Page:United States Statutes at Large Volume 124.djvu/1094

 124 STAT. 1068 PUBLIC LAW 111–152—MAR. 30, 2010 ‘‘(1) APPLICATION OF DOCTRINE.—In the case of any trans- action to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if— ‘‘(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s eco- nomic position, and ‘‘(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction. ‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL.— ‘‘(A) IN GENERAL.—The potential for profit of a trans- action shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of para- graph (1) are met with respect to the transaction only if the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected. ‘‘(B) TREATMENT OF FEES AND FOREIGN TAXES.—Fees and other transaction expenses shall be taken into account as expenses in determining pre-tax profit under subpara- graph (A). The Secretary shall issue regulations requiring foreign taxes to be treated as expenses in determining pre-tax profit in appropriate cases. ‘‘(3) STATE AND LOCAL TAX BENEFITS.—For purposes of para- graph (1), any State or local income tax effect which is related to a Federal income tax effect shall be treated in the same manner as a Federal income tax effect. ‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For purposes of paragraph (1)(B), achieving a financial accounting benefit shall not be taken into account as a purpose for entering into a transaction if the origin of such financial accounting benefit is a reduction of Federal income tax. ‘‘(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—The term ‘eco- nomic substance doctrine’ means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose. ‘‘(B) EXCEPTION FOR PERSONAL TRANSACTIONS OF INDIVIDUALS.—In the case of an individual, paragraph (1) shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income. ‘‘(C) DETERMINATION OF APPLICATION OF DOCTRINE NOT AFFECTED.—The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted. ‘‘(D) TRANSACTION.—The term ‘transaction’ includes a series of transactions.’’. (b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE TO TRANS- ACTIONS LACKING ECONOMIC SUBSTANCE.— Applicability. Regulations.