REVISION OF ACCURACY-RELATED PENALTIES.

SEC. 7721. REVISION OF ACCURACY-RELATED PENALTIES. (a) General Rule.—Subchapter A of chapter 68 (relating to additions to the tax and additional amounts) is amended by striking section 6662 and inserting the following: “PART II—ACCURACY-RELATED AND FRAUD PENALTIES “Sec. 6662. Imposition of accuracy-related penalty. “Sec. 6663. Imposition of fraud penalty. “Sec. 6664. Definitions and special rules. “SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY. “(a) Imposition of Penalty.—If this section applies to any portion of an underpayment of tax required to be shown on a return, there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies. “(b) Portion of Underpayment to Which Section Applies.—This section shall apply to the portion of any underpayment which is attributable to 1 or more of the following: “(1) Negligence or disregard of rules or regulations. “(2) Any substantial understatement of income tax. “(3) Any substantial valuation overstatement under chapter 1. “(4) Any substantial overstatement of pension liabilities. “(5) Any substantial estate or gift tax valuation understatement. This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 6663. “(c) Negligence.—For purposes of this section, the term ‘negligence’ includes any failure to make a reasonable attempt to comply with the provisions of this title, and the term ‘disregard’ includes any careless, reckless, or intentional disregard. “(d) Substantial Understatement of Income Tax.— “(1) Substantial understatement.— “(A) In general.—For purposes of this section, there is a substantial understatement of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of— “(i) 10 percent of the tax required to be shown on the return for the taxable year, or “(ii) $5,000. “(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), paragraph (1) shall be applied by substituting “$10,000” for “$5,000”. “(2) Understatement.— 103 STAT. 2396 “(A) In general.—For purposes of paragraph (1), the term ‘understatement’ means the excess of— “(i) the amount of the tax required to be shown on the return for the taxable year, over “(ii) the amount of the tax imposed which is shown on the return, reduced by any rebate (within the meaning of section 6211(b)(2)). “(B) Reduction for understatement due to position of taxpayer or disclosed item.—The amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to— “(i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment, or “(ii) any item with respect to which the relevant facts affecting the item’s tax treatment are adequately disclosed in the return or in a statement attached to the return. “(C) Special rules in cases involving tax shelters.— “(i) In general.—In the case of any item attributable to a tax shelter— “(I) subparagraph (B)(ii) shall not apply, and “(II) subparagraph (B)(i) shall not apply unless (in addition to meeting the requirements of such subparagraph) the taxpayer reasonably believed that the tax treatment of such item by the taxpayer was more likely than not the proper treatment. “(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 “(III) any other plan or arrangement, if the principal purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax. “(D) Secretarial list.—The Secretary shall prescribe (and revise not less frequently than annually) a list of positions— “(i) for which the Secretary believes there is not substantial authority, and “(ii) which affect a significant number of taxpayers. Such list (and any revision thereof) shall be published in the Federal Register. “(e) Substantial Valuation Overstatement Under Chapter 1.— “(1) In general.—For purposes of this section, there is a substantial valuation overstatement under chapter 1 if the value of any property (or the adjusted basis of any property) claimed on any return of tax imposed by chapter 1 is 200 percent or more of the amount determined to be the correct amount of such valuation or adjusted basis (as the case may be). “(2) Limitation.—No penalty shall be imposed by reason of subsection (b)(3) unless the portion of the underpayment for the taxable year attributable to substantial valuation overstatements under chapter 1 exceeds $5,000 ($10,000 in the case of a 103 STAT. 2397corporation other than an S corporation or a personal holding company (as defined in section 542)). “(f) Substantial Overstatement of Pension Liabilities.— “(1) In general.—For purposes of this section, there is a substantial overstatement of pension liabilities if the actuarial determination of the liabilities taken into account for purposes of computing the deduction under paragraph (1) or (2) of section 404(a) is 200 percent or more of the amount determined to be the correct amount of such liabilities. “(2) Limitation.—No penalty shall be imposed by reason of subsection (b)(4) unless the portion of the underpayment for the taxable year attributable to substantial overstatements of pension liabilities exceeds $1,000. “(g) Substantial Estate or Gift Tax Valuation Understatement.— “(1) In general.—For purposes of this section, there is a substantial estate or gift tax valuation understatement if the value of any property claimed on any return of tax imposed by subtitle B is 50 percent or less of the amount determined to be the correct amount of such valuation. “(2) Limitation.—No penalty shall be imposed by reason of subsection (b)(5) unless the portion of the underpayment attributable to substantial estate or gift tax valuation understatements for the taxable period (or, in the case of the tax imposed by chapter 11, with respect to the estate of the decedent) exceeds $5,000. “(h) Increase in Penalty in Case of Gross Valuation Misstatements.— “(1) In general.—To the extent that a portion of the underpayment to which this section applies is attributable to one or more gross valuation misstatements, subsection (a) shall be applied with respect to such portion by substituting ‘40 percent’ for ‘20 percent’. “(2) Gross valuation misstatements.— The term ‘gross valuation misstatements’ means— “(A) any substantial valuation overstatement under chapter 1 as determined under subsection (e) by substituting ‘400 percent’ for ‘200 percent’, “(B) any substantial overstatement of pension liabilities as determined under subsection (f) by substituting ‘400 percent’ for ‘200 percent’, and “(C) any substantial estate or gift tax valuation understatement as determined under subsection (g) by substituting ‘25 percent’ for ‘50 percent’. “SEC. 6663. IMPOSITION OF FRAUD PENALTY. “(a) Imposition of Penalty.—If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud. “(b) Determination of Portion Attributable to Fraud.—If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud. 103 STAT. 2398 “(c) Special Rule for Joint Returns.—In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse. “SEC. 6664. DEFINITIONS AND SPECIAL RULES. “(a) Underpayment.—For purposes of this part, the term ‘underpayment’ means the amount by which any tax imposed by this tide exceeds the excess of— “(1) the sum of— “(A) the amount shown as the tax by the taxpayer on his return, plus “(B) amounts not so shown previously assessed (or collected without assessment), over “(2) the amount of rebates made. For purposes of paragraph (2), the term ‘rebate’ means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed was less than the excess of the amount specified in paragraph (1) over the rebates previously made. “(b) Penalties Applicable Only Where Return Filed.—The penalties provided in this part shall apply only in cases where a return of tax is filed (other than a return prepared by the Secretary under the authority of section 6020(b)). “(c) Reasonable Cause Exception.— “(1) In general.—No penalty shall be imposed under this part with respect to any portion of an underpayment 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 rule for certain valuation overstatements.— In the case of any underpayment attributable to a substantial or gross valuation overstatement under chapter 1 with respect to charitable deduction property, paragraph (1) shall not apply unless— “(A) the claimed value of the property was based on a qualified appraisal made by a qualified appraiser, and “(B) in addition to obtaining such appraisal, the taxpayer made a good faith investigation of the value of the contributed property. “(3) Definitions.— For purposes of this subsection— “(A) Charitable deduction property.—The term ‘charitable deduction property’ means any property contributed by the taxpayer in a contribution for which a deduction was claimed under section 170. For purposes of paragraph (2), such term shall not include any securities for which (as of the date of the contribution) market quotations are readily available on an established securities market. “(B) Qualified appraiser.—The term ‘qualified appraiser’ means any appraiser meeting the requirements of the regulations prescribed under section 170(a)(1). “(C) Qualified appraisal.—The term ‘qualified appraisal’ means any appraisal meeting the requirements of the regulations prescribed under section 170(a)(1). “PART III—APPLICABLE RULES “Sec. 6665. Applicable rules. 103 STAT. 2399 “SEC. 6665. APPLICABLE RULES. “(a) Additions Treated as Tax.—Except as otherwise provided in this title— “(1) the additions to the tax, additional amounts, and penalties provided by this chapter shall be paid upon notice and demand and shall be assessed, collected, and paid in the same manner as taxes; and “(2) any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter. “(b) Procedure for Assessing Certain Additions to Tax.—For purposes of subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes), subsection (a) shall not apply to any addition to tax under section 6651, 6654, or 6655; except that it shall apply— “(1) in the case of an addition described in section 6651, to that portion of such addition which is attributable to a deficiency in tax described in section 6211; or “(2) to an addition described in section 6654 or 6655, if no return is filed for the taxable year.” (b) Repeal of Increase in Interest on Certain Substantial Underpayments.—Subsection (c) of section 6621 (relating to interest on substantial underpayments attributable to tax motivated transactions) is hereby repealed. (c) Technical and Conforming Amendments.— (1) Section 6653 is amended to read as follows: “SEC. 6653. FAILURE TO PAY STAMP TAX. “Any person (as defined in section 6671(b)) who— “(1) willfully fails to pay any tax imposed by this title which is payable by stamp, coupons, tickets, books, or other devices or methods prescribed by this title or by regulations under the authority of this title, or “(2) willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty of 50 percent of the total amount of the underpayment of the tax.” (2) Sections 6659, 6659A, 6660, and 6661 are hereby repealed. (3) Subsection (b) of section 5684 is amended— (A) by striking “6662(a)” and inserting “6665(a)”, and (B) by striking “6662” in the subsection heading and inserting “6665”. (4) Subsection (a) of section 5761 is amended by striking “or 6653” and inserting “or 6653 or part II of subchapter A of chapter 68”. (5) Subsection (c) of section 5761 is amended— (A) by striking “6662(a)” and inserting “6665(a)”, and (B) by striking “6662” in the subsection heading and inserting “6665”. (6) Subparagraph (A) of section 6O13(b)(5) is amended— (A) by striking “section 6653” and inserting “part II of subchapter A of chapter 68”, and (B) by striking “SECTION 6653” in the subparagraph heading and inserting “PART II OF SUBCHAPTER A OF CHAPTER 68”. 103 STAT. 2400 (7) Subsection (d) of section 6222 is amended by striking “section 6653(a)” and inserting “part II of subchapter A of chapter 68”. (8) Paragraph (2) of section 6601(e) is amended by striking “section 6651(a)(1), 6653, 6659, 6660, or 6661” each place it appears and inserting “section 6651(a)(1) or 6653 or under part II of subchapter A of chapter 68”. (9) Subsection (a) of section 6672 is amended by striking “under section 6653” and inserting “under section 6653 or part II of subchapter A of chapter 68”. (10) Subparagraph (C) of section 461(i)(3) is amended by striking “section 6662(b)(2)(C)(h)” and inserting “section 6662(d)(2)(C)(ii)”. (11) Clause (i) of section 1274(b)(3)(B) is amended by striking “section 6661(b)(2)(C)(ii)” and inserting “section 6662(d)(2)(C)(ii)”. (12) Subparagraph (B) of section 7519(f)(4) is amended by striking “section 6653” and inserting “part II of subchapter A of chapter 68”. (13) Subchapter A of chapter 68 is amended by inserting after the subchapter heading the following: “Part I. General provisions. “Part II. Accuracy-related and fraud penalties. “Part III. Applicable rules. “PART I—GENERAL PROVISIONS”. (14) The table of sections for part I of subchapter A of chapter 68 (as amended by paragraph (1)) is amended— (A) by striking out the items relating to sections 6659, 6659A, 6660, and 6661, and (B) by striking the item relating to section 6653 and inserting: “Sec. 6653. Failure to pay stamp tax.” (d) Effective Date.—The amendments made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 1989.