REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL CORPORATE TAX SHELTERS.

SEC. 1028. REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL CORPORATE TAX SHELTERS. (a) In General.—Section 6111 (relating to registration of tax shelters) is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection: “(d) Certain Confidential Arrangements Treated as Tax Shelters.— “(1) In general.—For purposes of this section, the term ‘tax shelter’ includes any entity, plan, arrangement, or transaction— “(A) a significant purpose of the structure of which is the avoidance or evasion of Federal income tax for a direct or indirect participant which is a corporation, “(B) which is offered to any potential participant under conditions of confidentiality, and “(C) for which the tax shelter promoters may receive fees in excess of $100,000 in the aggregate.111 STAT. 927 “(2) Conditions of confidentiality.—For purposes of paragraph (1)(B), an offer is under conditions of confidentiality if— “(A) the potential participant to whom the offer is made (or any other person acting on behalf of such participant) has an understanding or agreement with or for the benefit of any promoter of the tax shelter that such participant (or such other person) will limit disclosure of the tax shelter or any significant tax features of the tax shelter, or “(B) any promoter of the tax shelter— “(i) claims, knows, or has reason to know, “(ii) knows or has reason to know that any other person (other than the potential participant) claims, or “(iii) causes another person to claim, that the tax shelter (or any aspect thereof) is proprietary to any person other than the potential participant or is otherwise protected from disclosure to or use by others. For purposes of this subsection, the term ‘promoter’ means any person or any related person (within the meaning of section 267 or 707) who participates in the organization, management, or sale of the tax shelter. “(3) Persons other than promoter required to register in certain cases.— “(A) In general.—If— “(i) the requirements of subsection (a) are not met with respect to any tax shelter (as defined in paragraph (1)) by any tax shelter promoter, and “(ii) no tax shelter promoter is a United States person, then each United States person who discussed participation in such shelter shall register such shelter under subsection (a). “(B) Exception.—Subparagraph (A) shall not apply to a United States person who discussed participation in a tax shelter if— “(i) such person notified the promoter in writing (not later than the close of the 90th day after the day on which such discussions began) that such person would not participate in such shelter, and “(ii) such person does not participate in such shelter. “(4) Offer to participate treated as offer for sale.—For purposes of subsections (a) and (b), an offer to participate in a tax shelter (as defined in paragraph (1)) shall be treated as an offer for sale.”. (b) Penalty.—Subsection (a) of section 6707 (relating to failure to furnish information regarding tax shelters) is amended by adding at the end the following new paragraph: “(3) Confidential arrangements.— “(A) In general.—In the case of a tax shelter (as defined in section 6111(d)), the penalty imposed under paragraph (1) shall be an amount equal to the greater of— “(i) 50 percent of the fees paid to all promoters of the tax shelter with respect to offerings made before 111 STAT. 928the date such shelter is registered under section 6111, or “(ii) $10,000. Clause (i) shall be applied by substituting ‘75 percent’ for ‘50 percent’ in the case of an intentional failure or act described in paragraph (1). “(B) Special rule for participants required to register shelter.—In the case of a person required to register such a tax shelter by reason of section 6111(d)(3)— “(i) such person shall be required to pay the penalty under paragraph (1) only if such person actually participated in such shelter, “(ii) the amount of such penalty shall be determined by taking into account under subparagraph (A)(i) only the fees paid by such person, and “(iii) such penalty shall be in addition to the penalty imposed on any other person for failing to register such shelter”. (c) Modifications to Substantial Understatement Penalty.— (1) Restriction on reasonable basis for corporate understatement of income tax.—Subparagraph (B) of section 6662(d)(2) is amended by adding at the end the following new flush sentence: “For purposes of clause (ii)(II), in no event shall a corporation be treated as having a reasonable basis for its tax treatment of an item attributable to a multiple-party financing transaction if such treatment does not clearly reflect the income of the corporation.”. (2) Modification to definition of tax shelter.—Clause (iii) of section 6662(d)(2)(C) is amended by striking “the principal purpose” and inserting “a significant purpose”. (d) Conforming Amendments.— (1) Paragraph (2) of section 6707(a) is amended by striking “The penalty” and inserting “Except as provided in paragraph (3), the penalty”. (2) Subparagraph (A) of section 6707(a)(1) is amended by striking “paragraph (2)” and inserting “paragraph (2) or (3), as the case may be”. (e) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to any tax shelter (as defined in section 6111(d) of the Internal Revenue Code of 1986, as amended by this section) interests in which are offered to potential participants after the Secretary of the Treasury prescribes guidance with respect to meeting requirements added by such amendments. (2) Modifications to substantial understatement penalty.—The amendments made by subsection (c) shall apply to items with respect to transactions entered into after the date of the enactment of this Act.111 STAT. 929