[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 2845 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 2845
To amend the Internal Revenue Code of 1986 to eliminate tax loopholes
that allow billionaires to defer tax indefinitely through planning
strategies such as ``buy, borrow, die'', to modify over 30 tax
provisions so that billionaires are required to pay taxes annually, and
for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
September 17 (legislative day, September 16), 2025
Mr. Wyden (for himself, Mr. Whitehouse, Ms. Warren, Mr. Sanders, Ms.
Smith, Mr. Lujan, Mr. Welch, Ms. Alsobrooks, Ms. Baldwin, Mr.
Blumenthal, Ms. Duckworth, Mr. Fetterman, Mr. Heinrich, Ms. Hirono, Mr.
Markey, Mr. Merkley, Mr. Murphy, Mrs. Murray, Mr. Reed, Mr. Schatz, and
Mr. Van Hollen) introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to eliminate tax loopholes
that allow billionaires to defer tax indefinitely through planning
strategies such as ``buy, borrow, die'', to modify over 30 tax
provisions so that billionaires are required to pay taxes annually, and
for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Billionaires
Income Tax Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Purpose.
TITLE I--ELIMINATION OF DEFERRAL FOR APPLICABLE TAXPAYERS
Sec. 101. Elimination of deferral of tax.
Sec. 102. Carryback of capital losses attributable to mark-to-market
rules.
TITLE II--APPLICATION OF OTHER PROVISIONS TO APPLICABLE TAXPAYERS AND
ENTITIES
Subtitle A--Individuals
Sec. 201. Applicable taxpayers not eligible for adjusted gross income
limitation on net investment tax.
Sec. 202. Treatment of covered expatriates.
Subtitle B--Rules for Applicable Entities and Trusts
Sec. 211. Treatment of like-kind exchanges by applicable entities.
Sec. 212. Treatment of transfers by applicable entities in exchange for
stock.
Sec. 213. Special rules for applicable trusts.
Subtitle C--Treatment of Deferred Compensation and Certain Life
Insurance and Annuity Contracts
Sec. 221. Elimination of deferral of tax on certain compensation.
Sec. 222. Rules relating to certain life insurance and annuity
contracts of applicable taxpayers.
Subtitle D--Repeal of Special Treatment for Certain Investments
Sec. 231. Treatment of exclusion for certain small business stock.
Sec. 232. Modifications for investments in qualified opportunity funds.
SEC. 2. PURPOSE.
The purpose of this Act is to require billionaires to pay taxes
annually by eliminating the ability of high income and high net worth
taxpayers to use tax planning strategies such as ``buy, borrow, die''
to defer paying taxes indefinitely, specifically by--
(1) under the provisions of title I of this Act--
(A) requiring high income and high net worth
taxpayers to pay tax on the income they earn on an
annual basis, just like working people do on their
income from wages, through mark-to-market taxation, and
(B) shutting down the ability of the ultra wealthy
to buy and hold appreciating assets and borrow against
those assets to support their lavish lifestyles, all
completely tax-free, and
(2) under the provisions of title II of this Act, closing
loopholes in the tax code that allow high income and high net
worth taxpayers to shield their income from taxation, including
the loophole that allows ultra wealthy taxpayers to transfer
untaxed appreciated assets to their heirs at death and such
heirs to sell such assets completely tax-free.
TITLE I--ELIMINATION OF DEFERRAL FOR APPLICABLE TAXPAYERS
SEC. 101. ELIMINATION OF DEFERRAL OF TAX.
(a) In General.--Subchapter E of chapter 1 is amended by adding at
the end the following new part:
``PART IV--ELIMINATION OF DEFERRAL FOR APPLICABLE TAXPAYERS
``Subpart A. General provisions.
``Subpart B. Definitions and rules relating to applicable taxpayers.
``Subpart C. Other definitions and rules.
``Subpart A--General Provisions
``Sec. 490. Elimination of deferral of tax for applicable taxpayers.
``Sec. 491. Treatment of tradable covered assets.
``Sec. 492. Deferral recapture amount on applicable transfers of
nontradable covered assets.
``Sec. 493. Special rules for application of nondeferral rules to
certain pass-through entities.
``Sec. 494. Treatment of gifts, bequests, and transfers in trust.
``SEC. 490. ELIMINATION OF DEFERRAL OF TAX FOR APPLICABLE TAXPAYERS.
``In the case of an applicable taxpayer for any taxable year--
``(1) if there is a taxable event with respect to any
tradable covered asset of the taxpayer during the taxable year,
gain or loss shall be recognized as provided in section 491,
``(2) if there is an applicable transfer by the taxpayer
during the taxable year of any nontradable covered asset--
``(A) if such applicable transfer is a disregarded
nonrecognition event, gain or loss shall be recognized
as provided in section 492(a)(1), and
``(B) the tax imposed by this chapter for the
taxable year shall be increased as provided in section
492 with respect to any gain from any such transfer,
``(3) gain or loss with respect to any applicable entity
held by the taxpayer shall be taken into account as provided in
section 493, and
``(4) in the case of any gift, bequest, or transfer in
trust by an applicable taxpayer or applicable entity held by an
applicable taxpayer, section 494 shall apply.
``SEC. 491. TREATMENT OF TRADABLE COVERED ASSETS.
``(a) In General.--For purposes of this title, in the case of a
taxable event with respect to any tradable covered asset of an
applicable taxpayer--
``(1) notwithstanding any other provision of this title--
``(A) gain or loss shall be recognized and taken
into account in the taxable year in which the taxable
event occurs as if the taxpayer had sold the tradable
covered asset for its fair market value--
``(i) in the case of a taxable event
described in subsection (b)(1), on the date of
the taxable event, and
``(ii) in the case of a taxable event
described in subsection (b)(2), immediately
before the taxable event, and
``(B) except as provided in subsection (c)(1), gain
or loss taken into account by reason of a taxable event
described in subsection (b)(1) with respect to a
tradable covered asset which is a capital asset shall
be treated as long-term capital gain or long-term
capital loss, respectively, and
``(2) proper adjustments shall be made in the amount of
gain or loss subsequently realized for gain or loss taken into
account under paragraph (1).
``(b) Taxable Event.--For purposes of this part, the term `taxable
event' means, with respect to any tradable covered asset--
``(1) the holding of such asset as of the close of any
taxable year with respect to which a taxpayer is an applicable
taxpayer, and
``(2) any disregarded nonrecognition event.
``(c) Special Rules.--
``(1) Characterization as ordinary income or loss.--Except
as provided by the Secretary, subsection (a)(1)(B) shall not
apply to any gain or loss from a tradable covered asset if,
under any other provision of this title, such gain or loss--
``(A) is treated as gain or loss from the sale or
exchange of an asset which is not a capital asset, or
``(B) is treated as ordinary income or loss on a
basis other than the taxpayer's holding period in such
asset.
``(2) Holding period.--For purposes of this title, any
taxable event described in subsection (b)(1) with respect to
any tradable covered asset shall not be taken into account in
determining the holding period of the taxpayer with respect to
such tradable covered asset.
``(3) Proper adjustments for subsequent gain or loss.--For
purposes of subsection (a)(2), section 492(a)(1)(B), section
493(c)(1)(A)(ii), and section 493(c)(3)(C), the proper
adjustments required under such provisions shall include such
adjustments in basis of property, or such other adjustments in
respect of property, as the Secretary determines necessary or
appropriate.
``SEC. 492. DEFERRAL RECAPTURE AMOUNT ON APPLICABLE TRANSFERS OF
NONTRADABLE COVERED ASSETS.
``(a) In General.--If there is an applicable transfer during a
taxable year of a nontradable covered asset of an applicable taxpayer--
``(1) in the case of an applicable transfer which is a
disregarded nonrecognition event--
``(A) notwithstanding any other provision of this
title, gain or loss shall be recognized and taken into
account by the taxpayer (including for purposes of
paragraph (2) and subsection (c)) in the taxable year
in which the transfer occurs as if the taxpayer had
sold the nontradable covered asset for its fair market
value immediately before such transfer, and
``(B) proper adjustments shall be made in the
amount of gain or loss subsequently realized for gain
or loss taken into account under subparagraph (A), and
``(2) if there is gain from the applicable transfer, the
tax imposed by this chapter for the taxable year (determined
without regard to this section) shall be increased by the sum
of the deferral recapture amounts determined under subsection
(b) for each such transfer.
``(b) Deferral Recapture Amount.--
``(1) In general.--For purposes of this part--
``(A) In general.--The term `deferral recapture
amount' means, with respect to any applicable transfer
of any nontradable covered asset, the aggregate amount
of interest (determined in the manner provided under
paragraph (3)) on the deemed tax amount determined
under paragraph (2) for each taxable year to which gain
is allocated under paragraph (2)(A) and which precedes
the taxable year of the applicable transfer.
``(B) Limitation on amount.--The amount determined
under subparagraph (A) with respect to any applicable
transfer shall not exceed the applicable percentage of
the gain from such transfer. For purposes of this
subparagraph, the applicable percentage is the excess
of--
``(i) 49 percent, over
``(ii) in the case of the transfer of a
nontradable covered asset which--
``(I) is a capital asset, the rate
of tax in effect under section
1(h)(1)(D) for the taxable year of the
transfer, or
``(II) is not a capital asset, the
highest rate of tax in effect under
section 1 for such taxable year.
``(2) Deemed tax amount.--For purposes of paragraph (1)--
``(A) In general.--The deemed tax amount for any
taxable year preceding the taxable year of any
applicable transfer of a nontradable covered asset
shall be the amount determined--
``(i) first, except as provided in
subparagraph (B), by allocating the amount of
gain from such transfer ratably to each day in
the taxpayer's holding period of such asset,
and
``(ii) then by multiplying the amount
allocated under clause (i) to days in such
preceding taxable year by--
``(I) if such asset is a capital
asset, the rate of tax in effect under
section 1(h)(1)(D) for the taxable year
of such transfer, or
``(II) if such asset is not a
capital asset, the highest rate of tax
in effect under section 1 for such
taxable year.
``(B) Special rule for periods before becoming
applicable taxpayer.--Notwithstanding subparagraph
(A)(i), any gain allocated under such subparagraph to
any taxable year preceding the first taxable year for
which the taxpayer is treated as an applicable taxpayer
shall be allocated to such first taxable year.
``(C) Increase in deemed tax amount by tax on net
investment income.--If gain from a transfer to which
this section applies for any taxable year is of a type
taken into account in computing net investment income
(as defined in section 1411), the deemed tax amount
under this paragraph for any preceding taxable year to
which such gain is allocated under subparagraph (A)(i)
shall be increased by an amount equal to the amount of
such allocated gain multiplied by the rate of tax in
effect under section 1411(a)(1) for the taxable year of
such transfer.
``(3) Computation of interest.--
``(A) In general.--The amount of interest referred
to in paragraph (1) on any deemed tax amount determined
under paragraph (2) for any preceding taxable year
shall be determined for the period--
``(i) beginning on the due date for such
preceding taxable year, and
``(ii) ending on the date on which the
applicable transfer occurs,
by using the rates determined under section 6621(b)
(plus 1 percentage point), and the method applicable
under section 6621, for underpayments of tax for such
period.
``(B) Due date.--For purposes of this paragraph,
the term `due date' means, with respect to any
preceding taxable year, the date prescribed by law
(determined without regard to extensions) for filing
the return of the tax imposed by this chapter for such
taxable year.
``(c) Special Rule for Taxpayers With Net Capital Losses.--
``(1) In general.--If a taxpayer has a net capital loss for
any taxable year for which there is an increase in tax under
subsection (a)(2), such increase in tax shall be reduced (but
not below zero) by the credit equivalent of such net capital
loss.
``(2) Credit equivalent.--For purposes of this subsection,
the term `credit equivalent' means, with respect to any net
capital loss for any taxable year, an amount equal to such loss
multiplied by the rate of tax in effect under section
1(h)(1)(D) for such taxable year.
``(3) Coordination with carryovers of loss.--For purposes
of subsection (b) of section 1212, the net capital loss for a
taxable year to which paragraph (1) applies (determined without
regard to this subsection) shall be reduced (but not below
zero) by an amount equal to the amount of the reduction under
paragraph (1) for such taxable year divided by the rate of tax
in effect under section 1(h)(1)(D) for such taxable year.
``(d) Special Rules for Certain Dividend Distributions.--
``(1) Excess dividend distributions.--
``(A) In general.--For purposes of applying this
section, any excess dividend shall be treated as gain
from an applicable transfer of a nontradable covered
asset occurring on the date such dividend is received.
``(B) Excess dividend.--For purposes of this part,
the term `excess dividend' means, with respect to any
nontradable covered asset which consists of stock in a
C corporation, any dividend in respect of such stock
received during any taxable year to the extent such
dividend does not exceed its ratable portion of the
total excess dividends (if any) for such taxable year.
``(C) Total excess dividends.--For purposes of this
paragraph--
``(i) In general.--The term `total excess
dividends' means, with respect to stock in a C
corporation described in subparagraph (B), the
excess (if any) of--
``(I) the amount of the dividends
in respect of such stock received by
the taxpayer during the taxable year,
over
``(II) 125 percent of the average
amount of dividends received in respect
of such stock by the taxpayer during
the 3 preceding taxable years (or, if
shorter, the portion of the taxpayer's
holding period before the taxable
year).
``(ii) No excess for 1st year.--Except as
provided by the Secretary, the total excess
dividends with respect to any stock shall be
zero for the taxable year in which the
taxpayer's holding period in such stock begins.
``(D) Adjustments.--Under regulations prescribed by
the Secretary--
``(i) determinations under this paragraph
shall be made on a share-by-share basis, except
that shares with the same holding period may be
aggregated and other shares may be aggregated
to the extent provided by the Secretary,
``(ii) proper adjustments shall be made for
stock splits and stock dividends,
``(iii) if the taxpayer does not hold the
stock during the entire taxable year, dividends
received during such year shall be annualized,
and
``(iv) if the taxpayer's holding period
includes periods during which the stock was
held by 1 or more other persons, dividends with
respect to such stock received by such other
person shall be taken into account as if
received by the taxpayer.
``(2) Capital gain dividends of certain reits.--
``(A) In general.--For purposes of applying this
section, if an applicable taxpayer holds directly (or
indirectly through 1 or more nontradable interests)
stock in a real estate investment trust which is a
nontradable covered asset, any capital gain dividend
received by such taxpayer from such entity shall be
treated as gain from an applicable transfer of a
nontradable covered asset occurring on the date such
dividend is received.
``(B) Reporting.--A real estate investment trust
shall include in the written notice for a capital gain
dividend under section 857(b)(3)(B) its holding period
in the asset giving rise to the capital gain dividend.
The Secretary shall provide rules for the determination
of holding periods in cases where the dividend is
properly allocable to gain from more than 1 asset.
``(3) Holding period.--Except as prescribed by the
Secretary, if an applicable taxpayer is treated under this
subsection as receiving gain from an applicable transfer of a
nontradable covered asset, the taxpayer's holding period for
purposes of computing the deferral recapture amount under this
section shall be the taxpayer's holding period with respect to
the stock or ownership interest in the entity to which
paragraph (1) or (2) applies (or, if shorter, the holding
period included in the notice described in paragraph (2)(B) in
the case of a capital gain dividend).
``(e) Holding Period.--For purposes of this section--
``(1) In general.--The taxpayer's holding period shall be
determined under section 1223, except that if a tradable
covered asset of an applicable taxpayer is converted to, or
exchanged for, a nontradable covered asset, such period shall
only include the period after the most recent taxable event
under this part with respect to such tradable covered asset.
``(2) Secretarial authority.--The Secretary shall prescribe
such regulations, rules, or guidance providing for other
modifications to holding periods as may be necessary to carry
out the purposes of this section.
``SEC. 493. SPECIAL RULES FOR APPLICATION OF NONDEFERRAL RULES TO
CERTAIN PASS-THROUGH ENTITIES.
``(a) Treatment of Ownership Interests in Applicable Entities.--For
purposes of applying this part, except as provided in this section, any
ownership interest in an applicable entity held directly (or indirectly
through 1 or more nontradable interests) by an applicable taxpayer
which is a tradable or nontradable covered asset shall be treated in
the same manner as any other such asset.
``(b) Additional Requirements for Applicable Taxpayers Who Are
Significant Owners.--For purposes of this part--
``(1) In general.--In the case of any applicable taxpayer
which is a significant owner of an applicable entity--
``(A) such taxpayer shall meet the reporting
requirements under paragraph (2) with respect to such
entity, and
``(B) such taxpayer shall take into account amounts
with respect to such entity as required under paragraph
(3).
``(2) Reporting requirements for significant owners.--
``(A) Notice to entity of status.--
``(i) In general.--In the case of the first
taxable year for which a taxpayer--
``(I) is an applicable taxpayer,
``(II) is a significant owner of an
applicable entity, and
``(III) holds directly a
nontradable interest in such applicable
entity,
such taxpayer shall, at such time and in such
manner as the Secretary shall prescribe, notify
such applicable entity that such taxpayer is a
taxpayer meeting the requirements of subclauses
(I), (II), and (III) and that the applicable
entity is subject to the notice requirements
under subsection (c) with respect to such
taxpayer. Such taxpayer shall include with such
notice such information as the Secretary may
prescribe.
``(ii) Period of notice.--Any notice
provided by a taxpayer under clause (i) shall
remain in effect, and such entity shall
continue to be subject to the reporting
requirements under subsection (c) with respect
to such taxpayer, for the period specified by
the Secretary. The Secretary may require
additional reporting by the taxpayer for
purposes of carrying out this clause.
``(B) Reporting of elections to treat nontradable
interests as tradable assets.--If--
``(i) section 496(a)(1) applies to an
applicable taxpayer for any taxable year for
which a notice with respect to such taxpayer is
in effect under subparagraph (A), and
``(ii) the applicable taxpayer made the
election under section 496(a)(3) to treat any
nontradable interest in an applicable entity as
a tradable covered asset for purposes of
section 496(a)(1),
the applicable taxpayer shall, at such times and in
such manner as the Secretary shall prescribe, report to
such applicable entity notice of such election, the
amount of gain described in section 496(c)(1) with
respect to such treatment, and the requirement for the
entity to make the basis adjustments described in
section 496(c)(2).
``(3) Certain gain or loss of applicable entity taken into
account by significant owners.--
``(A) In general.--Each applicable taxpayer for
which a notice with respect to such taxpayer is in
effect under paragraph (2)(A) or subsection (c)(2) with
respect to an applicable entity for any taxable year of
the taxpayer shall, in computing the taxpayer's tax
liability under this chapter for such taxable year,
take into account such taxpayer's share of any gain or
loss reported under subsection (c)(1)(A)(i) or
(c)(1)(B)(i) to the taxpayer for any taxable year of
such entity ending with or within such taxable year of
the taxpayer.
``(B) Basis adjustments.--Under rules prescribed by
the Secretary, if gain or loss is taken into account by
an applicable taxpayer under subparagraph (A) with
respect to any tradable covered asset by reason of the
taxpayer holding a nontradable interest in an
applicable entity--
``(i) the applicable entity's adjusted
basis of such asset (solely for purposes of
computing the taxpayer's share of such adjusted
basis), and
``(ii) the taxpayer's adjusted basis of
such nontradable interest,
shall each be appropriately adjusted to reflect gain or
loss so taken into account. Such rules shall also
provide proper adjustments to adjusted bases where such
ownership is held through tiered entities.
``(C) Special rules for deferral recapture
amount.--
``(i) Holding period.--Except as prescribed
by the Secretary, if an applicable taxpayer
takes into account gain under subparagraph (A)
for any taxable year from an applicable
transfer by such applicable entity of a
nontradable covered asset, the taxpayer's
holding period with respect to such asset for
purposes of computing the deferral recapture
amount under section 492 shall be the shorter
of--
``(I) the entity's holding period
in such asset, or
``(II) the taxpayer's holding
period in such entity.
``(ii) Other rules.--The Secretary shall
prescribe rules for purposes of this section--
``(I) for the treatment of
fragmented holding periods,
``(II) for the determination of
holding periods in the case of tiered
structures, and
``(III) to prevent the shifting of
any deferral recapture amount between
taxpayers holding ownership interests
in an applicable entity.
``(D) Taxpayers failing to file notice.--Under
rules required by the Secretary, if a taxpayer fails to
file a notice with any applicable entity as required
under paragraph (2)(A), such taxpayer shall take into
account, in computing the taxpayer's tax liability
under this chapter for any taxable year for which such
notice (or a related notice under subsection (c)(2))
would otherwise have been in effect, gain or loss
described in subparagraph (A) which would have been
reported if such notice had been filed.
``(4) Significant owner.--For purposes of this subsection--
``(A) In general.--The term `significant owner'
means, with respect to any applicable entity, an
applicable taxpayer who, at any time during the
applicable taxpayer's taxable year--
``(i) is a 5-percent owner with respect to
such entity, or
``(ii) holds nontradable interests in such
entity with an aggregate applicable value of
greater than $50,000,000.
``(B) 5-percent owner.--
``(i) In general.--The term `5-percent
owner' means, with respect to any applicable
entity, an applicable taxpayer who owns (or is
considered as owning within the meaning of
section 318) at least 5 percent of--
``(I) in the case of a corporation,
the stock (by vote or value) in such
corporation, or
``(II) in the case of an applicable
entity other than a corporation, the
capital or profits interests in such
entity.
``(ii) Constructive ownership rules.--For
purposes of this subparagraph--
``(I) subparagraph (C) of section
318(a)(2) shall be applied by
substituting `5 percent' for `50
percent', and
``(II) in the case of an applicable
entity which is not a corporation,
ownership in such entity shall be
determined in accordance with
regulations prescribed by the Secretary
which shall be based on principles
similar to the principles of section
318 (as modified by subclause (I)).
``(c) Additional Entity Reporting Requirements.--
``(1) In general.--Except as provided in paragraph (4), an
applicable entity for any taxable year shall, at such times and
in such manner as the Secretary shall prescribe, report to each
applicable taxpayer with respect to which a notice is in effect
under subsection (b)(2)(A) or paragraph (2)--
``(A) in the case of tradable covered assets held
by such entity, such taxpayer's share of--
``(i) gain or loss determined by the entity
under rules similar to the rules under section
491, and
``(ii) proper adjustments shall be made in
the amount of gain or loss subsequently
realized for gain or loss taken into account
under clause (i),
``(B) in the case of nontradable covered assets
held by such entity--
``(i) such person's share of any gain or
loss on any applicable transfer during such
taxable year of any such asset, and
``(ii) the holding period in each such
asset, and
``(C) such other information as the Secretary
determines necessary to carry out this part.
``(2) Notice of taxpayers holding indirect interests in
other applicable entities.--
``(A) In general.--Under rules prescribed by the
Secretary, except as provided in subparagraph (B), if
an applicable entity in a tier of entities--
``(i) receives a notice under subsection
(b)(2)(A) with respect to an applicable
taxpayer, such entity shall notify each other
applicable entity in which such applicable
taxpayer holds, by reason of holding a
nontradable interest in such entity, a
nontradable interest in such other entity that
the person holding such interest in such other
entity is an applicable taxpayer with respect
to which the notice requirements of paragraph
(1) apply to such other entity, or
``(ii) receives a notice under clause (i)
or this clause, such entity shall notify each
other applicable entity in which the applicable
taxpayer holds, by reason of holding an
interest in the entity receiving such notice, a
nontradable interest in such other entity that
the person holding such interest in such other
entity is an applicable taxpayer with respect
to which the notice requirements of paragraph
(1) apply to such other entity.
Any such notice shall remain in effect, and any entity
receiving such notice shall treat such taxpayer as an
applicable taxpayer, for the period specified by the
Secretary. The Secretary may require additional
reporting by such entities for purposes of carrying out
this clause.
``(B) Requirement only applies if applicable
taxpayer is significant owner.--An applicable entity
shall be required to report under subparagraph (A) to
another applicable entity only if the applicable
taxpayer is a significant owner (within the meaning of
subsection (b)(4)) of such other entity, determined
only by taking into account interests in such other
entity which such applicable taxpayer holds by reason
of its ownership interests in the entity otherwise
required to report and such other ownership interests
in such other entity as the Secretary may require to be
taken into account to prevent the avoidance of the
purposes of this part.
``(3) Special rules for disregarded nonrecognition
events.--In the case of an applicable transfer of a nontradable
covered asset of an applicable entity which is a disregarded
nonrecognition event--
``(A) notwithstanding any other provision of this
title, gain or loss shall be recognized and taken into
account in the taxable year in which the transfer
occurs as if the entity had sold the nontradable
covered asset for its fair market value immediately
before such transfer (or such other value as is
determined as of such time under rules prescribed by
the Secretary),
``(B) such entity shall report the amount of gain
or loss required to be taken into account under
subparagraph (A) to--
``(i) each applicable taxpayer with respect
to which a notice is in effect which such
entity has received under subsection (b)(1),
and
``(ii) each other applicable entity from
which it has received a notice under paragraph
(2) with respect to such an applicable
taxpayer, and
``(C) proper adjustments shall be made in the
amount of gain or loss subsequently realized for gain
or loss taken into account under subparagraph (A).
``(4) Delay in reporting requirement.--If--
``(A) a notice is received by an applicable entity
under subsection (b)(2)(A) or paragraph (2) for any
taxable year of the entity with respect to any person
holding directly (or indirectly through 1 or more
nontradable interests) a nontradable interest in such
entity, and
``(B) no notice is in effect with respect to such
person or any other person for the preceding taxable
year,
then, except as provided by the Secretary, such notice shall be
treated as first taking effect for purposes of this subsection,
section 351(h), and section 1031(i) for the taxable year
immediately following the taxable year in which the notice is
received. This paragraph shall not apply to a notice described
in subparagraph (A) received by an applicable entity from a
person who was a significant owner (within the meaning of
subsection (b)(4)) of such entity (or any predecessor entity)
on the date of the enactment of this part.
``(5) Secretarial authority.--In prescribing rules for the
application of this subsection, the Secretary may provide--
``(A) simplified methods for applicable entities to
meet the requirements of this subsection, including the
aggregation of gains and losses where appropriate,
``(B) rules for determining a holder's share of
amounts required to be reported by an applicable entity
under paragraph (1), and
``(C) any rules necessary to prevent the avoidance
of the purposes of this section, including through the
delay in the reporting requirement under paragraph (4).
``(d) Definitions and Rules Relating to Application of Section.--
For purposes of this part--
``(1) Applicable entity.--The term `applicable entity'
means any--
``(A) partnership,
``(B) S corporation, or
``(C) other pass-through entity specified in
regulations or guidance prescribed by the Secretary.
``(2) Election to treat entity as applicable taxpayer for
taxable events involving tradable assets.--If an applicable
entity elects the application of this paragraph for any taxable
year--
``(A) this section shall not apply with respect to
any gain or loss in connection with a taxable event
involving any tradable covered asset held directly (or
indirectly through 1 or more nontradable interests) by
such entity, and
``(B) such entity shall be treated as an applicable
taxpayer for purposes of applying sections 490(1) and
491 to such taxable event.
Such an election shall be made at such time and in such manner
as the Secretary may prescribe and, once made, shall be
irrevocable without the consent of the Secretary.
``(e) Nontradable Interest.--For purposes of this part, the term
`nontradable interest' means any ownership interest in an applicable
entity which is a nontradable covered asset.
``(f) Regulations and Guidance.--The Secretary shall prescribe such
regulations and guidance as are necessary to carry out the provisions
of this section, including regulations or guidance necessary--
``(1) to prevent the use of pass-through entities to avoid
the purposes of this part, and
``(2) to simplify the application of this part.
``SEC. 494. TREATMENT OF GIFTS, BEQUESTS, AND TRANSFERS IN TRUST.
``(a) In General.--
``(1) Deemed sale.--If any person described in paragraph
(3) transfers any covered asset by gift, upon death, or in
trust, such covered asset shall be treated as sold by such
person for its fair market value to the transferee on the date
of such gift, death, or transfer.
``(2) No recognition for losses on transfers by gift or in
trust.--
``(A) In general.--No loss shall be recognized with
respect to any covered asset which is treated as sold
under subsection (a) by reason of a transfer by gift or
in trust.
``(B) Amount of gain for transferee.--If a loss is
not recognized by the transferor by reason of
subparagraph (A) and the transferee sells or otherwise
disposes of the covered asset (or of other property the
basis of which in the taxpayer's hands is determined
directly or indirectly by reference to such property)
at a gain, then such gain shall be recognized only to
the extent that it exceeds so much of such loss as is
properly allocable to the covered asset sold or
otherwise disposed of by the transferee.
``(3) Person described.--A person is described in this
section if such person is--
``(A) an individual who is an applicable taxpayer
for the taxable year in which the transfer is made, or
``(B) an applicable entity with respect to which a
notice received by the entity under subsection
(b)(2)(A) or (c)(2) of section 493 is in effect at the
time of such transfer.
``(b) Special Rules for Certain Grantor Trusts.--
``(1) Transfers of nontradable covered assets into certain
grantor trusts.--For purposes of applying this section to any
transfer in trust, except as otherwise provided in this
paragraph, any transfer of a nontradable covered asset from the
person treated as the owner of an applicable grantor trust
(other than a grantor trust which is a wholly revocable trust)
to such trust shall be treated as a transfer to which
subsection (a) applies.
``(2) Deemed distributions.--In the case of any applicable
grantor trust, any property held by such trust shall be treated
as transferred by the owner in a transfer to which subsection
(a) applies--
``(A) on any date that--
``(i) the owner ceases to be treated as the
owner under this chapter,
``(ii) such property is distributed to any
person other than the owner, or
``(iii) the property would no longer be
included in the owner's gross estate under
chapter 11, or
``(B) on the date of the death of the owner.
``(3) Applicable grantor trust.--For purposes of this
subsection--
``(A) In general.--The term `applicable grantor
trust' means the portion of any trust with respect to
which an applicable taxpayer is considered the owner
under subpart E of part I of subchapter J.
``(B) Exceptions.--The Secretary shall provide for
appropriate exceptions to the treatment of categories
of trusts as applicable grantor trusts under
subparagraph (A), including arrangements which are
ordinarily used in the course of a trade or business,
employee benefit arrangements, and arrangements for
securitization transactions.
``(c) Exceptions.--
``(1) Spousal exception.--
``(A) In general.--Subsection (a) shall not apply
to any transfer if such transfer--
``(i) is--
``(I) made to the spouse or the
surviving spouse of the transferor, or
``(II) made to a former spouse of
the transferor if the transfer is
incident to divorce, or
``(ii) is a transfer of qualified
terminable interest property or of property to
which section 2056(b)(5) or 2523(e) applies.
``(B) Certain remainder interests treated as
transferred by spouse.--Property described in
subparagraph (A)(ii) shall be treated as sold by the
spouse or surviving spouse on the earlier of the date
of the disposition of such property by such spouse or
surviving spouse or the date of the death of such
spouse or surviving spouse.
``(C) Qualified terminable interest property.--For
purposes of this paragraph, the term `qualified
terminable interest property' means any property
described in section 2056(b)(7) or 2523(f)(2).
``(D) Disallowance of spousal exception where
spouse or surviving spouse not united states citizen or
long-term resident.--
``(i) In general.--Subparagraph (A) shall
not apply if the spouse or surviving spouse of
the decedent is not a citizen or long-term
resident of the United States.
``(ii) Long-term resident.--For purposes of
clause (i), the term `long-term resident' means
any individual (other than a citizen of the
United States) who is a lawful permanent
resident of the United States--
``(I) for the taxable year in which
the transfer described in subsection
(a) occurs, and
``(II) in at least 8 taxable years
during the period of 15 taxable years
ending with the taxable year during
which the transfer described in
subsection (a) or (b)(1) occurs.
For purposes of the preceding sentence, an
individual shall not be treated as a lawful
permanent resident for any taxable year if such
individual is treated as a resident of a
foreign country for the taxable year under the
provisions of a tax treaty between the United
States and the foreign country and does not
waive the benefits of such treaty applicable to
residents of the foreign country.
``(2) Gifts and bequests to charity.--
``(A) In general.--Subsection (a) shall not apply
to any transfer if such transfer is made to or for the
use of an organization described in section 170(c).
``(B) Special rule for split-interest trusts.--In
the case of any transfer--
``(i) to a charitable remainder annuity
trust (as defined in section 664) or a
charitable remainder unitrust (as defined in
section 664), or
``(ii) of an interest described in section
170(f)(2)(B),
subsection (a) shall not apply to the portion of such
transfer which is to or for the use of an organization
described in section 170(c).
``(C) Special rule for pooled income funds.--In the
case of any transfer to a pooled income fund (as
defined in section 642(c)(5)), subsection (a) shall not
apply to the portion of such transfer which is to or
for the use of an organization described in section
170(b)(1)(A) (other than in clauses (vii) or (viii)).
``(3) Qualified disability trusts and cemetery perpetual
care funds.--Subsection (a) shall not apply to transfers to any
qualified disability trust (as defined in section
642(b)(2)(C)(ii)) or to transfers to any cemetery perpetual
care fund described in section 642(i).
``(d) Basis of Transferee.--
``(1) In general.--Notwithstanding sections 1014 and 1015,
to the extent that subsection (a) applies to any transfer of
property--
``(A) except as provided in subparagraph (B), the
basis of the property in the hands of the transferee
shall be the fair market value of the property
(consistent with the amount taken into account by the
transferor under subsection (a)), and
``(B) in the case such transfer is a transfer upon
death to any individual described in subsection
(c)(1)(A)(i), the basis of the property in the hands of
the transferee shall be the same as it would be in the
hands of the transferor, except that if such basis
(adjusted for the period before the date of the
transfer as provided in section 1016) is greater than
the fair market value of the property at the time of
death, then for the purpose of determining loss the
basis shall be such fair market value.
``(2) Consistent basis rules for transfers by death.--In
the case of any transfer upon death, rules similar to section
1014(f) shall apply for purposes of this section.
``(e) Application of Depreciation Recapture Rules.--Paragraphs (1)
and (2) of section 1245(b) and paragraphs (1) and (2) of section
1250(d) shall not apply to any property treated as sold by reason of
subsection (a).
``Subpart B--Definitions and Rules Relating to Applicable Taxpayers
``Sec. 495. Applicable taxpayer defined.
``Sec. 496. Special rules for taxpayers entering or changing status as
applicable taxpayers.
``SEC. 495. APPLICABLE TAXPAYER DEFINED.
``(a) In General.--For purposes of this part--
``(1) In general.--The term `applicable taxpayer' means,
with respect to any taxable year, any taxpayer--
``(A) which is an individual who met either the
income test of paragraph (2) or the asset test of
paragraph (3) for each of the 3 immediately preceding
taxable years (including taxable years beginning before
the date of the enactment of this part which are
included in any such 3-taxable-year period), or
``(B) which is--
``(i) an applicable trust, or
``(ii) the estate of an individual who was
an applicable taxpayer for any taxable year
during the 4-taxable-year period ending with
the taxable year in which the individual died.
``(2) Income test.--The requirements of this paragraph are
met for any taxable year if the applicable adjusted gross
income of the taxpayer for the taxable year exceeds
$100,000,000 ($50,000,000 in the case of a married individual
filing separately).
``(3) Asset test.--The requirements of this paragraph are
met for any taxable year if the aggregate applicable value of
all tradable and nontradable covered assets held by the
taxpayer as of the close of the taxable year exceeds
$1,000,000,000 ($500,000,000 in the case of a married
individual filing separately).
``(4) Special rules relating to applicable taxpayer
status.--
``(A) Termination of status of individual
taxpayers.--A taxpayer who is treated as an applicable
taxpayer under paragraph (1)(A) for any taxable year
shall continue to be so treated until the first taxable
year with respect to which--
``(i) the taxpayer does not, for each of
the 3 taxable years immediately preceding such
taxable year, meet either--
``(I) the income test of paragraph
(2) in effect for such preceding
taxable year, or
``(II) the asset test of paragraph
(3) in effect for such preceding
taxable year,
except that each such paragraph shall be
applied for purposes of this clause by
substituting an amount equal to one-half of the
dollar amount otherwise in effect for such
taxpayer under such paragraph for each such
preceding taxable year for such dollar amount,
and
``(ii) the taxpayer elects, in such manner
and form and at such time as the Secretary may
prescribe, not to be so treated for such first
taxable year.
``(B) Earlier termination election of applicable
taxpayer status for divorced individuals.--If--
``(i) an applicable taxpayer ceases to be a
married individual by reason of a decree of
divorce or separate maintenance issued during
any taxable year, and
``(ii) such taxpayer, for the first taxable
year following the taxable year described in
clause (i), does not meet either--
``(I) the income test of paragraph
(2), except that such paragraph shall
be applied for purposes of this
subclause by substituting `$1,000,000'
for the dollar amount otherwise in
effect for such taxpayer under such
paragraph, or
``(II) the asset test of paragraph
(3), except that such paragraph shall
be applied for purposes of this
subclause by substituting `$10,000,000'
for the dollar amount otherwise in
effect for such taxpayer under such
paragraph,
then such taxpayer may elect, in such manner and form
and at such time as the Secretary may prescribe, not to
be treated as an applicable taxpayer beginning with
such first taxable year.
``(C) Election.--An election under subparagraph (A)
or (B)--
``(i) shall be made with the taxpayer's
return of tax for the taxable year to which
such election first applies (or such other time
as the Secretary shall prescribe) and shall be
in such form and manner as the Secretary may
prescribe, and
``(ii) shall apply to such first taxable
year and all subsequent taxable years until the
first taxable year for which the taxpayer is
again treated as an applicable taxpayer by
reason of meeting the requirements of paragraph
(1)(A).
``(5) Special rules for married individuals.--
``(A) Applicable taxpayers becoming married
individuals.--If an individual was an applicable
taxpayer for the taxable year before the individual
became a married individual (within the meaning of
section 7703), such individual and the individual's
spouse shall be treated as applicable taxpayers for
such taxable year of marriage and subsequent taxable
years until such status is otherwise terminated under
this section.
``(B) Married individuals filing separately.--If a
married individual filing separately is treated as an
applicable taxpayer for any taxable year, such
individual's spouse shall be treated as an applicable
taxpayer for such taxable year.
``(C) First-year elections.--Under rules prescribed
by the Secretary, if an individual is first treated as
an applicable taxpayer for a taxable year by reason of
the application of subparagraph (A) or (B), section 496
shall apply to such taxpayer for such first taxable
year only with respect to assets held separately by
such individual unless such taxable year is also the
first taxable year for which the individual's spouse is
an applicable taxpayer.
``(6) Regulatory authority.--The Secretary shall prescribe
such regulations and guidance as may be necessary to carry out
the provisions of this subsection, including--
``(A) rules waiving the application of paragraph
(5)(B) in cases where the Secretary determines
equitable relief is appropriate,
``(B) rules providing for the application of this
subsection in cases where the filing status of a
taxpayer changes between any taxable year and any of
the 3 immediately preceding taxable years, including
the first taxable year in which a taxpayer files a
joint return after becoming married, and
``(C) rules requiring such information reporting as
the Secretary determines necessary to determine whether
a taxpayer is an applicable taxpayer.
``(b) Applicable Adjusted Gross Income.--For purposes of this
section, the term `applicable adjusted gross income' means modified
adjusted gross income as defined in section 36B(d)(2)(B), except that--
``(1) clause (i) thereof shall be applied by substituting
`sections 911, 931, and 933' for `section 911', and
``(2) in the case of a trust, no deduction under section
651 or 661 shall be allowed.
``(c) Applicable Trust.--For purposes of this section--
``(1) In general.--The term `applicable trust' means a
trust (other than a grantor trust) which, for each of the 3
taxable years immediately preceding such taxable year
(including taxable years beginning before the date of the
enactment of this part which are included in any such 3-
taxable-year period), meets either--
``(A) the income test of subsection (a)(2), except
that such subsection shall be applied for purposes of
this subparagraph by substituting `$10,000,000' for the
dollar amount otherwise in effect for such taxable year
under such paragraph, or
``(B) the asset test of subsection (a)(3), except
that such subsection shall be applied for purposes of
this subparagraph by substituting `$100,000,000' for
the dollar amount otherwise in effect for such taxable
year under such paragraph.
``(2) Exceptions.--Such term shall not include--
``(A) a qualified disability trust (as defined in
section 642(b)(2)(C)(ii)),
``(B) any portion of a trust which consists of
property permanently set aside for the exclusive use of
an organization described in section 170(c),
``(C) a pooled income fund (as defined in section
642(c)(5)) or a cemetery perpetual care fund (as
described in section 642(i)),
``(D) a settlement trust (as defined in section
646),
``(E) any charitable remainder annuity trust (as
defined in section 664),
``(F) any charitable remainder unitrust (as defined
in section 664), or
``(G) any other category of trust identified in
regulations or guidance provided by the Secretary.
``(3) Grantor trusts.--
``(A) Grantor trust defined.--For purposes of this
section, the term `grantor trust' means any portion of
a trust with respect to which the grantor or any other
person is considered the owner under subpart E of part
I of subchapter J.
``(B) Assets of grantor trust taken into account.--
For purposes of subsection (a)(1)(A), the assets of a
grantor trust shall be included in the assets of--
``(i) the grantor of such trust if the
grantor is considered the owner of such assets,
and
``(ii) if a person other than the grantor
is considered the owner of such assets, both
the grantor and such person.
``(d) Special Rules for Foreign Persons and Expatriates.--For
purposes of this part--
``(1) Nonresident alien individuals.--The following rules
shall apply in determining whether a nonresident alien
individual is an applicable taxpayer:
``(A) Income test.--For purposes of the income test
under subsection (a)(2)--
``(i) such subsection shall be applied for
purposes of this subparagraph by substituting
`$50,000,000' for the dollar amount otherwise
in effect for such taxable year under such
paragraph, and
``(ii) the applicable adjusted gross income
of such individual shall be equal to the
taxable income of such individual, determined
by only taking into account items of income,
gain, deduction, and loss which are effectively
connected with the conduct of trades or
businesses within the United States.
``(B) Asset test.--For purposes of the asset test
under subsection (a)(3)--
``(i) such subsection shall be applied for
purposes of this subparagraph by substituting
`$500,000,000' for the dollar amount otherwise
in effect for such taxable year under such
paragraph, and
``(ii) only assets which produce income
described in subparagraph (A) shall be taken
into account.
``(2) Expatriates.--
``(A) In general.--If, for the taxable year which
includes a covered expatriate's expatriation date, such
expatriate--
``(i) was an applicable taxpayer (without
regard to this paragraph), or
``(ii) is an applicable taxpayer under the
rules of subparagraph (B),
such expatriate shall be treated as an applicable
taxpayer during each of the taxable years during the
10-taxable-year period beginning with such taxable year
(and such status shall not be terminated during such
period by reason of any other provision of this part).
``(B) Special rules for determining status.--For
purposes of subparagraph (A)(ii), a covered expatriate
not otherwise treated as an applicable taxpayer shall
be treated as an applicable taxpayer if, during any of
the 5 taxable years immediately preceding the taxable
year which includes the covered expatriate's
expatriation date (including taxable years beginning
before the date of the enactment of this part which are
included in any such 5-taxable-year period), the
expatriate meets either--
``(i) the income test of subsection (a)(2),
except that such subsection shall be applied
for purposes of this subparagraph by
substituting `$50,000,000' for the dollar
amount otherwise in effect for such taxable
year under such paragraph, or
``(ii) the asset test of subsection (a)(3),
except that such subsection shall be applied
for purposes of this subparagraph by
substituting `$500,000,000' for the dollar
amount otherwise in effect for such taxable
year under such paragraph.
``(C) Definitions.--Any term used in this paragraph
which is also used in section 877A shall have the same
meaning as when used in such section.
``SEC. 496. SPECIAL RULES FOR TAXPAYERS ENTERING OR CHANGING STATUS AS
APPLICABLE TAXPAYERS.
``(a) Initial Treatment as Applicable Taxpayer.--
``(1) In general.--In the case of the first taxable year
for which a taxpayer is an applicable taxpayer--
``(A) the taxpayer may make the election under
paragraph (3) with respect to nontradable covered
assets, and
``(B) if the taxpayer elects the application of
this subparagraph, the net first-year tax liability of
the taxpayer for such taxable year shall be payable in
5 equal annual installments over the 5-taxable-year
period beginning with such taxable year.
``(2) Net first-year tax liability.--For purposes of this
section--
``(A) In general.--The term `net first-year tax
liability' means, with respect to the first taxable
year described in paragraph (1), the excess (if any)
of--
``(i) such taxpayer's net income tax for
such taxable year, over
``(ii) such taxpayer's net income tax for
such taxable year determined without regard to
gain or loss of the taxpayer taken into account
for such taxable year by reason of a taxable
event described in section 491(b)(1).
``(B) Net income tax.--The term `net income tax'
means the regular tax liability reduced by the credits
allowed under subparts A, B, and D of part IV of
subchapter A.
``(3) Election to pay and defer tax on nontradable
assets.--
``(A) In general.--Except as provided in
subparagraph (C), a taxpayer may elect to treat any
nontradable covered asset held by the taxpayer as of
the end of the first taxable year described in
paragraph (1) as a tradable covered asset for purposes
of applying section 491(b)(1) and this subsection.
``(B) Determination of gain.--
``(i) In general.--For purposes of applying
section 491(a)(1)(A), the fair market value of
any asset with respect to which an election is
in effect under subparagraph (A) shall be the
amount specified by the taxpayer in such
election, except that such value may not,
unless otherwise provided by the Secretary, be
less than the taxpayer's adjusted basis in such
asset as of the end of the first taxable year
described in paragraph (1).
``(ii) No deductions or credits for basis
increases.--If there is any increase under this
part in the taxpayer's adjusted basis of any
asset by reason of an election under this
paragraph, no deduction or credit shall be
allowed under this title with respect to the
portion of such adjusted basis attributable to
such increase.
``(C) Only significant owner of applicable entity
may elect.--In the case of a nontradable covered asset
which is a nontradable interest in an applicable
entity, an applicable taxpayer may make an election
under subparagraph (A) with respect to such asset only
if such taxpayer is a significant owner (as defined in
section 493(b)(4)(A)) of such entity with respect to
whom a notice is in effect under section 493(b)(2)(A)
for the taxable year for which the election is being
made.
``(4) Special rule where delay in reporting by applicable
entity.--
``(A) In general.--If--
``(i) there is a delay in reporting to an
applicable taxpayer by 1 or more applicable
entities by reason of section 493(c)(4), and
``(ii) any gain or loss is reported by such
entities to such taxpayer under section
493(c)(1)(A)(i) and is taken into account in
such taxpayer's taxable year immediately
succeeding the first taxable year described in
paragraph (1),
then, subject to such rules as the Secretary may
prescribe, the taxpayer may elect under paragraph
(1)(B) to treat the net tax liability described in
subparagraph (B) as net first-year tax liability
payable in 5 equal annual installments beginning with
such succeeding taxable year. The rules of paragraph
(5) shall apply to such installments in the same manner
as such rules apply to installments for such first
taxable year.
``(B) Net tax liability.--For purposes of
subparagraph (A), the net tax liability described in
this subparagraph is, with respect to the taxable year
described in such subparagraph, the excess (if any)
of--
``(i) such taxpayer's net income tax for
such taxable year, over
``(ii) such taxpayer's net income tax for
such taxable year determined without regard to
gain or loss of the taxpayer described in
subparagraph (A)(ii).
``(5) Rules relating to installment payments.--
``(A) Date for payment of installments.--If an
election is made under paragraph (1), the first
installment shall be paid on the due date (determined
without regard to any extension of time for filing the
return) for the return of tax for the first taxable
year described in paragraph (1) and each succeeding
installment shall be paid on the due date (as so
determined) for the return of tax for the taxable year
following the taxable year with respect to which the
preceding installment was made.
``(B) Acceleration of payment.--
``(i) Disposition of assets.--
``(I) In general.--If, before the
close of the 5-year period described in
paragraph (1), a taxpayer sells or
exchanges, transfers, or otherwise
disposes of an asset with respect to
which an election is in effect under
paragraph (1)(B), then the applicable
percentage of the unpaid portion of all
remaining installments described in
paragraph (1)(B) shall be due on the
date of such disposition (or such later
date as the Secretary may prescribe).
``(II) Applicable percentage.--For
purposes of this subparagraph, the
applicable percentage is the percentage
determined by dividing the gain not
taken into account in determining net
income tax under paragraph (2)(A)(ii)
with respect to the asset described in
subclause (I) by the aggregate amount
of all gain not so taken into account.
``(ii) Failure to pay, etc.--In the case of
an addition to tax for failure to timely pay
any installment required under this subsection,
the death of the taxpayer, or the filing of a
petition by the taxpayer in a title 11 or
similar case, then the unpaid portion of all
remaining installments shall be due on the date
of such event (or in the case of a title 11 or
similar case, the day before the petition is
filed).
``(C) Proration of deficiency to installments.--If
an election is made under paragraph (1) to pay the net
first-year tax liability under this section in
installments and a deficiency has been assessed with
respect to such net tax liability, the deficiency shall
be prorated to the installments payable under paragraph
(1). The part of the deficiency so prorated to any
installment the date for payment of which has not
arrived shall be collected at the same time as, and as
a part of, such installment. The part of the deficiency
so prorated to any installment the date for payment of
which has arrived shall be paid upon notice and demand
from the Secretary. This subsection shall not apply if
the deficiency is due to negligence, to intentional
disregard of rules and regulations, or to fraud.
``(D) Installments not to prevent credit or refund
of overpayments or increase estimated taxes.--If an
election is made under paragraph (1) to pay the net
first-year tax liability under this subsection in
installments--
``(i) no installment of such liability
shall--
``(I) in the case of a request for
credit or refund, be taken into account
as a liability for purposes of
determining whether an overpayment
exists for purposes of section 6402
before the date on which such
installment is due, or
``(II) be treated as a tax imposed
by section 1 for purposes of section
6654, and
``(ii) the first sentence of section 6403
shall not apply with respect to any such
installment.
``(6) Elections.--
``(A) In general.--Any election under paragraph
(1), (3)(A), or (4)(A) shall be made not later than the
due date for the return of tax for the first taxable
year described in paragraph (1) and shall be made in
such manner as the Secretary shall provide.
``(B) Extensions.--The Secretary shall by
regulation prescribe such circumstances and procedures
under which extensions of time will be granted to make
any election under paragraph (1), (3)(A), or (4)(A). In
determining whether to grant relief under this
subparagraph, the Secretary shall take into account all
relevant circumstances and the time for making the
election shall be treated as not expressly provided by
statute.
``(b) Treatment of Taxpayers Leaving and Reentering Applicable
Status.--If a taxpayer's status as an applicable taxpayer is terminated
under section 495(a)(4) and the taxpayer is again treated as an
applicable taxpayer for a subsequent taxable year by reason of meeting
the requirements of section 495(a)(1)(A), the following rules shall
apply:
``(1) Subsequent year not treated as first year of
applicable taxpayer status.--Subsection (a) shall not apply to
any taxable year in which the taxpayer is again treated as an
applicable taxpayer and such subsequent taxable year shall not
be treated as the first taxable year for which the taxpayer is
an applicable taxpayer for any other purpose of this part.
``(2) Nontradable assets.--If there is an applicable
transfer by a taxpayer of a nontradable covered asset after the
taxpayer is again treated as an applicable taxpayer, the
taxpayer's holding period of such asset for purposes of section
492 shall include all periods during which the taxpayer's
status as an applicable taxpayer was previously terminated and
the taxpayer held such asset.
``(c) Special Rules Relating to Ownership of Nontradable Interests
in Applicable Entities.--
``(1) In general.--For purposes of subsection (a), if an
applicable taxpayer elects under subsection (a)(3) to treat a
nontradable interest in an applicable entity held directly as a
tradable covered asset for the first taxable year described in
subsection (a)(1), the amount of the gain taken into account
under subsection (a) with respect to such interest shall be
equal to the excess (if any) of--
``(A) the value of such interest specified by the
taxpayer under subsection (a)(3)(B), over
``(B) the taxpayer's adjusted basis in such
interest as of the close of such taxable year.
``(2) Adjustments to bases of entity's nontradable
assets.--
``(A) Partnerships.--
``(i) In general.--If the applicable entity
is a partnership, the partnership shall
increase the adjusted bases of the
partnership's assets by the amount described in
paragraph (1). Such increase shall constitute
an adjustment to the bases of partnership
assets solely for determining the applicable
taxpayer's share of such bases.
``(ii) Allocation.--The Secretary shall
prescribe rules for the allocation of the
increase in adjusted bases among partnership
assets in a manner which has the effect of
reducing the difference between the value and
such adjusted bases. Such rules shall also
provide proper adjustments to adjusted bases
where ownership is held through tiered
entities.
``(B) Other applicable entities.--Rules similar to
the rules of clause (i) shall apply to applicable
entities other than partnerships.
``(C) No deductions or credits for basis
increases.--If there is any increase in the applicable
entity's adjusted basis of any asset by reason of
subparagraph (A), no deduction or credit shall be
allowed under this title with respect to the portion of
such adjusted basis attributable to such increase.
``(3) Definitions.--Any term used in this subsection which
is also used in section 493 shall have the same meaning as when
used in such section.
``(d) Special Election for Certain Tradable Assets of Applicable
Taxpayers.--
``(1) In general.--If a qualified taxpayer makes an
election under this subsection, then any stock held by such
qualified taxpayer which would (but for such election) be a
tradable covered asset and which is specified in such election
shall be treated as a nontradable capital asset of the taxpayer
for purposes of this part.
``(2) Limitations.--
``(A) Only stock of a single entity taken into
account.--An election made under this subsection may
not specify stock in more than one C corporation or
specify more than one class of stock in such
corporation.
``(B) Value.--
``(i) In general.--The aggregate value of
stock specified in an election made under this
subsection shall not exceed $1,000,000,000.
``(ii) Determination.--For purposes of
clause (i), the value of any stock specified in
an election made under this section shall be
determined as of the last day of the first
taxable year for which the taxpayer is an
applicable taxpayer.
``(3) Qualified taxpayer.--For purposes of this subsection,
the term `qualified taxpayer' means any taxpayer--
``(A) which is not an estate or trust, and
``(B) for which the first taxable year for which
such taxpayer is an applicable taxpayer is a taxable
year that begins before January 1, 2027.
``(4) Election.--
``(A) In general.--Any election under this
subsection shall be made not later than the due date
for the return of tax for the first taxable year for
which the taxpayer is an applicable taxpayer and shall
be made in such manner as the Secretary shall provide.
``(B) Extensions.--The Secretary shall by
regulation prescribe such circumstances and procedures
under which extensions of time will be granted to make
any election under this subsection. In determining
whether to grant relief under this subparagraph, the
Secretary shall take into account all relevant
circumstances and the time for making the election
shall be treated as not expressly provided by statute.
``Subpart C--Other Definitions and Rules
``Sec. 497. Terms and rules relating to covered assets.
``Sec. 498. Other definitions; coordination with title.
``SEC. 497. TERMS AND RULES RELATING TO COVERED ASSETS.
``(a) Covered Asset.--For purposes of this part, except as
otherwise provided in this part, the term `covered asset' means any
asset other than--
``(1) any interest of the taxpayer in an applicable savings
plan or in a defined benefit plan,
``(2) any cash or cash equivalent, or
``(3) any private placement life insurance or annuity
contract described in section 72(e)(12)(D).
``(b) Tradable Covered Asset.--For purposes of this part, except as
provided in section 496(d), the term `tradable covered asset' means--
``(1) any covered asset if--
``(A) interests in such asset are traded on an
established securities market,
``(B) interests in such assets are readily tradable
on a secondary market (or the substantial equivalent
thereof),
``(C) interests in such assets are available on an
online or electronic platform that regularly matches,
or facilitates the matching of, buyers and sellers of
such assets, or
``(D) such asset is an asset for which the
Secretary determines there is a reasonable basis to
determine the asset's fair market value annually, and
``(2) any derivative with respect to an underlying
investment which--
``(A) is an asset described in paragraph (1), or
``(B) is a nontradable covered asset which is
identified in regulations or other guidance provided by
the Secretary.
``(c) Nontradable Covered Asset.--For purposes of this part--
``(1) In general.--The term `nontradable covered asset'
means any covered asset which is not a tradable covered asset.
``(2) Certain assets only counted for determining aggregate
value of assets.--
``(A) In general.--Any asset excluded from
treatment as a covered asset under paragraph (1), (2),
or (3) of subsection (a) shall be taken into account as
a nontradable covered asset in computing the aggregate
applicable value of all tradable and nontradable
covered assets held by the taxpayer as of the close of
any taxable year for purposes of section 495(a)(3).
``(B) Private placement life insurance and annuity
contracts.--For purposes of subparagraph (A)--
``(i) In general.--The applicable value of
a private placement life insurance or annuity
contract (as defined in section 72(e)(12)(D))
as of any date shall be its cash surrender
value (as determined under section
7702(f)(2)(A)) on such date.
``(ii) Adjustments.--The Secretary shall by
regulation provide for adjustments to the cash
surrender value determined under clause (i)
with respect to any contract to the extent
necessary to prevent the avoidance of the
purposes of this part, including regulations
which ensure that such value as of any time
properly reflects the value of any underlying
investments with respect to such contract as of
such time.
``(3) Investments in qualified opportunity funds.--
Notwithstanding subsection (b), any investment in a qualified
opportunity fund (as defined in section 1400Z-2(d)) shall be
treated as a nontradable covered asset.
``(d) Applicable Value.--For purposes of this part--
``(1) Tradable covered assets.--The applicable value of any
tradable covered asset as of any date shall be its fair market
value on such date.
``(2) Nontradable covered assets.--The applicable value of
any nontradable covered asset as of any date shall be the
greatest of--
``(A) the original cost basis of such asset,
``(B) the adjusted basis of such asset,
``(C) the value determined as of the date of the
last event with respect to the asset which establishes
such value,
``(D) in the case of an asset the value of which is
included in an applicable financial statement, the
value in the latest available statement,
``(E) the value of such asset determined for
purposes of using such asset to secure any
indebtedness, and
``(F) the value of such asset determined under such
other valuation method as the Secretary may prescribe.
If a covered asset would, but for subsection (c)(3) or any
other provision of this part, be treated as a tradable covered
asset, the asset's applicable value shall be determined under
paragraph (1).
``(3) Adjustment for debt and other liabilities of the
taxpayer.--Except as provided by the Secretary, the aggregate
applicable value of all covered assets of the taxpayer as of
any date (determined without regard to this paragraph) shall be
reduced by the aggregate outstanding amount of--
``(A) indebtedness of the taxpayer as of such date,
and
``(B) any other liabilities (other than
indebtedness) of the taxpayer as of such date which the
Secretary determines are appropriate to be taken into
account for such purpose.
``(4) Reliance on valuation.--In determining the applicable
value of any tradable covered asset for purposes of this
section, the taxpayer may rely on a valuation which is--
``(A) provided to the taxpayer by a broker under
section 6045(b),
``(B) provided to the taxpayer by a dealer in
securities or a dealer in commodities, within the
meaning of section 475,
``(C) determined under an applicable financial
statement, or
``(D) provided to the taxpayer by such other
persons as may be designated by the Secretary.
``(5) Applicable financial statement.--For purposes of this
subsection, the term `applicable financial statement' has the
meaning given such term by section 451(b)(3).
``(6) Special rules for applicable entities.--In the case
of an applicable entity--
``(A) adjustments to basis of any covered asset
under section 493(b)(2) shall be taken into account in
determining the adjusted basis of such asset for
purposes of paragraph (2)(B),
``(B) the value of a partner's ownership interest
in such partnership under paragraph (2)(C) shall not be
less than the value of the partner's capital account
under section 704, and
``(C) the Secretary shall provide rules for
determining the share of a holder of an ownership
interest in such an entity of amounts included in an
applicable financial statement of such entity for
purposes of applying paragraph (2)(D).
``(7) Secretarial authority.--The Secretary shall prescribe
such regulations, rules, and guidance as may be necessary to
carry out the purposes of this subsection, including
regulations, rules, and guidance which--
``(A) prevent the avoidance of such purposes,
``(B) provide rules for the application of
paragraph (2)(C), including in cases of transactions in
which gain or loss is not recognized in connection with
contributions, distributions, and sales of
substantially similar property from which value may be
derived, and
``(C) provide rules for determining the applicable
value of assets in taxable years beginning before the
date of the enactment of this part.
``SEC. 498. OTHER DEFINITIONS; COORDINATION WITH TITLE.
``(a) Applicable Transfer.--For purposes of this part--
``(1) In general.--The term `applicable transfer' means--
``(A) any sale, exchange, disposition, or other
transfer if--
``(i) gain or loss (if any) is, without
regard to this part, recognized under this
chapter on such sale, exchange, disposition, or
other transfer, and
``(ii) such sale, exchange, disposition, or
other transfer is not in the ordinary course of
a trade or business, and
``(B) any disregarded nonrecognition event.
``(2) Disregarded nonrecognition event.--The term
`disregarded nonrecognition event' means--
``(A) any exchange to which section 351 applies,
``(B) any exchange to which section 1031 applies,
``(C) any transfer of an asset which--
``(i) is identified by the Secretary,
``(ii) involves a C corporation, and
``(iii) is in connection with an asset with
respect to which no gain or loss has been
recognized by such corporation, or
``(D) any other transaction in which gain or loss
is not otherwise recognized and which the Secretary
determines is necessary to be treated as a disregarded
nonrecognition event in order to prevent the avoidance
of the purposes of this part.
``(3) Conversion of assets.--
``(A) Nontradable to tradable.--If a taxpayer holds
a nontradable covered asset (other than an investment
in a qualified opportunity fund (as defined in section
1400Z-2(d))) which, as part of a transaction or series
of transactions, is converted to, or exchanged for, a
tradable covered asset, such conversion or exchange
shall be treated as a disregarded nonrecognition event
if gain or loss (if any) on such conversion or exchange
is, without regard to this part, not recognized under
this chapter.
``(B) Tradable to nontradable.--If a taxpayer holds
a tradable covered asset which, as part of a
transaction or series of transactions, is converted to,
or exchanged for, a nontradable covered asset, such
conversion or exchange shall be treated as a taxable
event with respect to the asset being converted or
exchanged if gain or loss (if any) on such conversion
or exchange is, without regard to this part, not
recognized under this chapter.
``(b) Applicable Savings Plan.--The term `applicable savings plan'
means--
``(1) a defined contribution plan to which section 401(a)
or 403(a) applies,
``(2) an annuity contract under section 403(b),
``(3) an eligible deferred compensation plan described in
section 457(b) which is maintained by an eligible employer
described in section 457(e)(1)(A),
``(4) an individual retirement plan,
``(5) an Archer MSA (within the meaning of section 220(d)),
``(6) a qualified tuition program (as defined in section
529(b)),
``(7) an ABLE account (as defined in section 529A(e)(6)),
``(8) a Coverdell education savings account (as defined in
section 530), or
``(9) a health savings account (within the meaning of
section 223(d)).
``(c) Derivative; Underlying Investment.--
``(1) Derivative.--The term `derivative' has the meaning
given such term under section 59A(h)(4).
``(2) Underlying investment.--The term `underlying
investment' means, with respect to any derivative, any item--
``(A) which is described in clauses (i) through (v)
of section 59A(h)(4)(A) (or any item substantially the
same as any such item), and
``(B) by reference to which the value of the
derivative, or any payment or other transfer with
respect to the derivative, is determined either
directly or indirectly.
``(d) Regulatory Authority To Prevent Avoidance and To Coordinate
With Other Provisions of This Title.--The Secretary shall issue such
regulations or other guidance as are necessary to--
``(1) prevent taxpayers from avoiding the application of
this part, and
``(2) coordinate the provisions of this part with other
provisions of this title which require taxpayers to take income
into account in the absence of a payment or other
distribution.''.
(b) Clerical Amendment.--The table of parts for subchapter E of
chapter 1 is amended by adding at the end the following new item:
``Part IV. Elimination of deferral for applicable taxpayers.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable events and applicable transfers occurring in taxable
years beginning after December 31, 2025.
SEC. 102. CARRYBACK OF CAPITAL LOSSES ATTRIBUTABLE TO MARK-TO-MARKET
RULES.
(a) In General.--Section 1212 is amended by adding at the end the
following new subsection:
``(d) Carryback of Losses of Applicable Taxpayers From Assets
Marked to Market.--
``(1) In general.--If an applicable taxpayer elects to have
this subsection apply to any taxable year in which the taxpayer
has a net marked-to-market loss (in this subsection referred to
as the `loss year'), the amount of such net marked-to-market
loss--
``(A) shall be a carryback to each of the 3 taxable
years preceding the loss year, and
``(B) to the extent that, after the application of
paragraphs (2) and (3), such loss is allowed as a
carryback to any such preceding taxable year, the
amount so allowed shall be treated as a long-term
capital loss.
``(2) Amount carried to each taxable year.--The entire
amount of the net marked-to-market loss for any loss year shall
be carried to the earliest of the taxable years to which such
loss may be carried back under paragraph (1). The portion of
such loss which shall be carried to each of the 2 other taxable
years to which such loss may be carried back shall be the
excess (if any) of such loss over the portion of such loss
which, after the application of paragraph (3), was allowed as a
carryback for any prior taxable year.
``(3) Amount which may be used in any prior taxable year.--
An amount shall be allowed as a carryback under paragraph (1)
from a loss year to any prior taxable year only to the extent--
``(A) such amount does not exceed the net marked-
to-market gain for such prior year, and
``(B) the allowance of such carryback does not
increase or produce a net operating loss (as defined in
section 172(c)) for such year.
``(4) Net marked-to-market loss.--For purposes of this
subsection, the term `net marked-to-market loss' means, with
respect to any taxable year, an amount equal to--
``(A) the net capital loss for the taxable year
determined by taking into account only marked-to-market
gains and losses, reduced (but not below zero) by
``(B) the aggregate amount of gains from the sale
or exchange of capital assets which are not marked-to-
market gains.
``(5) Net marked-to-market gain.--For purposes of this
subsection--
``(A) In general.--The term `net marked-to-market
gain' means, with respect to any taxable year, an
amount equal to--
``(i) the capital gain net income for the
taxable year determined by taking into account
only marked-to-market gains and losses, reduced
(but not below zero) by
``(ii) the aggregate amount of losses from
the sale or exchange of capital assets which
are not marked-to-market losses.
``(B) Special rule.--The net marked-to-market gain
for any taxable year before the loss year shall be
computed without regard to the net marked-to-market
loss for the loss year or for any taxable year
thereafter.
``(6) Coordination with carryforward provisions of
subsection (b)(1).--
``(A) Carryforward amount reduced by amount used as
carryback.--For purposes of applying subsection
(b)(1)(B), if any portion of the net marked-to-market
loss for any taxable year is allowed as a carryback
under paragraph (1) to any preceding taxable year, the
amount allowed as a carryback shall be treated as a
long-term capital gain for the loss year.
``(B) Carryover loss retains character as
attributable to marked-to-market.--Any amount carried
forward as a long-term capital loss to any taxable year
under subsection (b)(1)(B) (after the application of
subparagraph (A)) shall, to the extent attributable to
marked-to-market losses, be treated as marked-to-market
loss.
``(C) Coordination with reduction in net capital
loss for credit.--For purposes of this paragraph and
paragraph (4), any reduction in net capital loss under
section 492(c)(3) (relating to reduction for credit
against tax attributable to deferral recapture amount)
shall, except as provided by the Secretary, be applied
before the application of such paragraphs.
``(7) Other definitions and rules.--For purposes of this
subsection--
``(A) Marked-to-market gains and losses.--
``(i) In general.--The terms `marked-to-
market gains' and `marked-to-market losses'
means, with respect to any applicable taxpayer
for any taxable year, gains or losses which are
recognized and taken into account by such
taxpayer for such taxable year under section
491 by reason of taxable events described in
section 491(b)(1) with respect to tradable
covered assets which are capital assets. Such
terms shall not include gains and losses from
nontradable covered assets which are treated as
tradable covered assets (and to which section
491 applies) by reason of an election under
section 496(a)(3).
``(ii) Applicable entities.--In the case of
marked-to-market gains or losses of an
applicable entity, this subsection shall be
applied at the partner or other ownership
level.
``(B) Other terms.--Any term used in this
subsection which is also used in part IV of subchapter
E shall have the same meaning as when used in such
part.''.
(b) Effective Date.--The amendment made by this section shall apply
to loss years beginning after December 31, 2025.
TITLE II--APPLICATION OF OTHER PROVISIONS TO APPLICABLE TAXPAYERS AND
ENTITIES
Subtitle A--Individuals
SEC. 201. APPLICABLE TAXPAYERS NOT ELIGIBLE FOR ADJUSTED GROSS INCOME
LIMITATION ON NET INVESTMENT TAX.
(a) In General.--Section 1411(a) is amended by adding at the end
the following new paragraph:
``(3) No adjusted gross income limit for applicable
taxpayers.--In the case of an applicable taxpayer (as defined
in section 495) for any taxable year, notwithstanding paragraph
(1) or (2), the tax under this subsection for such taxable year
shall be equal to the product of--
``(A) in the case of an individual, the rate of tax
in effect under paragraph (1) multiplied by the amount
determined under paragraph (1)(A), and
``(B) in the case of an estate or trust, the rate
of tax in effect under paragraph (2) multiplied by the
amount determined under paragraph (2)(A).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 202. TREATMENT OF COVERED EXPATRIATES.
(a) Application of Expatriate Rules to Applicable Taxpayers.--
Section 877A is amended by redesignating subsection (i) as subsection
(j) and by inserting after subsection (h) the following new subsection:
``(i) Special Rules for Applicable Taxpayers.--
``(1) In general.--In the case of a covered expatriate who
is an applicable taxpayer (as defined in section 495) for the
taxable year which includes the expatriation date--
``(A) no election may be made under subsection (b)
with respect to any property treated as sold by reason
of subsection (a) (after application of subparagraph
(B)), and
``(B) the covered expatriate shall, for purposes of
subsection (a)(1), also be treated as having sold on
the last day of the 10-taxable-year period described in
section 495(d)(2)(A) all property held by the covered
expatriate as of the close of such day which is not
otherwise treated as sold under part IV of subchapter E
as of such time.
``(2) Application of section 877.--Notwithstanding section
877(h)--
``(A) a covered expatriate described in paragraph
(1) shall be treated as an individual to whom section
877 applies, and
``(B) such individual shall be taxable as provided
in such section for each of the taxable years in the
10-taxable-year period described in section
495(d)(2)(A).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2025.
Subtitle B--Rules for Applicable Entities and Trusts
SEC. 211. TREATMENT OF LIKE-KIND EXCHANGES BY APPLICABLE ENTITIES.
(a) In General.--Section 1031 is amended by adding at the end the
following new subsection:
``(i) Special Rules for Applicable Entities.--Subsection (a) shall
not apply to an exchange by an applicable entity if a notice received
by the entity under subsection (b)(2)(A) or (c)(2) of section 493 is in
effect at the time of such exchange.''.
(b) Effective Date.--The amendment made by this section shall apply
to exchanges completed after December 31, 2025.
SEC. 212. TREATMENT OF TRANSFERS BY APPLICABLE ENTITIES IN EXCHANGE FOR
STOCK.
(a) In General.--Section 351 is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Special Rules for Applicable Entities.--
``(1) In general.--Subsection (a) shall not apply to an
exchange by an applicable entity if an applicable notice
received by the entity is in effect at the time of such
exchange.
``(2) Applicable notice.--For purposes of paragraph (1)--
``(A) In general.--The term `applicable notice'
means, with respect to any applicable entity, a
notice--
``(i) which is received by the entity under
subsection (b)(2)(A) or (c)(2) of section 493,
and
``(ii) which relates to an applicable
taxpayer who is a 20-percent owner with respect
to such entity.
``(B) 20-percent owner.--For purposes of
subparagraph (A), a 20-percent owner shall be
determined in the same manner as a 5-percent owner
under section 493(b)(4)(B), except that `20 percent'
shall be substituted for `5 percent' in applying
clauses (i) and (ii)(I) thereof.
``(3) Applicable entity.--For purposes of this subsection,
the term `applicable entity' has the meaning given such term by
section 493.''.
(b) Effective Date.--The amendments made by this section shall
apply to exchanges completed after December 31, 2025.
SEC. 213. SPECIAL RULES FOR APPLICABLE TRUSTS.
(a) In-Kind Distributions.--Section 643(e)(3) is amended--
(1) in subparagraph (A), by striking ``to which an election
under this paragraph applies'' and inserting ``to which this
paragraph applies'', and
(2) by striking subparagraph (B) and inserting the
following:
``(B) Distributions to which this paragraph
applies.--This paragraph shall apply to--
``(i) any distribution of property by an
estate which is described in section
495(a)(1)(B)(ii) or by an applicable trust (as
defined in section 495(c)), and
``(ii) any distribution during the taxable
year of any other estate or trust which makes
an election under this paragraph.
Any election made under clause (ii) shall be made on
the return of such estate or trust for such taxable
year, and, once made, may be revoked only with the
consent of the Secretary.''.
(b) Treatment of Loans.--Section 643(i) is amended--
(1) by inserting ``or an applicable trust (as defined in
section 495(c))'' after ``foreign trust'' in paragraph (1),
(2) by striking ``who is a United States person'' in
paragraph (1)(A) and inserting ``who is not exempt from tax
under this chapter'',
(3) by striking ``United States person'' in paragraph
(1)(B) and inserting ``person (other than a person who is
exempt from tax under this chapter)'',
(4) by striking paragraph (2)(C), and
(5) by striking ``Foreign'' in the heading thereof and
inserting ``Certain''.
(c) Treatment of Multiple Trusts.--Section 643(f)(2) is amended by
inserting ``or the rules of part IV of subchapter E'' after ``this
chapter''.
(d) Foreign Trusts.--
(1) In general.--Subpart F of part I of subchapter J is
amended by adding at the end the following new section:
``SEC. 686. SPECIAL RULES FOR APPLICABLE FOREIGN TRUSTS.
``(a) In General.--For purposes of this part, in the case of any
beneficiary of an applicable foreign trust who is required to include
in income any amount attributable to gain on an applicable transfer of
any covered asset, the amount of tax imposed under this chapter shall
be increased by the amount which bears the same ratio to the amount of
the deferral recapture amount which would be determined on such
applicable transfer under section 492(a) (determined as if such trust
were an applicable taxpayer and section 492 applied to any covered
asset of the trust) as--
``(1) the amount required to be included in income
attributable to the gain on such applicable transfer, bears to
``(2) the total amount of the gain on such applicable
transfer.
``(b) Exception.--Subsection (a) shall not apply to any amount to
the extent that the applicable foreign trust pays (at such time and in
such manner as provided by the Secretary) the tax which would be
imposed under section 492(a) (determined as if such trust were an
applicable taxpayer and section 492 applied to any covered asset of the
trust) with respect to the applicable transfer described in subsection
(a).
``(c) Applicable Foreign Trust.--For purposes of this section, the
term `applicable foreign trust' means any foreign trust which would be
an applicable trust if such trust were a domestic trust.
``(d) Other Terms.--Any term used in this section which is also
used in part IV of subchapter E shall have the same meaning as when
used in such part.''.
(2) Reporting.--Section 6048(c)(1) is amended by striking
``and'', at the end of subparagraph (B), by redesignating
subparagraph (C) as subparagraph (D), and by inserting after
subparagraph (B) the following new subparagraph:
``(C) such information as the Secretary shall
require for purposes of determining the increase (if
any) in tax under section 686, and''.
(3) Clerical amendment.--The table of sections for subpart
F of part I of subchapter J is amended by adding at the end the
following new item:
``Sec. 686. Special rules for applicable foreign trusts.''.
(e) Coordination With Throwback Rules.--The Secretary of the
Treasury (or the Secretary's delegate) shall provide such regulations
or other guidance as necessary to coordinate the amendments made by
this section with the rules of subpart D of part I of subchapter J.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2025.
(2) Foreign trusts.--The amendments made by subsection (e)
shall apply to applicable transfers occurring in taxable years
beginning after December 31, 2025.
Subtitle C--Treatment of Deferred Compensation and Certain Life
Insurance and Annuity Contracts
SEC. 221. ELIMINATION OF DEFERRAL OF TAX ON CERTAIN COMPENSATION.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
is amended by adding at the end the following new section:
``SEC. 409B. SPECIAL RULES FOR CERTAIN DEFERRED COMPENSATION.
``(a) In General.--In the case of an individual who is an
applicable taxpayer for any taxable year, the taxpayer's tax under this
chapter for the taxable year (determined without regard to this
section) shall be increased by an amount equal to the sum of--
``(1) the deferral recapture amount determined under
subsection (b)(1) for any applicable deferred compensation
which is includible in the gross income of the individual for
the taxable year, and
``(2) 10 percent of the amount of any severance pay which
is includible in the gross income of the individual during the
taxable year.
``(b) Deferral Recapture Amount.--For purposes of this section--
``(1) In general.--The term `deferral recapture amount'
means, with respect to any applicable deferred compensation
includible in gross income for the taxable year, the aggregate
amount of interest (determined in the manner provided under
paragraph (3)) on the deemed tax amount determined under
paragraph (2) for each preceding taxable year to which
compensation is allocated under paragraph (2)(A).
``(2) Deemed tax amount.--
``(A) In general.--The deemed tax amount for any
taxable year preceding the taxable year in which
applicable deferred compensation is includible in gross
income shall be the amount determined--
``(i) first, except as provided in
subparagraph (B), by allocating the amount of
such compensation ratably to each day in the
deferral period with respect to the applicable
deferred compensation, and
``(ii) then by multiplying the amount, if
any, allocated under clause (i) to such
preceding taxable year by the highest rate of
tax in effect under section 1 for the taxable
year in which the compensation is includible in
gross income of the individual.
``(B) Special rule for periods before becoming
applicable taxpayer.--Notwithstanding subparagraph
(A)(i), any compensation which would be otherwise
allocated under such subparagraph to any taxable year
preceding the first taxable year for which the taxpayer
is treated as an applicable taxpayer shall be allocated
to such first taxable year.
``(3) Computation of interest.--
``(A) In general.--The amount of interest referred
to in paragraph (1) on any deemed tax amount determined
under paragraph (2) for any preceding taxable year with
respect to applicable deferred compensation shall be
determined for the period beginning on the due date for
such preceding taxable year and ending on the last day
of the deferral period with respect to the applicable
deferred compensation, by using the rates determined
under section 6621(b) (plus 1 percentage point), and
the method applicable under section 6621, for
underpayments of tax for such period.
``(B) Due date.--For purposes of this paragraph,
the term `due date' means, with respect to any
preceding taxable year, the date prescribed by law
(determined without regard to extensions) for filing
the return of the tax imposed by this chapter for such
taxable year.
``(4) Limitation.--In no case shall the deferral recapture
amount determined with respect to any applicable deferred
compensation which is includible in gross income for a taxable
year exceed an amount equal to 10 percent of the amount of such
compensation.
``(c) Definitions.--For purposes of this section--
``(1) Applicable taxpayer.--The term `applicable taxpayer'
has the meaning given such term by section 495.
``(2) Applicable deferred compensation.--
``(A) In general.--Except as provided in
subparagraph (B), the term `applicable deferred
compensation' means--
``(i) any compensation provided under a
nonqualified deferred compensation plan, as
defined in section 409A(d)(1), except that--
``(I) such term shall include stock
appreciation rights, and
``(II) compensation shall not fail
to be treated as deferred solely
because such compensation is not
treated as deferred for purposes of
section 409A by reason of such
compensation being includible in gross
income for the first taxable year after
a taxable year in which such
compensation is no longer subject to a
substantial risk of forfeiture, and
``(ii) any other property transferred in
connection with the performance of services
which is subject to section 83.
``(B) Exceptions.--Such term does not include--
``(i) severance pay, or
``(ii) any transfer of a profits interest
in a partnership.
``(C) Earnings and interest.--Any earnings,
interest, or similar adjustment included in an amount
of applicable deferred compensation shall not be
treated as separately deferred from such amount.
``(3) Severance pay.--The term `severance pay' means any
compensation the payment or vesting of which is contingent, in
whole or in part, upon the termination of employment or other
services, including cash, property, reimbursement or direct
provision of living, travel, and business expenses, and life,
health, or other insurance, to the extent otherwise includible
in gross income.
``(4) Deferral period.--
``(A) In general.--Except as provided in
subparagraphs (B) and (C), the term `deferral period',
with respect to any applicable deferred compensation,
means the period--
``(i) beginning on the date the
compensation was first deferred, without regard
to vesting, transferability, or risk of
forfeiture, and
``(ii) ending on the date such compensation
is includible in gross income or, if
applicable, the date described in section
83(a)(1) with respect to such compensation.
For purposes of the preceding sentence, compensation
shall be treated as first deferred as of the date the
applicable taxpayer first has a legally binding right
to the compensation or, in the case of property subject
to section 83, the date of transfer of the property.
``(B) Computation of interest.--Solely for purposes
of subsection (b)(3), the deferral period shall end on
the last day of the taxable year which includes the
date described in subparagraph (A)(ii).
``(C) Property transferred pursuant to the exercise
of an option.--In the case of property acquired
pursuant to an option described in section 83(e)(3),
the deferral period shall begin on the date of grant of
the option pursuant to which the property was acquired.
``(d) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Information Reporting With Respect to Applicable Deferred
Compensation.--Subpart B of part III of subchapter A of chapter 61, as
in effect after the amendments made by section 334(d) of the SECURE 2.0
Act of 2022 and the amendments made by section 70203(c) of Public Law
119-21, is amended by adding at the end the following new section:
``SEC. 6050BB. INFORMATION WITH RESPECT TO APPLICABLE DEFERRED
COMPENSATION.
``(a) In General.--Every person making a payment to an individual
in excess of $5,000,000 of--
``(1) any applicable deferred compensation described in
section 409B(c)(2)(A), or
``(2) any severance pay (as defined in section 409B(d)(3)),
shall make a return, not later than January 31 of the first calendar
year beginning after the close of the taxable year during which such
payment is includible in gross income of the individual.
``(b) Information Required.--The return required by subsection (a)
shall include--
``(1) the name, taxpayer identification number, and address
of the individual to whom the payment of applicable deferred
compensation or severance pay is made,
``(2) the date any applicable deferred compensation was
first deferred (the date of the transfer, in the case of
property subject to section 83, or the date of grant of the
option, in the case of property acquired pursuant to an option
described in section 83(e)(3)), without regard to vesting,
transferability, or risk of forfeiture,
``(3) the amount of such compensation includible in gross
income of the individual for the taxable year,
``(4) the amount of such severance pay includible in gross
income of the individual for the taxable year, and
``(5) such other information as the Secretary may require.
``(c) Special Rules.--
``(1) Section 83 compensation.--With respect to transfers
of property to which section 83 applies, the information
required under paragraphs (2) and (3) of subsection (b) shall
be reported separately for each item of property transferred,
except that property for which the information required by such
paragraphs is identical may be aggregated.
``(2) Other compensation.--With respect to any applicable
deferred compensation not described in paragraph (1), if such
compensation is paid pursuant to more than 1 plan or
arrangement or involves amounts which were first deferred on
more than 1 date, the information required under paragraphs (2)
and (3) of subsection (b) shall be reported separately with
respect to each such plan or arrangement and each such date.
``(d) Statements To Be Furnished to Individuals With Respect to
Whom Information Is Reported.--Every person required to make a return
under subsection (a) shall furnish to each individual with respect to
whom such a return is required a written statement showing--
``(1) the name, address, and phone number of the
information contact of the person making such return, and
``(2) the information required by paragraphs (2) through
(5) of subsection (b).
The written statement required under the preceding sentence shall be
furnished to the individual on or before January 31 of the first
calendar year beginning after the close of the taxable year for which
the return under subsection (a) was made.
``(e) Adjustments for Inflation.--
``(1) In general.--In the case of any taxable year
beginning after 2026, the $5,000,000 amount under subsection
(a) shall be increased by an amount equal to the product of--
``(A) such dollar amount, and
``(B) the cost-of-living adjustment under section
1(f)(3) for the calendar year in which such taxable
year begins, determined by substituting `calendar year
2025' for `calendar year 1992' in subparagraph (B)
thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $250,000, such amount shall be rounded
to the next lowest multiple of $250,000.
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations specifying what constitutes a payment to
an individual of applicable deferred compensation for purposes of
subsection (a).''.
(c) Penalties.--
(1) Returns.--Section 6724(d)(1)(B), as in effect after the
amendments made by section 334(d) of the SECURE 2.0 Act of 2022
and section 70203(c) of Public Law 119-21, is amended by
striking ``or'' at the end of clause (xxviii), by inserting
``or'' at the end of clause (xxix), and by inserting after
clause (xxix) the following new clause:
``(xxx) section 6050BB(a) (relating to
returns of information with respect to
applicable deferred compensation), and''.
(2) Statements.--Section 6724(d)(2), as in effect after the
amendments made by section 334(d) of the SECURE 2.0 Act of 2022
and sections 70203(c) and 70421(d)(2)(B) of Public Law 119-21,
is amended--
(A) by striking ``or'' at the end of subparagraph
(NN),
(B) by striking the period at the end of
subparagraph (OO) and inserting ``, or'', and
(C) by inserting after subparagraph (OO) the
following new subparagraph:
``(PP) section
6050BB(d) (relating to
statements of
information with
respect to applicable
deferred
compensation).''.
(d) Clerical Amendments.--
(1) In general.--The table of sections for subpart A of
part I of subchapter D of chapter 1 is amended by inserting
after the item relating to section 409A the following new item:
``Sec. 409B. Special rules for certain deferred compensation.''.
(2) Information reporting.--The table of sections for
subpart B of part III of subchapter A of chapter 61, as in
effect after the amendments made by section 334(d) of the
SECURE 2.0 Act of 2022 and section 70203(d)(2) of Public Law
119-21, is amended by inserting after the item relating to
section 6050AA the following new item:
``Sec. 6050BB. Information with respect to applicable deferred
compensation.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2025.
SEC. 222. RULES RELATING TO CERTAIN LIFE INSURANCE AND ANNUITY
CONTRACTS OF APPLICABLE TAXPAYERS.
(a) Treatment of Amounts Received.--
(1) In general.--Section 72(e) is amended by redesignating
paragraph (12) as paragraph (13) and by inserting after
paragraph (11) the following:
``(12) Treatment of certain amounts received under certain
life insurance and annuity contracts of applicable taxpayers.--
``(A) In general.--In the case of any applicable
amount which is received during any taxable year,
notwithstanding paragraph (5)(A) or (5)(E)--
``(i) if such amount is received on or
after the annuity starting date, paragraph
(2)(A) shall apply, and
``(ii) if such amount is received before
the annuity starting date or is received with
respect to a life insurance contract to which
this section applies, the rules of clauses (i)
and (ii) of paragraph (2)(B) shall apply.
``(B) Applicable amount.--
``(i) In general.--For purposes of this
paragraph, the term `applicable amount' means--
``(I) any amount to which this
subsection applies which is received
under an applicable private placement
life insurance or annuity contract, and
``(II) in the case of an applicable
taxpayer, notwithstanding paragraph
(5)(A), (5)(E), or (10)(A), any amount
or portion described in paragraph
(4)(A) with respect to a life insurance
or annuity contract, except that `any
applicable taxpayer or any related
person (as defined in section
144(a)(3)) to an applicable taxpayer'
shall be substituted for `an
individual' in applying such paragraph.
``(ii) Treatment of refunds, surrenders,
redemptions and maturities.--Notwithstanding
paragraph (5)(A) or (5)(E), amounts described
in clause (i)(I) shall include amounts
described in clause (i) or (ii) of paragraph
(5)(E) received under an applicable private
placement life insurance or annuity contract.
``(iii) Amounts under pre-1982 and
qualified plan contracts, etc. excluded.--Such
term shall not include amounts received--
``(I) under a contract which is
described in paragraph (5)(B) or
(5)(D), or
``(II) under a qualified tuition
program (as defined in section 529(b))
or under a Coverdell education savings
account (as defined in section 530(b)).
``(C) Applicable private placement life insurance
or annuity contract.--For purposes of this paragraph--
``(i) In general.--The term `applicable
private placement life insurance or annuity
contract' means a private placement life
insurance or annuity contract the holder of
which (whether directly or indirectly) is an
applicable taxpayer.
``(ii) Secretarial authority.--The
Secretary shall prescribe regulations or other
guidance which treat a private placement life
insurance or annuity contract as an applicable
private placement life insurance or annuity
contract in cases where an applicable taxpayer
(or a related person) has an interest in such
contract not described in clause (i) if such
treatment is necessary to prevent the avoidance
of the purposes of this paragraph.
``(D) Private placement life insurance or annuity
contract.--For purposes of this paragraph, the term
`private placement life insurance or annuity contract'
means any contract--
``(i) which is an annuity contract or a
life insurance contract, and
``(ii) with respect to which the holder of
the contract is required, for purposes of
obtaining a registration exemption under
securities laws as in effect on the date of
enactment of this section (including the
Securities Exchange Act of 1934 and the
Investment Advisors Act of 1940), to make a
representation that such owner--
``(I) has a specified minimum
amount of income or assets,
``(II) has completed a specified
minimum level of education, or
``(III) holds a specific license or
credential.
``(E) Applicable taxpayer.--For purposes of this
paragraph, the term `applicable taxpayer' has the
meaning given such term under section 495.''.
(2) Conforming amendment.--Section 72(e)(5)(C) is amended
by inserting ``or (12)'' after ``(10)''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts received in taxable years beginning
after December 31, 2025.
(b) 10-Percent Additional Tax for Distributions From Applicable
Private Placement Life Insurance or Annuity Contracts.--
(1) In general.--Section 72(v) is amended--
(A) by inserting ``or an applicable private
placement life insurance or annuity contract (as
defined in subsection (e)(12))'' after ``a modified
endowment contract (as defined in section 7702A)'' in
paragraph (1), and
(B) by inserting ``and Applicable Private Placement
Life Insurance or Annuity Contracts'' after ``Modified
Endowment Contracts'' in the heading thereof.
(2) Effective date.--The amendments made by this subsection
shall apply to amounts received in taxable years beginning
after December 31, 2025.
(c) Repeal of Exclusion for Death Benefits.--
(1) In general.--Section 101 is amended by adding at the
end the following new subsection:
``(k) Exclusion Not To Apply.--
``(1) In general.--Subsection (a)(1) shall not apply to
amounts received by reason of the death of the insured under an
applicable private placement life or annuity contract (within
the meaning of section 72(e)(12)).
``(2) Amounts previously included.--The Secretary shall
prescribe rules to ensure that paragraph (1) shall not apply to
any portion of any amount received which was previously
included in gross income.''.
(2) Conforming amendment.--Section 101(a)(1) is amended by
striking ``and subsection (j),'' and inserting ``subsection
(j), and subsection (k),''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts received in taxable years beginning
after December 31, 2025.
(d) Reporting Requirements.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61, as amended by this Act, is amended by adding at the
end the following new section:
``SEC. 6050CC. RETURNS RELATING TO AMOUNTS RECEIVED UNDER CERTAIN LIFE
INSURANCE AND ANNUITY CONTRACTS.
``(a) In General.--Every person who issues a life insurance or
annuity contract or who reinsures such a contract shall make an annual
return (at such time and in such manner as the Secretary shall
prescribe) setting forth--
``(1) the name, address, and TIN of such person,
``(2) the name, address, and TIN of each person who
receives an applicable amount (as defined in section 72(e)(12))
during the year with respect to any life insurance or annuity
contract issued or reinsured by such person,
``(3) the aggregate applicable amounts received by each
person identified in paragraph (2), and
``(4) such other information as the Secretary may require.
``(b) Statement To Be Furnished to Taxpayers With Respect to Whom
Information Is Required.--
``(1) In general.--Every person that is required to make a
return under subsection (a) shall furnish to each person whose
identity is required to be set forth under subsection (a)(2) a
written statement showing--
``(A) the name, address, and phone number of the
information contact of the person required to make such
return, and
``(B) the information required to be shown on such
return with respect to the person described in
subsection (a)(2) and with respect to applicable
amounts received by such person.
``(2) Furnishing of information.--The written statement
required under paragraph (1) shall be furnished to the person
on or before January 31 of the year following the calendar year
for which the return under subsection (a) is required to be
made.
``(c) Regulatory Authority.--The Secretary may prescribe such
regulations and other guidance as necessary for purposes of carrying
out this section, including regulations or other guidance to require
reporting under this section by such other persons as necessary to
carry out the purposes of section 72(e)(12).''.
(2) Penalties.--
(A) Returns.--Section 6724(d)(1)(B), as amended by
this Act, is amended by striking ``or'' at the end of
clause (xxix), by striking ``and'' at the end of clause
(xxx) and inserting ``or'', and by inserting after
clause (xxx) the following new clause:
``(xxxi) section 6050CC(a) (relating to
returns of information with respect to private
placement life insurance and annuity
contracts),''.
(B) Statements.--Section 6724(d)(2), as so amended,
is amended--
(i) by striking ``or'' at the end of
subparagraph (OO),
(ii) by striking the period at the end of
subparagraph (PP) and inserting ``, or'', and
(iii) by inserting after subparagraph (PP)
the following new subparagraph:
``(QQ) section
6050CC(b) (relating to
statements of
information with
respect to private
placement life
insurance and annuity
contracts).''.
(3) Clerical amendment.--The table of sections for subpart
B of part III of subchapter A of chapter 61, as amended by this
Act, is amended by inserting after the item relating to section
6050BB the following new item:
``Sec. 6050CC. Returns relating to amounts received under certain life
insurance and annuity contracts.''.
(4) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2025.
Subtitle D--Repeal of Special Treatment for Certain Investments
SEC. 231. TREATMENT OF EXCLUSION FOR CERTAIN SMALL BUSINESS STOCK.
(a) In General.--Section 1202(a), as amended by section 70432(a) of
Public Law 119-21, is amended by adding at the end the following new
paragraph:
``(7) Special rules for applicable taxpayers.--
``(A) In general.--This subsection shall not apply
to any gain from the sale or exchange of qualified
small business stock by an applicable taxpayer (as
defined in section 495).
``(B) Exception.--Subparagraph (A) shall not apply
to any qualified small business stock acquired before
September 17, 2025.''.
(b) Effective Date.--The amendment made by this subsection shall
apply to sales or exchanges on or after September 17, 2025.
SEC. 232. MODIFICATIONS FOR INVESTMENTS IN QUALIFIED OPPORTUNITY FUNDS.
(a) Termination of Election.--
(1) In general.--Section 1400Z-2(a)(2), as amended by
section 70421(c)(1) of Public Law 119-21, is amended to read as
follows:
``(2) Election.--Except as provided in paragraph (3), no
election may be made under paragraph (1) with respect to a sale
or exchange if an election previously made with respect to such
sale or exchange is in effect.''.
(2) Special rules.--Section 1400Z-2(a) is amended by adding
at the end the following new paragraph:
``(3) Special rules for applicable taxpayers and
entities.--For purposes of paragraph (2)--
``(A) In general.--No election may be made under
paragraph (1) with respect to a sale or exchange if--
``(i) except as provided in subparagraph
(B), in the case of a taxpayer which is (or
ever was) an applicable taxpayer, such sale or
exchange is on or after the first day of the
first taxable year for which the taxpayer was
an applicable taxpayer, and
``(ii) in the case of an applicable entity,
a notice received by the entity under
subsection (b)(2)(A) or (c)(2) of section 493
is in effect at the time of such sale or
exchange.
``(B) Special rule for 2025.--In the case of a
taxpayer which would be an applicable taxpayer for its
first taxable year beginning in 2025 (determined as if
part IV of subchapter E applied to taxable years
beginning in 2025), subparagraph (A)(i) shall be
applied by substituting `September 17, 2025' for the
date otherwise specified in such subparagraph.
``(C) Definitions.--For purposes of this paragraph
and subsection (c), any term used in this paragraph
which is also used in part IV of subchapter E shall
have the same meaning as when used in such part.''.
(b) Modification of Special Rule for Investments Held 10 Years.--
Section 1400Z-2(c), as amended by section 70421(c)(3) of Public Law
119-21, is amended--
(1) by striking ``In the case of'' and all that follows and
inserting:
``(1) In general.--Except as provided in paragraph (2), in
the case of'', and
(2) by adding at the end the following new paragraph:
``(2) Special rule for applicable taxpayers and entities.--
In the case of any taxpayer who is an applicable taxpayer for
any taxable year during which such investment was held by the
taxpayer or any taxpayer which is an applicable entity, the
basis determined under paragraph (1) of any investment held for
at least 10 years shall be the lesser of--
``(A) the fair market value of such investment as
of the last day of the taxable year which includes the
later of--
``(i) the date that such investment has
been held for 10 years, or
``(ii) in the case of--
``(I) an applicable taxpayer, the
date that such taxpayer first became an
applicable taxpayer, or
``(II) an applicable entity, the
first date a notice was received by the
entity under subsection (b)(2)(A) or
(c)(2) of section 493, or
``(B) the fair market value of such investment on
the date that investment is sold or exchanged (or, if
earlier, the date described in paragraph (1)(B)).''.
(c) Effective Date.--The amendments made by this section shall
apply to sales or exchanges after September 17, 2025, in taxable years
ending after such date.
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