119-s2845

[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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