Asset Protection

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Sunday, April 29, 2007

Senate 681 -- Stop Tax Haven Abuse Act

S 681 IS

110th CONGRESS

1st Session

S. 681

To restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes.

IN THE SENATE OF THE UNITED STATES

February 17, 2007

Mr. LEVIN (for himself, Mr. COLEMAN, and Mr. OBAMA) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes.

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

SECTION 1. SHORT TITLE; ETC.

(a) Short Title- This Act may be cited as the `Stop Tax Haven Abuse 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.

Sec. 1. Short title; etc.

TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

Sec. 101. Establishing presumptions for entities and transactions involving offshore secrecy jurisdictions.

Sec. 102. Authorizing special measures against foreign jurisdictions, financial institutions, and others that impede United States tax enforcement.

Sec. 103. Allowing more time for investigations involving offshore secrecy jurisdictions.

Sec. 104. Reporting United States beneficial owners of foreign owned financial accounts.

Sec. 105. Preventing misuse of foreign trusts for tax evasion.

Sec. 106. Limitation on legal opinion protection from penalties with respect to transactions involving offshore secrecy jurisdictions.

TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES

Sec. 201. Penalty for failing to disclose offshore holdings.

Sec. 202. Deadline for anti-money laundering rule for hedge funds and private equity funds.

Sec. 203. Anti-money laundering requirements for formation agents.

Sec. 204. Strengthening summons in cases involving offshore secrecy jurisdictions.

Sec. 205. Improving enforcement of foreign financial account reporting.

TITLE III--COMBATING TAX SHELTER PROMOTERS

Sec. 301. Penalty for promoting abusive tax shelters.

Sec. 302. Penalty for aiding and abetting the understatement of tax liability.

Sec. 303. Prohibition on tax shelter patents.

Sec. 304. Prohibited fee arrangement.

Sec. 305. Preventing tax shelter activities by financial institutions.

Sec. 306. Information sharing for enforcement purposes.

Sec. 307. Disclosure of information to Congress.

Sec. 308. Tax opinion standards for tax practitioners.

Sec. 309. Denial of deduction for certain fines, penalties, and other amounts.

TITLE IV--REQUIRING ECONOMIC SUBSTANCE

Sec. 401. Clarification of economic substance doctrine.

Sec. 402. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 403. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.

TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

SEC. 101. ESTABLISHING PRESUMPTIONS FOR ENTITIES AND TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) Presumptions for Internal Revenue Code of 1986-

(1) 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 offshore secrecy jurisdictions.

`SEC. 7492. PRESUMPTIONS PERTAINING TO ENTITIES AND TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

`(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, 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), formed, domiciled, or operating in an offshore secrecy jurisdiction, 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 entity in an offshore secrecy jurisdiction, 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 in any such jurisdiction 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 such 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 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.'.

(2) 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'.

(b) Definition of Offshore Secrecy Jurisdiction- Section 7701(a) is amended by adding at the end the following new paragraph:

`(50) OFFSHORE SECRECY JURISDICTION-

`(A) IN GENERAL- The term `offshore secrecy jurisdiction' means any foreign jurisdiction which is listed by the Secretary as an offshore secrecy jurisdiction for purposes of this title.

`(B) DETERMINATION OF JURISDICTIONS ON LIST- A jurisdiction shall be listed under paragraph (A) if the Secretary determines that such jurisdiction has corporate, business, bank, or tax secrecy rules and practices which, in the judgment of the Secretary, unreasonably restrict the ability of the United States to obtain information relevant to the enforcement of this title, unless the Secretary also determines that such country has effective information exchange practices.

`(C) SECRECY OR CONFIDENTIALITY RULES AND PRACTICES- For purposes of subparagraph (B), corporate, business, bank, or tax secrecy or confidentiality rules and practices include both formal laws and regulations and informal government or business practices having the effect of inhibiting access of law enforcement and tax administration authorities to beneficial ownership and other financial information.

`(D) INEFFECTIVE INFORMATION EXCHANGE PRACTICES- For purposes of subparagraph (B), a jurisdiction shall be deemed to have ineffective information exchange practices unless the Secretary determines, on an annual basis, that--

`(i) such jurisdiction has in effect a treaty or other information exchange agreement with the United States that provides for the prompt, obligatory, and automatic exchange of such information as is forseeably relevant for carrying out the provisions of the treaty or agreement or the administration or enforcement of this title,

`(ii) during the 12-month period preceding the annual determination, the exchange of information between the United States and such jurisdiction was in practice adequate to prevent evasion or avoidance of United States income tax by United States persons and to enable the United States effectively to enforce this title, and

`(iii) during the 12-month period preceding the annual determination, such jurisdiction was not identified by an intergovernmental group or organization of which the United States is a member as uncooperative with international tax enforcement or information exchange and the United States concurs in such identification.

`(E) INITIAL LIST OF OFFSHORE SECRECY JURISDICTIONS- For purposes of this paragraph, each of the following foreign jurisdictions, which have been previously and publicly identified by the Internal Revenue Service as secrecy jurisdictions in Federal court proceedings, shall be deemed listed by the Secretary as an offshore secrecy jurisdiction unless delisted by the Secretary under subparagraph (F)(ii):

`(i) Anguilla.

`(ii) Antigua and Barbuda.

`(iii) Aruba.

`(iv) Bahamas.

`(v) Barbados.

`(vi) Belize.

`(vii) Bermuda.

`(viii) British Virgin Islands.

`(ix) Cayman Islands.

`(x) Cook Islands.

`(xi) Costa Rica.

`(xii) Cyprus.

`(xiii) Dominica.

`(xiv) Gibraltar.

`(xv) Grenada.

`(xvi) Guernsey/Sark/Alderney.

`(xvii) Hong Kong.

`(xviii) Isle of Man.

`(xix) Jersey.

`(xx) Latvia.

`(xxi) Liechtenstein.

`(xxii) Luxembourg.

`(xxiii) Malta.

`(xxiv) Nauru.

`(xxv) Netherlands Antilles.

`(xxvi) Panama.

`(xxvii) Samoa.

`(xxviii) St. Kitts and Nevis.

`(xxix) St. Lucia.

`(xxx) St. Vincent and the Grenadines.

`(xxxi) Singapore.

`(xxxii) Switzerland.

`(xxxiii) Turks and Caicos.

`(xxxiv) Vanuatu.

`(F) MODIFICATIONS TO LIST- The Secretary--

`(i) shall add to the list under paragraph (A) jurisdictions which meet the requirements of paragraph (B), and

`(ii) may remove from such list only those jurisdictions which meet none of the requirements of paragraph (B).'.

(c) 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 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, 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), formed, domiciled, or operating in an offshore secrecy jurisdiction (as defined in section 7701(a)(50) 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), formed, domiciled, or operating in an offshore secrecy jurisdiction (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.'.

(d) 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:

`(d) Rebuttable Presumption- For purposes of this section, there shall be a rebuttable presumption that any account with a financial institution formed, domiciled, or operating in an offshore secrecy jurisdiction (as defined in section 7701(a)(50) 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.'.

(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 and the Chairman of the Securities and Exchange Commission shall each adopt regulations or other guidance necessary to implement the amendments made by this section. 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, if either determines that applying such amendments to such transactions is not necessary to carry out the purposes of such amendments.

(2) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 102. AUTHORIZING SPECIAL MEASURES AGAINST FOREIGN JURISDICTIONS, FINANCIAL INSTITUTIONS, AND OTHERS THAT IMPEDE UNITED STATES TAX ENFORCEMENT.

Section 5318A of title 31, United States Code, is amended--

(1) by striking the section heading and inserting the following:

`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 the subsection heading 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 the subsection heading 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

`(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:

`(5) PROHIBITIONS OR CONDITIONS ON OPENING OR MAINTAINING CERTAIN CORRESPONDENT OR PAYABLE-THROUGH ACCOUNTS OR AUTHORIZING CERTAIN CREDIT 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.'; and

(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';

(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'.

SEC. 103. ALLOWING MORE TIME FOR INVESTIGATIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) In General- Section 6501(c) is amended by adding at the end the following new paragraph:

`(11) RETURNS INVOLVING OFFSHORE SECRECY JURISDICTIONS- In the case of a return for a year in which the taxpayer directly or indirectly formed, owned, transferred assets to, was a beneficiary of, or received money or property or the use thereof from a financial account or 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) formed, located, domiciled or operating in an offshore secrecy jurisdiction, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.'.

(b) Effective Date- The amendment made by this section shall apply to--

(1) returns filed after the date of the enactment of this Act, and

(2) returns filed on or before such date if the period specified in section 6501 of the Internal Revenue Code of 1986 (determined without regard to the amendments made by subsection (a)) for assessment of such taxes has not expired as of such date.

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 6045 the following new sections:

`SEC. 6045A. RETURNS REGARDING UNITED STATES BENEFICIAL OWNERS OF FOREIGN OWNED FINANCIAL ACCOUNTS.

`(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.

`(d) Cross Reference-

`For provisions relating to penalties for failure to file returns and reports, see sections 6721, 7203, and 7206(1).

`SEC. 6045B. RETURNS BY FINANCIAL INSTITUTIONS REGARDING ESTABLISHMENT OF ACCOUNTS AND CREATION OF ENTITIES IN OFFSHORE SECRECY JURISDICTIONS.

`(a) Requirement of Return- Any financial institution directly or indirectly--

`(1) opening a bank, brokerage, or other financial account, or

`(2) forming or acquiring 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),

in an offshore secrecy jurisdiction 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) the name and address of an entity formed or acquired, 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.

`(e) Cross Reference-

`For provisions relating to penalties for failure to file returns and reports required under this section, see sections 6721, 7203, and 7206(1).'.

(b) Clerical Amendment- The table of sections for such subpart is amended by inserting after the item relating to section 6045 the following new items:

`Sec. 6045A. Returns regarding United States beneficial owners of foreign owned financial accounts.

`Sec. 6045B. Returns by financial institutions regarding establishment of accounts and creation of entities in offshore secrecy jurisdictions.'.

(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 6045B 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 6045B of the Internal Revenue Code of 1986,' after `the rules or regulations thereunder,'.

(d) 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 6045A of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (c)(1) shall take effect with respect to amounts paid into foreign owned accounts after December 31 of the year of the date of the enactment of this Act. Section 6045B of such Code (as so added) and the amendment made by subsection (c)(2) shall take effect with respect to accounts opened or entities formed or acquired after December 31 of the year of the date of the enactment of this Act.

SEC. 105. PREVENTING MISUSE OF FOREIGN TRUSTS FOR TAX EVASION.

(a) Attribution of Trust Protector Powers to Grantors- Section 672 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:

`(f) Grantor Treated as Holding Any Power or Interest of Trust Protector or Enforcer- For purposes of this subpart, a grantor shall be treated as holding any power or interest held by any trust protector or trust enforcer or similar person appointed to advise, influence, oversee, or veto the actions of the trustee.'.

(b) Treatment of United States Recipients of Foreign Trust Assets as Trust Beneficiaries- Section 679 is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection:

`(c) Certain United States Persons Treated as Beneficiaries- Any United States person receiving from a foreign trust cash or other property, or receiving the use thereof, shall be treated as a beneficiary of such trust regardless of whether such person is a named beneficiary, except to the extent that such person paid fair market value for the benefit received.'.

(c) Treatment of Foreign Trust Transfers of Real Estate, Artwork, or Jewelry Consistently With Transfers of Securities- Section 643(i)(1) is amended by striking `or marketable securities' and inserting `or other property, including real estate, marketable securities, artwork, jewelry, and other personal property,'.

(d) Treatment of Trusts With Future or Contingent United States Beneficiaries- Section 679(a)(1) is amended--

(1) by inserting `or for any subsequent year' after `such year', and

(2) by inserting `(including a contingent beneficiary)' after `beneficiary'.

SEC. 106. LIMITATION ON LEGAL OPINION PROTECTION FROM PENALTIES WITH RESPECT TO TRANSACTIONS INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(a) In General- Section 6664 is amended by adding at the end the following new subsection:

`(e) Certain Opinions May Not Be Relied Upon- For purposes of this part, an opinion of a tax advisor may not be relied upon to establish that there was reasonable cause for any portion of an underpayment, or that the taxpayer acted in good faith with respect to such portion, if such portion is attributable to a transaction any part of which involves an entity or financial account in an offshore secrecy jurisdiction.'.

(b) Regulatory Authority- The Secretary of the Treasury may by regulation or guidance provide that subsection (e) of section 6664 of the Internal Revenue Code of 1986, as added by subsection (a), does not apply to legal opinions that express a confidence level that substantially exceeds the `more likely than not' confidence level; or that such subsection does not apply to classes of transactions, such as corporate reorganizations, where the Secretary determines that applying such subsection to such transactions is not necessary to carry out the purposes of such subsection.

TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES

SEC. 201. 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) 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:

SEC. 202. DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR HEDGE FUNDS AND PRIVATE EQUITY FUNDS.

(a) In General- Not later than 180 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 final rule in the Federal Register requiring unregistered investment companies, including hedge funds or private equity funds, 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.

(b) Contents- The final rule published under this section--

(1) shall require, at a minimum, that to safeguard against terrorist financing and money laundering, all unregistered investment companies shall--

(A) use due diligence to identify and evaluate 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 that unregistered investment company; and

(B) be subject to section 5318(k)(2) of title 31, United States Code; and

(2) may incorporate aspects of the proposed rule for unregistered investment companies published in the Federal Register on September 26, 2002 (67 Fed. Reg. 60617) (relating to anti-money laundering programs).

(1) the terms `investment company' and `issuer' have the same meanings as in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2); and

(2) the term `unregistered investment company' means an issuer that would be an investment company, but for the exclusion under paragraph (1) or (7) of section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)).

SEC. 203. 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 involved in forming new corporations, limited liability companies, partnerships, trusts, or other legal entities; or'.

(b) Deadline for Anti-Money Laundering Rule for Formation Agents- Not later than 90 days after the date of the enactment of this Act, after consulting with the Attorney General of the United States, the Commissioner of the Internal Revenue Service, and Chairman of the Securities and Exchange Commission, the Secretary of the Treasury 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 subsection (h) of section 5318 of that title. The Secretary shall publish such rule in final form in the Federal Register not later than 180 days after the date of the enactment of this Act.

SEC. 204. STRENGTHENING SUMMONS IN CASES INVOLVING OFFSHORE SECRECY JURISDICTIONS.

(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 in an offshore secrecy jurisdiction.

`(3) PRESUMPTION IN CASES INVOLVING OFFSHORE SECRECY JURISDICTIONS- 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 offshore secrecy jurisdictions, 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 subparagraphs (A), (B), and (C) 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)(4)(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.

(d) GAO Report- Not later than the date which is 5 years after the date of the enactment of this Act, the Comptroller General of the United States shall issue a report on the implementation of section 7609(f)(4) of the Internal Revenue Code of 1986, as added by this section.

SEC. 205. 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) (relating to tax administration) is amended by adding at the end the following new sentence:

`For purposes of clause (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 to be an internal revenue law.'.