED WITH RESPECT TO EQUITY OF
PERSONS OTHER THAN ISSUER
"(5)
EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY DEALERS
IN SECURITIES. --For purposes of this subsection,
the term 'disqualified debt instrument' does not
include indebtedness issued by a dealer in
securities (or a related party) which is payable in,
or by reference to, equity (other than equity of the
issuer or a related party) held by such dealer in
its capacity as a dealer in securities. For purposes
of this paragraph, the term 'dealer in securities'
has the meaning given such term by section
475.".
Part
"(C)
TAX-EXEMPT USE PROPERTY SUBJECT TO LEASE. --In the
case of computer software which would be taxexempt
use property as defined in subsection (h) of section
168 if such section applied to computer software,
the useful life under subparagraph (A) shall not be
less than 125 percent of the lease term (within the
meaning of section 168(i)(3)).".
"(ii)
the term of a lease shall include the term of any
service contract or similar arrangement (whether or
not treated as a lease under section 7701(e)) -- "(I)
which is part of the same transaction (or series of
related transactions) which includes the lease, and "(II)
which is with respect to the property subject to the
lease or substantially similar property, and".
"(iv)
any Indian tribal government described in section
7701(a)(40). For
purposes of applying this subsection, any Indian
tribal government referred to in clause (iv) shall
be treated in the same manner as a State.".
"(1)
TAX-EXEMPT USE LOSS. --The term 'tax-exempt use
loss' means, with respect to any taxable year, the
amount (if any) by which -- "(A)
the sum of -- "(i)
the aggregate deductions (other than interest)
directly allocable to a tax-exempt use property,
plus "(ii)
the aggregate deductions for interest properly
allocable to such property, exceed "(B)
the aggregate income from such property. "(2)
TAX-EXEMPT USE PROPERTY. --The term 'tax-exempt use
property' has the meaning given to such term by
section 168(h), except that such section shall be
applied -- "(A)
without regard to paragraphs (1)(C) and (3) thereof,
and "(B)
as if property described in -- "(i)
section 167(f)(1)(B), "(ii)
section 167(f)(2), and "(iii)
section 197 intangible, were
tangible property. Such
term shall not include property which would (but for
this sentence) be tax-exempt use property solely by
reason of section 168(h)(6) if any credit is
allowable under section 42 or 47 with respect to
such property.
"(1)
AVAILABILITY OF FUNDS. -- "(A)
IN GENERAL. --A lease of property meets the
requirements of this paragraph if (at any time
during the lease term) not more than an allowable
amount of funds are -- "(i)
subject to any arrangement referred to in
subparagraph (B), or "(ii)
set aside or expected to be set aside, to
or for the benefit of the lessor or any lender, or
to or for the benefit of the lessee to satisfy the
lessee's obligations or options under the lease. For
purposes of clause (ii), funds shall be treated as
set aside or expected to be set aside only if a
reasonable person would conclude, based on the facts
and circumstances, that such funds are set aside or
expected to be set aside. "(B)
ARRANGEMENTS. --The arrangements referred to in this
subparagraph include a defeasance arrangement, a
loan by the lessee to the lessor or any lender, a
deposit arrangement, a letter of credit
collateralized with cash or cash equivalents, a
payment undertaking agreement, prepaid rent (within
the meaning of the regulations under section 467), a
sinking fund arrangement, a guaranteed investment
contract, financial guaranty insurance, and any
similar arrangement (whether or not such arrangement
provides credit support). "(C)
ALLOWABLE AMOUNT. -- "(i)
IN GENERAL. --Except as otherwise provided in this
subparagraph, the term 'allowable amount' means an
amount equal to 20 percent of the lessor's adjusted
basis in the property at the time the lease is
entered into. "(ii)
HIGHER AMOUNT PERMITTED IN CERTAIN CASES. --To the
extent provided in regulations, a higher percentage
shall be permitted under clause (i) where necessary
because of the credit-worthiness of the lessee. In
no event may such regulations permit a percentage of
more than 50 percent. "(iii)
OPTION TO PURCHASE. --If under the lease the lessee
has the option to purchase the property for a fixed
price or for other than the fair market value of the
property (determined at the time of exercise), the
allowable amount at the time such option may be
exercised may not exceed 50 percent of the price at
which such option may be exercised. "(iv)
NO ALLOWABLE AMOUNT FOR CERTAIN ARRANGEMENTS. --The
allowable amount shall be zero with respect to any
arrangement which involves -- "(I)
a loan from the lessee to the lessor or a lender, "(II)
any deposit received, letter of credit issued, or
payment undertaking agreement entered into by a
lender otherwise involved in the transaction, or "( For
purposes of subclause (I), the term 'loan' shall not
include any amount treated as a loan under section
467 with respect to a section 467 rental agreement. "(2)
LESSOR MUST MAKE SUBSTANTIAL EQUITY INVESTMENT. -- "(A)
IN GENERAL. --A lease of property meets the
requirements of this paragraph if -- "(i)
the lessor -- "(I)
has at the time the lease is entered into an
unconditional at-risk equity investment (as
determined by the Secretary) in the property of at
least 20 percent of the lessor's adjusted basis in
the property as of that time, and "(II)
maintains such investment throughout the term of the
lease, and "(ii)
the fair market value of the property at the end of
the lease term is reasonably expected to be equal to
at least 20 percent of such basis. "(B)
RISK OF LOSS. --For purposes of clause (ii), the
fair market value at the end of the lease term shall
be reduced to the extent that a person other than
the lessor bears a risk of loss in the value of the
property. "(C)
PARAGRAPH NOT TO APPLY TO SHORT-TERM LEASES. --This
paragraph shall not apply to any lease with a lease
term of 5 years or less. "(3)
LESSEE "(A)
IN GENERAL. --A lease of property meets the
requirements of this paragraph if there is no
arrangement under which the lessee bears -- "(i)
any portion of the loss that would occur if the fair
market value of the leased property were 25 percent
less than its reasonably expected fair market value
at the time the lease is terminated, or "(ii)
more than 50 percent of the loss that would occur if
the fair market value of the leased property at the
time the lease is terminated were zero. "(B)
EXCEPTION. --The Secretary may by regulations
provide that the requirements of this paragraph are
not met where the lessee bears more than a minimal
risk of loss. "(C)
PARAGRAPH NOT TO APPLY TO SHORT-TERM LEASES. --This
paragraph shall not apply to any lease with a lease
term of 5 years or less. "(4)
PROPERTY WITH MORE THAN 7-YEAR CLASS "(A)
of property with a class life (as defined in section
168(i)(1)) of more than 7 years, other than
fixed-wing aircraft and vessels, and "(B)
under which the lessee has the option to purchase
the property, the
lease meets the requirements of this paragraph only
if the purchase price under the option equals the
fair market value of the property (determined at the
time of exercise).
"(1)
TREATMENT OF FORMER TAX-EXEMPT USE PROPERTY. -- "(A)
IN GENERAL. --In the case of any former tax-exempt
use property -- "(i)
any deduction allowable under subsection (b) with
respect to such property for any taxable year shall
be allowed only to the extent of any net income
(without regard to such deduction) from such
property for such taxable year, and "(ii)
any portion of such unused deduction remaining after
application of clause (i) shall be treated as a
deduction allowable under subsection (b) with
respect to such property in the next taxable year. "(B)
FORMER TAX-EXEMPT USE PROPERTY. --For purposes of
this subsection, the term 'former tax-exempt use
property' means any property which -- "(i)
is not tax-exempt use property for the taxable year,
but "(ii)
was tax-exempt use property for any prior taxable
year. "(2)
DISPOSITION OF ENTIRE INTEREST IN PROPERTY. --If
during the taxable year a taxpayer disposes of the
taxpayer's entire interest in tax-exempt use
property (or former taxexempt use property), rules
similar to the rules of section 469(g) shall apply
for purposes of this section. "(3)
COORDINATION WITH SECTION 469. --This section shall
be applied before the application of section 469. "(4)
COORDINATION WITH SECTIONS 1031 "(A)
IN GENERAL. --Sections 1031(a) and 1033(a) shall not
apply if -- "(i)
the exchanged or converted property is taxexempt use
property subject to a lease which was entered into
before "(ii)
the replacement property is tax-exempt use property
subject to a lease which does not meet the
requirements of subsection (d). "(B)
ADJUSTED BASIS. --In the case of property acquired
by the lessor in a transaction to which section 1031
or 1033 applies, the adjusted basis of such property
for purposes of this section shall be equal to the
lesser of -- "(i)
the fair market value of the property as of the
beginning of the lease term, or "(ii)
the amount which would be the lessor's adjusted
basis if such sections did not apply to such
transaction.
"(1)
RELATED PARTIES. --The terms 'lessor', 'lessee', and
'lender' each include any related party (within the
meaning of section 197(f)(9)(C)(i)). "(2)
LEASE TERM. --The term 'lease term' has the meaning
given to such term by section 168(i)(3). "(3)
LENDER. --The term 'lender' means, with respect to
any lease, a person that makes a loan to the lessor
which is secured (or economically similar to being
secured) by the lease or the leased property. "(4)
LOAN. --The term 'loan' includes any similar
arrangement.
"(1)
allow in appropriate cases the aggregation of
property subject to the same lease, and "(2)
provide for the determination of the allocation of
interest expense for purposes of this
section.".
"Sec.
470. Limitation on deductions allocable to property
used by governments or other tax-exempt
entities.". (a) IN GENERAL. --Except as provided in this section, the amendments made by this part shall apply to leases entered into after (b) EXCEPTION. -- (1) IN GENERAL. --The amendments made by this part shall not apply to qualified transportation property. (2) QUALIFIED TRANSPORTATION PROPERTY. --For purposes of paragraph (1), the term "qualified transportation property" means domestic property subject to a lease with respect to which a formal application -- (A) was submitted for approval to the Federal Transit Administration (an agency of the Department of Transportation) after (B) is approved by the Federal Transit Administration before (C) includes a description of such property and the value of such property. (3) EXCHANGES (4) INTANGIBLES |
