Title II — Strengthening tax enforcement

S. 268 · 113th Congress · Feb 11, 2013 · Lineage

II Strengthening tax enforcement

A Combating tax shelter promotion

Sec. 201 Penalty for promoting abusive tax shelters

(a)

Penalty for promoting abusive tax shelters— Section 6700 is amended—

(1)

by redesignating subsections (b) and (c) as subsections (d) and (e), respectively,

(2)

by striking “a penalty” and all that follows through the period in the first sentence of subsection (a) and inserting “a penalty determined under subsection (b)”, and

(3)

by inserting after subsection (a) the following new subsections:

“(b) Amount of penalty; calculation of penalty; liability for penalty

“(1) Amount of penalty—The amount of the penalty imposed by subsection (a) shall not exceed 150 percent of the gross income derived (or to be derived) from such activity by the person or persons subject to such penalty.

“(2) Calculation of penalty—The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of an activity described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who participated in such an activity.

“(3) Liability for penalty—If more than 1 person is liable under subsection (a) with respect to such activity, all such persons shall be jointly and severally liable for the penalty under such subsection.

“(c) Penalty not deductible—The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.”

(b)

Conforming amendment— Section 6700(a) is amended by striking the last sentence.

(c)

Effective date— The amendments made by this section shall apply to activities after the date of the enactment of this Act.

Sec. 202 Penalty for aiding and abetting the understatement of tax liability

(a)

In general— Section 6701(a) is amended—

(1)

by inserting “the tax liability or” after “respect to,” in paragraph (1),

(2)

by inserting “aid, assistance, procurement, or advice with respect to such” before “portion” both places it appears in paragraphs (2) and (3), and

(3)

by inserting “instance of aid, assistance, procurement, or advice or each such” before “document” in the matter following paragraph (3).

(b)

Amount of penalty— Subsection (b) of section 6701 is amended to read as follows:

“(b) Amount of penalty; calculation of penalty; liability for penalty

“(1) Amount of penalty—The amount of the penalty imposed by subsection (a) shall not exceed 150 percent of the gross income derived (or to be derived) from such aid, assistance, procurement, or advice provided by the person or persons subject to such penalty.

“(2) Calculation of penalty—The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.

“(3) Liability for penalty—If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.”

(c)

Penalty not deductible— Section 6701 is amended by adding at the end the following new subsection:

“(g) Penalty not deductible—The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.”

(d)

Effective date— The amendments made by this section shall apply to activities after the date of the enactment of this Act.

Sec. 203 Prohibited fee arrangement

(a)

In general— Section 6701, as amended by this Act, is amended—

(1)

by redesignating subsections (f) and (g) as subsections (g) and (h), respectively,

(2)

by striking “subsection (a).” in paragraphs (2) and (3) of subsection (g) (as redesignated by paragraph (1)) and inserting “subsection (a) or (f).”, and

(3)

by inserting after subsection (e) the following new subsection:

“(f) Prohibited fee arrangement

“(1) In general—Any person who makes an agreement for, charges, or collects a fee which is for services provided in connection with the internal revenue laws, and the amount of which is calculated according to, or is dependent upon, a projected or actual amount of—

“(A) tax savings or benefits, or

“(B) losses which can be used to offset other taxable income,

“(2) Rules—The Secretary may issue rules to carry out the purposes of this subsection and may provide exceptions for fee arrangements that are in the public interest.”

(b)

Effective date— The amendments made by this section shall apply to fee agreements, charges, and collections made after the date of the enactment of this Act.

Sec. 204 Preventing tax shelter activities by financial institutions

(a)

Examinations—

(1)

Development of examination techniques— Each of the Federal banking agencies and the Commission shall, in consultation with the Internal Revenue Service, develop examination techniques to detect potential violations of section 6700 or 6701 of the Internal Revenue Code of 1986, by depository institutions, brokers, dealers, and investment advisers, as appropriate.

(2)

Implementation— Each of the Federal banking agencies and the Commission shall implement the examination techniques developed under paragraph (1) with respect to each of the depository institutions, brokers, dealers, or investment advisers subject to their enforcement authority. Such examination shall, to the extent possible, be combined with any examination by such agency otherwise required or authorized by Federal law.

(b)

Report to internal revenue service— In any case in which an examination conducted under this section with respect to a financial institution or other entity reveals a potential violation, such agency shall promptly notify the Internal Revenue Service of such potential violation for investigation and enforcement by the Internal Revenue Service, in accordance with applicable provisions of law.

(c)

Report to congress— The Federal banking agencies and the Commission shall submit a joint written report to Congress in 2014 on their progress in preventing violations of sections 6700 and 6701 of the Internal Revenue Code of 1986, by depository institutions, brokers, dealers, and investment advisers, as appropriate.

(d)

Definitions— For purposes of this section—

(1)

the terms broker, dealer, and investment adviser have the same meanings as in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c);

(2)

the term Commission means the Securities and Exchange Commission;

(3)

the term depository institution has the same meaning as in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c));

(4)

the term Federal banking agencies has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)); and

(5)

the term Secretary means the Secretary of the Treasury.

Sec. 205 Information sharing for enforcement purposes

(a)

Promotion of prohibited tax shelters or tax avoidance schemes— Section 6103(h) is amended by adding at the end the following new paragraph:

“(7) Disclosure of returns and return information related to promotion of prohibited tax shelters or tax avoidance schemes

“(A) Written request—Upon receipt by the Secretary of a written request which meets the requirements of subparagraph (B) from the head of the United States Securities and Exchange Commission, an appropriate Federal banking agency as defined under section 1813(q) of title 12, United States Code, or the Public Company Accounting Oversight Board, a return or return information shall be disclosed to such requestor’s officers and employees who are personally and directly engaged in an investigation, examination, or proceeding by such requestor to evaluate, determine, penalize, or deter conduct by a financial institution, issuer, or public accounting firm, or associated person, in connection with a potential or actual violation of section 6700 (promotion of abusive tax shelters), 6701 (aiding and abetting understatement of tax liability), or activities related to promoting or facilitating inappropriate tax avoidance or tax evasion. Such disclosure shall be solely for use by such officers and employees in such investigation, examination, or proceeding. In the discretion of the Secretary, such disclosure may take the form of the participation of Internal Revenue Service employees in a joint investigation, examination, or proceeding with the Securities and Exchange Commission, Federal banking agency, or Public Company Accounting Oversight Board.

“(B) Requirements—A request meets the requirements of this subparagraph if it sets forth—

“(i) the nature of the investigation, examination, or proceeding,

“(ii) the statutory authority under which such investigation, examination, or proceeding is being conducted,

“(iii) the name or names of the financial institution, issuer, or public accounting firm to which such return information relates,

“(iv) the taxable period or periods to which such return information relates, and

“(v) the specific reason or reasons why such disclosure is, or may be, relevant to such investigation, examination or proceeding.

“(C) Financial institution—For the purposes of this paragraph, the term financial institution means a depository institution, foreign bank, insured institution, industrial loan company, broker, dealer, investment company, investment advisor, or other entity subject to regulation or oversight by the United States Securities and Exchange Commission or an appropriate Federal banking agency.”

(b)

Financial and accounting fraud investigations— Section 6103(i) is amended by adding at the end the following new paragraph:

“(9) Disclosure of returns and return information for use in financial and accounting fraud investigations

“(A) Written request—Upon receipt by the Secretary of a written request which meets the requirements of subparagraph (B) from the head of the United States Securities and Exchange Commission or the Public Company Accounting Oversight Board, a return or return information shall be disclosed to such requestor’s officers and employees who are personally and directly engaged in an investigation, examination, or proceeding by such requester to evaluate the accuracy of a financial statement or report, or to determine whether to require a restatement, penalize, or deter conduct by an issuer, investment company, or public accounting firm, or associated person, in connection with a potential or actual violation of auditing standards or prohibitions against false or misleading statements or omissions in financial statements or reports. Such disclosure shall be solely for use by such officers and employees in such investigation, examination, or proceeding.

“(B) Requirements—A request meets the requirements of this subparagraph if it sets forth—

“(i) the nature of the investigation, examination, or proceeding,

“(ii) the statutory authority under which such investigation, examination, or proceeding is being conducted,

“(iii) the name or names of the issuer, investment company, or public accounting firm to which such return information relates,

“(iv) the taxable period or periods to which such return information relates, and

“(v) the specific reason or reasons why such disclosure is, or may be, relevant to such investigation, examination or proceeding.”

(c)

Effective date— The amendments made by this section shall apply to disclosures and to information and document requests made after the date of the enactment of this Act.

Sec. 206 Disclosure of information to Congress

(a)

Disclosure by tax return preparer—

(1)

In general— Subparagraph (B) of section 7216(b)(1) is amended to read as follows:

“(B) pursuant to any 1 of the following documents, if clearly identified:

“(i) The order of any Federal, State, or local court of record.

“(ii) A subpoena issued by a Federal or State grand jury.

“(iii) An administrative order, summons, or subpoena which is issued in the performance of its duties by—

“(I) any Federal agency, including Congress or any committee or subcommittee thereof, or

“(II) any State agency, body, or commission charged under the laws of the State or a political subdivision of the State with the licensing, registration, or regulation of tax return preparers.”

(2)

Effective date— The amendment made by this subsection shall apply to disclosures made after the date of the enactment of this Act pursuant to any document in effect on or after such date.

(b)

Disclosure by Secretary— Paragraph (2) of section 6104(a) is amended to read as follows:

“(2) Inspection by Congress

“(A) In general—Upon receipt of a written request from a committee or subcommittee of Congress, copies of documents related to a determination by the Secretary to grant, deny, revoke, or restore an organization’s exemption from taxation under section 501 shall be provided to such committee or subcommittee, including any application, notice of status, or supporting information provided by such organization to the Internal Revenue Service; any letter, analysis, or other document produced by or for the Internal Revenue Service evaluating, determining, explaining, or relating to the tax exempt status of such organization (other than returns, unless such returns are available to the public under this section or section 6103 or 6110); and any communication between the Internal Revenue Service and any other party relating to the tax exempt status of such organization.

“(B) Additional information—Section 6103(f) shall apply with respect to—

“(i) the application for exemption of any organization described in subsection (c) or (d) of section 501 which is exempt from taxation under section 501(a) for any taxable year and any application referred to in subparagraph (B) of subsection (a)(1) of this section, and

“(ii) any other papers which are in the possession of the Secretary and which relate to such application,”

(c)

Effective date— The amendments made by this section shall apply to disclosures and to information and document requests made after the date of the enactment of this Act.

Sec. 207 Tax opinion standards for tax practitioners

Section 330(d) of title 31, United States Code, is amended to read as follows:

“(d) The Secretary of the Treasury shall impose standards applicable to the rendering of written advice with respect to any listed transaction or any entity, plan, arrangement, or other transaction which has a potential for tax avoidance or evasion. Such standards shall address, but not be limited to, the following issues:

“(1) Independence of the practitioner issuing such written advice from persons promoting, marketing, or recommending the subject of the advice.

“(2) Collaboration among practitioners, or between a practitioner and other party, which could result in such collaborating parties having a joint financial interest in the subject of the advice.

“(3) Avoidance of conflicts of interest which would impair auditor independence.

“(4) For written advice issued by a firm, standards for reviewing the advice and ensuring the consensus support of the firm for positions taken.

“(5) Reliance on reasonable factual representations by the taxpayer and other parties.

“(6) Appropriateness of the fees charged by the practitioner for the written advice.

“(7) Preventing practitioners and firms from aiding or abetting the understatement of tax liability by clients.

“(8) Banning the promotion of potentially abusive or illegal tax shelters.”

B Simplify tax lien procedure

Sec. 211 Short title

This subtitle may be cited as the “Tax Lien Simplification Act”.

Sec. 212 Findings and purpose

(a)

Findings— Congress makes the following findings:

(1)

The present decentralized system for filing Federal tax liens in local property offices, which was established before the advent of modern computers, the Internet, and e-government programs, is inefficient, burdensome, and expensive.

(2)

Current technology permits the creation of a centralized Federal tax lien filing system which can provide for enhanced public notice of and access to accurate tax lien information in a manner that is more efficient, more timely, and less burdensome than the existing tax lien filing system; which would expedite the release of liens; and which would be less expensive for both taxpayers and users.

(b)

Purpose— The purpose of this subtitle is to simplify and modernize the process for filing notices of Federal tax liens, to improve public access to tax lien information, and to save taxpayer dollars by establishing a nationwide, Internet accessible, and fully searchable filing system for Federal tax liens which would replace the current system of local tax lien filings.

Sec. 213 National tax lien filing system

(a)

Filing of notice of lien— Subsection (f) of section 6323 is amended to read as follows:

“(f) Filing of notice; form

“(1) Filing of notice—The notice referred to in subsection (a) shall be filed in the Federal tax lien registry operated under subsection (k). The filing of a notice of lien, or a certificate of release, discharge, subordination, or nonattachment of lien, or a notice of withdrawal of a notice of lien, in the Federal tax lien registry shall be effective for purposes of determining lien priority regardless of the nature or location of the property interest to which the lien attaches.

“(2) Form—The form and content of the notice referred to in subsection (a) shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.

“(3) Other national filing systems—Once the Federal tax lien registry is operational under subsection (k), the filing of a notice of lien shall be governed by this title and shall not be subject to any other Federal law establishing a place or places for the filing of liens or encumbrances under a national filing system.”

(b)

Refiling of notice— Paragraph (2) of section 6323(g) is amended to read as follows:

“(2) Refiling—A notice of lien may be refiled in the Federal tax lien registry operated under subsection (k).”

(c)

Release of tax liens or discharge of property—

(1)

In general— Section 6325(a) is amended by inserting “, and shall cause the certificate of release to be filed in the Federal tax lien registry operated under section 6323(k),” after “internal revenue tax”.

(2)

Release of tax liens expedited from 30 to 20 days— Section 6325(a) is amended by striking “not later than 30 days” and inserting “not later than 20 days”.

(3)

Discharge of property from lien— Section 6325(b) is amended—

(A)

by inserting “, and shall cause the certificate of discharge to be filed in the Federal tax lien registry operated under section 6323(k),” after “under this chapter” in paragraph (1),

(B)

by inserting “, and shall cause the certificate of discharge to be filed in such Federal tax lien registry,” after “property subject to the lien” in paragraph (2),

(C)

by inserting “, and shall cause the certificate of discharge to be filed in such Federal tax lien registry,” after “property subject to the lien” in paragraph (3), and

(D)

by inserting “, and shall cause the certificate of discharge of property to be filed in such Federal tax lien registry,” after “certificate of discharge of such property” in paragraph (4).

(4)

Discharge of property from estate or gift tax lien— Section 6325(c) is amended by inserting “, and shall cause the certificate of discharge to be filed in the Federal tax lien registry operated under section 6323(k),” after “imposed by section 6324”.

(5)

Subordination of lien— Section 6325(d) is amended by inserting “, and shall cause the certificate of subordination to be filed in the Federal tax lien registry operated under section 6323(k),” after “subject to such lien”.

(6)

Nonattachment of lien— Section 6325(e) is amended by inserting “, and shall cause the certificate of nonattachment to be filed in the Federal tax lien registry operated under section 6323(k),” after “property of such person”.

(7)

Effect of certificate— Paragraphs (1) and (2)(B) of section 6325(f) are each amended by striking “in the same office as the notice of lien to which it relates is filed (if such notice of lien has been filed)” and inserting “in the Federal tax lien registry operated under section 6323(k)”.

(8)

Release following administrative appeal— Section 6326(b) is amended—

(A)

by striking “and shall include” and insert “, shall include”, and

(B)

by inserting “, and shall cause the certificate of release to be filed in the Federal tax lien registry operated under section 6323(k),” after “erroneous”.

(9)

Withdrawal of notice— Section 6323(j)(1) is amended by striking “at the same office as the withdrawn notice” and inserting “in the Federal tax lien registry operated under section 6323(k)”.

(10)

Conforming amendments— Section 6325 is amended by striking subsection (g) and by redesignating subsection (h) as subsection (g).

(d)

Federal tax lien registry— Section 6323 is amended by adding at the end the following new subsection:

“(k) Federal tax lien registry

“(1) In general—The Federal tax lien registry operated under this subsection shall be established and maintained by the Secretary and shall be accessible to and searchable by the public through the Internet at no cost to access or search. The registry shall identify the taxpayer to whom the Federal tax lien applies and reflect the date and time the notice of lien was filed, and shall be made searchable by, at a minimum, taxpayer name, the State of the taxpayer’s address as shown on the notice of lien, the type of tax, and the tax period. The registry shall also provide for the filing of certificates of release, discharge, subordination, and nonattachment of Federal tax liens, as authorized in sections 6325 and 6326, and may provide for publishing such other documents or information with respect to Federal tax liens as the Secretary may by regulation provide under paragraph (2)(C).

“(2) Administrative action

“(A) In general—The Secretary shall issue regulations or other guidance providing for the maintenance, reliability, accessibility, and use of the Federal tax lien registry established under paragraph (1). Such regulations or guidance shall address, among other matters, issues related to periods during which the registry may be unavailable for use due to routine maintenance or other activities.

“(B) Fees—The Secretary may charge a taxpayer's account with a reasonable filing fee for each notice of lien and each related certificate, notice, or other filing recorded in the Federal tax lien registry with respect to such taxpayer, in an amount determined by the Secretary to be sufficient to defray the costs of operating the registry. The Secretary may also charge a reasonable fee to any person who requests and receives under section 6323(d)(1) information or a certified copy of a filing in the Federal tax lien registry to defray the costs of providing such information or copies.

“(C) Filing of other items on registry—The Secretary may, by regulation, provide for the filing of items on the registry other than Federal tax liens, including criminal fine judgments under section 3613 of title 18, United States Code, and civil judgments under section 3201 of such title, if the Secretary determines that it would be useful and appropriate to do so.”

(e)

Certified copies of information from registry— Section 6323, as amended by subsection (d), is amended by adding at the end the following new subsection:

“(l) Certified copies of information from Federal registry—The Secretary shall make available in a certificate that can be admitted into evidence in the courts of the United States without extrinsic evidence of its authenticity the following information to any person that submits a request in a form specified by the Secretary:

“(1) Whether there is on file in the Federal tax lien registry operated under subsection (k) at a date and time specified by the Secretary, but not a date earlier than 3 days before the creation of the certificate, any notice of a lien that—

“(A) designates a particular taxpayer,

“(B) has not been fully satisfied, become legally unenforceable, or been released or withdrawn, and

“(C) if the request so states, has been fully satisfied, become legally unenforceable, or been released or withdrawn, and a record of which is maintained on the registry at the time of filing of the request,

“(2) the date and time of filing of and the information provided in each notice of lien, and

“(3) if the request so states, the date and time of filing of and the information provided in each certificate of release, discharge, subordination, or non-attachment and each notice of withdrawal recorded in the registry with respect to each notice of lien.”

(f)

Effective date; implementation of registry—

(1)

Effective date— The amendments made by this section shall take effect on the date determined by the Secretary of the Treasury under paragraph (2)(E) and, except as provided in paragraph (2)(F), shall apply to notices of liens filed after such date.

(2)

Implementation of Federal tax lien registry—

(A)

Pilot project— Prior to the implementation of the Federal tax lien registry under section 6323(k)(1) of the Internal Revenue Code of 1986 (as added by this section), the Secretary of the Treasury, or the Secretary's delegate, shall conduct and shall complete by not later than 2 years after the date of the enactment of this Act 1 or more pilot projects to test the accessibility, reliability, and effectiveness of the electronic systems designed to operate the registry.

(B)

GAO review— Within 3 months after the completion of such a pilot project, the Government Accountability Office shall provide a written evaluation of the project results and provide such evaluation to the Secretary of the Treasury, the Commissioner of Internal Revenue, and appropriate committees in Congress. The Secretary and Commissioner shall cooperate with, and provide information requested by, the Government Accountability Office to enable the evaluation to be completed by the date specified.

(C)

Nationwide test— Upon the completion of 1 or more such pilot projects and after making a determination that the electronic systems designed to operate the Federal tax lien registry are sufficiently accessible, reliable, and effective, the Secretary of the Treasury, or the Secretary's delegate, shall conduct a nationwide test of the Federal tax lien registry to evaluate its capabilities and functionality.

(D)

Data protection— Prior to the implementation of such registry, the Secretary of the Treasury, or the Secretary's delegate, shall take appropriate steps to—

(i)

secure and prevent tampering with the data recorded in the registry,

(ii)

review the information currently provided in public lien filings and determine whether any such information should be excluded or protected from public viewing in such registry, and

(iii)

develop a system, after consultation with the States, industry, and other interested parties, and after consideration of search criteria developed for other public filing systems including Article 9 of the Uniform Commercial Code, that will enable users of the registry, when examining tax lien information for a taxpayer with a common name, to identify through reasonable efforts the specific person to whom such tax lien relates.

(E)

Declaration of registry effective date— Upon the successful completion of a nationwide test of the Federal tax lien registry system, the Secretary of the Treasury shall determine and announce publicly a date upon which the registry shall take effect and become operational.

(F)

Orderly transition— In order to permit an orderly transition to the Federal tax lien registry, the Secretary of the Treasury may by regulation prescribe for the continued filing of notices of Federal tax liens in the offices of the States, counties, and other governmental subdivisions after the determination of an effective date under subparagraph (E) under the provisions of section 6323(f) as in effect before such effective date, for an appropriate period not to exceed 2 years after such effective date.