"To amend the Internal Revenue Code of 1986 to simplify certain rules relating to the taxation of United States businesses operating abroad, and for other purposes"

1. Revises provisions concerning treatment of controlled foreign corporations, including: (1) expanding the de minimis rule; (2) excluding from the definition of "foreign base company oil related income" the pipeline transportation of oil or gas within such foreign country; (3) repealing rules applicable to foreign personal holding companies and foreign investment companies; and (4) amending the definition of foreign personal holding company income to include income from certain personal services contracts and sale of such contracts.

2. Sets forth provisions concerning foreign tax credit, including: (1) extending the period in which excess foreign taxes may be carried; (2) defining overall domestic loss and setting forth provisions for determining taxable income for any taxpayer sustaining such a loss; (3) issuing special rules relating to financial services income; (4) dictating rules for the treatment of dividends from certain corporations and extending the look-through treatment for such corporations; (5) extending the carry forward period for foreign tax credits; (6) repealing the limitation of such credits under the alternative minimum tax; and (7) eliminating limitation on such credits with regard to oil or gas extraction taxes.

3. Makes other revisions, including: (1) expanding the deduction for dividends from foreign corporations with U.S. income; (2) exempting certain foreign corporations from uniform capitalization rules; (3) setting forth provisions concerning airline mileage awards to certain foreign persons; and (4) repealing the special capital gains tax on nonresident aliens.

(another slightly modified version was introduced as H.R. 5103, International Tax Simplification, Fairness, and Competitiveness Act of 2002, by Sander Levin (D-MI) on July 11, 2002)

March 21, 2002: Sen. Paul Wellstone (D-MN) introduces S. 2050.

"To amend the Internal Revenue Code of 1986 to treat nominally foreign corporations created through inversion transactions as domestic corporations."

The bill treats "inverted" corporations as domestic companies for tax purposes in cases where the former owners of the U.S. corporation continue to hold at least 50% of the parent immediately following the inversion

April 11, 2002: Sen. Charles Grassley(R-IA) and Sen. Max Baucus (D-MT) introduce S. 2119 "Reversing the Expatriation of Profits Offshore Act"

"To amend the Internal Revenue Code of 1986 to provide for the tax treatment of inverted corporate entities and of transactions with such entities, and for other purposes."

• Sets forth the following conditions in which a foreign incorporated entity shall be treated as an inverted domestic corporation for purposes of taxation:
  1. if such an entity acquires substantially all properties held by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership;
  2. at least 80 percent of the stock (by vote or value) is held by former shareholders (or partners, in the case of a partnership) of the domestic corporation or partnership (with certain exceptions); and
  3. if the "expanded affiliated group" lacks substantial business activities in its country of origin compared to its total activities.
• Sets specific rules covering "inversion gains" of certain "acquired entities" and party transactions of such entities not covered by the above provisions, including:
  1. that taxable income of "inversion gains" of such entities cannot be offset;
  2. that tax credits shall not be permitted to be used against tax on "inversion gains" of such entities; and
  3. that such entities submit to the Secretary of the Treasury an annual prefiling, advance pricing, or other agreement specified by the Secretary.
• Establishes penalties for failure to make such agreements. Modifies limitation on interest deduction for such entities.
• Invalidates certain transfers of liabilities deemed to be aimed at avoiding the Act. Increases scope under which the Secretary may act to modify reinsurance agreements to take account of the amount of taxable income of each party. Defines "acquired entities, "inversion gain," and "expanded affiliated group."

April 26, 2002: Sen. John Kerry (D-MA) introduces S. 2339, Tax Haven and Abusive Tax Shelter Reform Act of 2002.

"To amend the Internal Revenue Code of 1986 to curb tax abuses by disallowing tax benefits claimed to arise from transactions without substantial economic substance, to curb tax abuses involving identifies tax havens, and for other purposes."

• Doubles the penalty for certain tax accuracy related underpayments.
• Creates a new penalty for not including tax shelter information with a return.
• Requires the registration of certain tax shelters without corporate participants.
• Penalizes those who promote certain tax avoidance schemes by forcing them to pay back the gains from the schemes.
• Modifies provisions concerning penalties for aiding and abetting understatement of tax liability, including adding provisions directed specifically at individuals who advise, represent, or procure certain tax shelters failing to meet legal requirements.
• Revises provisions concerning the failure to maintain lists of investors in potentially abusive tax shelters to set the penalty for certain violations at 50 percent of gross proceeds.
• Requires Americans transferring money or property to a tax haven or to a resident of a tax haven to furnish information with respect to the transfer. Permits exceptions. Imposes a financial penalty where an individual fails to provide the information requested by the Secretary.
• Reduces certain specified tax benefits with respect to income from identified tax havens.
• Imposes a financial penalty of $5,000, in addition to any other penalty imposed by law, for failing to keep records or file a required report with respect to any foreign financial agency transaction.

May 9, 2002: Sen. Max Baucus (D-MT) introduces S. 2498

"A bill to amend the Internal Revenue Code of 1986 to require adequate disclosure of transactions which have a potential for tax avoidance or evasion, and for other purposes"

This bill:

• Establishses a civil penalty for failing to report information "reportable transactions" having a potential for tax avoidance or evasion.
• Increases civil penalty for making reportable transaction income tax understatements.
• Weakens confidentiality rights of tax communications when a tax shelter is involved.
• Modifies the monetary penalty and revises provisions for failing to register a tax shelter with the Secretary of the Treasury.
• Increases the civil penalty for understatement of a taxpayer's liability by an income tax preparer.
• Establishes a fine a frivolous tax return..
• Imposes a fine on taxpayer representatives who are disreputable or incompetent, who violate certain regulations or who mislead with intent to defraud.
• Permits the Secretary to impose a civil penalty on firms of such representatives that knew or reasonably should have known of such conduct.
• Modifies fine for making fraudulent statements on certain topics involving promotion of abusive tax shelters.

May 16, 2002: Rep. Nancy Johnson (R-CT) introduces H.R. 4756 "The Uncle Sam Wants You Act of 2002";

"A bill to amend the Internal Revenue Code of 1986 to impose a moratorium on the ability of United States corporations to avoid the United States income tax by reincorporating in a foreign country."

The bill would make sure that companies created and organized in the United States are considered domestic companies for tax purposes when all they do is file some paperwork in an off-shore tax haven.

May 22, 2002: Rep. Sam Johnson (R-TX) introduces H.R. 4810.

"To amend the Internal Revenue Code of 1986 to apply the look-thru rules for purposes of the foreign tax credit limitation to dividends from foreign corporations not controlled by a domestic corporation."

Amends the Internal Revenue Code to revise the application of look-thru rules to dividends from noncontrolled section 902 corporations.

May 23, 2002: Rep. Jim Turner (D-TX) introduces H.R. 4831 "Patriotic Purchasing Act of 2002"

"To prohibit certain expatriated corporations from being eligible for the award of Federal Contracts"

This bill states that any corporation that nominally reincorporates offshore to cut its taxes will be ineligible to be awarded a federal contract

June 6, 2002: Rep. Charles Rangel (D-NY) introduces H.R. 4880

"to amend the Internal Revenue Code of 1986 to prevent the continued use of renouncing United States citizenship as a device for avoiding United States taxes."

This bill treats the property of companies that reincorporate offshore as being sold for its fair market value on the day before the move. Then the gain or loss from that sale would be taken into account for tax purposes, essentially making reincorporation a taxable event.

June 21, 2002: Rep. Lloyd Doggett (D-TX) introduces H.R. 4993 "Patriotic Purchasing Act of 2002"

"To amend the Internal Revenue Code of 1986 to prevent corporations from exploiting tax treaties to evade taxation of United States income."

This bill prevents corporations who reincorporate for tax avoidance purposes from benefiting from U.S. international tax treaties that would reduce their rate of witholding tax.

June 21, 2002: Sens. Robert Torricelli (D-NJ) and Orrin Hatch (R-UT) introduce S. 2676, Foreign Tax Credit Improvement Act of 2002

"To amend the Internal Revenue Code of 1986 to allow a 10-year foreign tax credit carry forward and to apply the look-thru rules for purposes of the foreign tax credit limitation to dividends from foreign corporations not controlled by a domestic corporation."

• Amends the Internal Revenue Code to allow for a ten-year foreign tax credit carryforward.
• Revises the application of look-thru rules to dividends from noncontrolled section 902 corporations

June 21, 2002: Rep. Bill Thomas (R-CA) introduces H.R. 5095, American Competitiveness and Corporate Accountability Act of 2002

Competitiveness Provisions

1. Repeals the Subpart F Anti-Deferral Foreign Base Company Sales and Services Rules
2. Reforms Interest Allocation Rules
3. Reduces Foreign Tax Credit Baskets to Three
4. Extends the Foreign Tax Credit Carryover Period from 5 to 10 years
5. Repeals the 90% Limitation on the Use of Foreign Tax Credits for AMT Purposes
6. Recharacterizes Overall Domestic Losses
7. Increases Section 179 Small Business Expensing from $24,000 to $40,000 and increases eligible investment limits from $200,000 to $325,000
8. Provides Look-Through Treatment for Payments Between Related Controlled Foreign Corporations
9. Provides Look-Through Treatment for Sales of Partnership Interests
10. Repeals the Primarily Duplicative Foreign Personal Holding Company and Foreign Investment Company Rules
11. Applies Look-Through Rules to Dividends from Noncontrolled section 902 companies (10/50 companies)
12. Provides Deferral for Pipeline Transportation Income
13. Provides for Attribution of Stock Ownership through Partnerships to Determine Section 902 and 960 Credits
14. Provides Deferral for Commodity Hedging Income for Materials Used in Manufacturing Operations
15. U.S. Property not to Include Certain Assets Acquired by Dealers in Ordinary Course of Business
16. Provides for Equitable Treatment of Certain Mutual Fund Dividends
17. Provides an Election not to Use Average Exchange Rate for Foreign Tax Paid other than in Functional Currency
18. Repeals Withholding Tax on Dividends from Certain Foreign Corporations
19. U.S. Parent not have to Recalculate its Foreign Subs E&P Under "Unicap" Rules
20. Repeals the ETI Rules

Inversion Provisions

1. The 1.5 to 1 debt-to-asset safe harbor is eliminated.
2. Related party interest expense is disallowed to the extent that the U.S. subsidiary of a foreign owned company's debt to asset ratio exceeds the foreign company's worldwide debt to asset ratio.
3. Reduces allowable interest expense from 50% to 35% of adjusted taxable income.
4. Reduces disallowed interest expense carryforward from infinite to 5 years.
5. Delayed effective date for non-inverted companies.
6. Imposes the full tax on the transfer of assets to a foreign entity
7. Imposes a 20% excise tax on the value of all stock options and stock based compensation held by insiders, top executives and directors when a company inverts.
8. Imposes a 3-year moratorium for transactions completed after March 20, 2002. These transactions are disregarded.

Taxpayer provisions:

1. Requires that transactions (1) have a substantial non-tax business purpose and (2) involve a meaningful change (apart from Federal income tax effects) in the taxpayer's economic position
2. Imposes taxpayer penalty for failure to report a "listed" transaction.
3. Imposes taxpayer penalty for failure to disclose a "reportable" transaction.
4. Imposes Strict liability penalties for transactions that lack economic substance
5. Increases frivolous return penalty from $500 to $5,000.
6. Imposes a $5,000 penalty for failure to report an interest in a foreign financial account.
7. Provides that written tax shelter communications between taxpayer and accountant are not privileged.

Promoter Provisions

1. Promoters and those materially involved with "reportable" or "listed" transactions must file transactions with IRS.
2. Promoters and those materially involved with "reportable" or "listed" transactions must maintain a list of investors to whom the transactions were offered.

Loophole Closers

1. Closes a loophole under current law that allows executives to defer taxation on executive compensation and requires executives to stand in line with other general creditors and employees if the company becomes insolvent.
2. Prevents taxpayers from improperly (1) generating foreign tax credits, (2) creating immediate tax losses, and (3) converting ordinary income into deferred capital gain.
3. Closes the loopholes that permit the same partnership losses from being deducted more than once.

For more detailed summary of H.R. 5095, http://waysandmeans.house.gov/fullcomm/107cong/hr5095/hr5095summary.htm