Treatment of loans for high net-worth individuals

(a)

In general

Subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

VII

Treatment of loans for applicable taxpayers

Sec. 1299. Treatment of loans for applicable taxpayers.

Sec. 1299A. Applicable taxpayer defined.

Sec. 1299B. Terms and rules relating to covered assets.

1299.

Treatment of loans for applicable taxpayers

(a)

In general

In the case of any loan issued to an applicable taxpayer, an amount of long-term capital assets (as identified by the applicable taxpayer) held by the applicable taxpayer for which the long-term capital gain is equal to or greater than the amount of the loan shall be treated as sold for their fair market value on the last day of the taxable year in which such loan was issued.(b)

Adjustment of basis

(1)

In general

In the case of any applicable taxpayer to which subsection (a) applies, such taxpayer may increase the basis of any long-term capital asset held by such taxpayer to the extent of the gain recognized pursuant to subsection (a) with respect to such long-term capital asset, provided that the basis of the long-term capital asset does not exceed the fair market value of such asset.(2)

Exception

Paragraph (1) shall not apply with respect to any property of a character which is subject to the allowance for depreciation provided in section 167, including any property to which section 1231 would otherwise apply. (c)

Treatment of long-Term capital gain

For purposes of section 1(h) and determining net long-term capital gain, the amount of any long-term capital gain from assets treated as sold pursuant to subsection (a) during any taxable year may not be reduced or offset by any long-term capital losses for such taxable year, including any losses carried forward to such taxable year. (d)

Long-Term capital asset

The term long-term capital asset means a capital asset held for more than 1 year. (e)

Special rules

(1)

Nonresident alien

In the case of any loan issued to an applicable taxpayer who is a nonresident alien individual, subsection (a) shall apply with respect to long-term capital assets (as identified by the applicable taxpayer) which are effectively connected with the conduct of a trade or business within the United States.(2)

Citizens and residents living abroad

The amount to which subsection (a) applies shall be reduced by any amounts excluded from the taxpayer’s gross income under section 911.(f)

Treatment of leases

(1)

In general

For purposes of this section, in the case of an applicable taxpayer that enters into a lease with respect to any property for which the term is greater than 5 years—(A)such lease shall be treated in the same manner as a loan issued to such taxpayer, and(B)for purposes of the application of subsection (a)—(i)the fair market value of such property on the last day of the taxable year in which the applicable taxpayer entered into the lease shall be treated as the amount of the loan, and(ii)the taxable year in which the applicable taxpayer entered into the lease shall be treated as the taxable year in which the loan was issued.(2)

Subsequent leases

(A)

In general

For purposes of this subsection, in the case of an applicable taxpayer that enters into a lease with respect to any property for a term of not greater than 5 years (referred to in this paragraph as the original lease) and—(i)subsequently extends the term of the original lease, or(ii)enters into a lease for any term with respect to any other property which is substantially identical to the property under the original lease,

the term of the original lease shall include the period of the extension described in clause (i) or the term of the lease described in clause (ii), as applicable.

(B)

Realization and valuation

In the case of a lease to which subparagraph (A) applies, the taxable year in which the original lease is extended (as described in clause (i) of such subparagraph) or a lease is entered into for property which is substantially identical (as described in clause (ii) of such subparagraph), as applicable, shall be deemed to be the taxable year in which the applicable taxpayer entered into the lease for purposes of paragraph (1)(B).(g)

Existing loans

In the case of any loans which were issued to an applicable taxpayer prior to the date of enactment of this section—(1)the total principal balance of such loans which is outstanding as of such date shall be deemed to be one loan that was issued to the applicable taxpayer on January 1, 2027, and(2)the requirements under subsection (i)(3)(B) shall not apply. (h)

Non-Avoidance rules

(1)

In general

In the case of any loan issued to an applicable entity— (A) the loan shall be deemed to have been issued to the owners of such applicable entity on a pro rata basis, and (B) if any owner described in subparagraph (A) is an applicable taxpayer, subsection (a) shall apply with respect to such taxpayer's pro rata share of such loan. (2)

Notification

Not later than 30 days after a loan described in paragraph (1) has been issued, the applicable entity shall provide notice to all owners that— (A) a loan has been issued to the applicable entity, and (B) the amount of such loan and the pro rata share that each owner has been assigned pursuant to paragraph (1)(A). (3)

Owner

(A)

In general

The term owner means, with respect to any applicable entity, a taxpayer who owns (or is considered as owning within the meaning of section 318) capital or profits interests in such entity. (B)

Constructive ownership rules

For purposes of this subparagraph, 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. (4)

Certain leases

For purposes of this subsection, in the case of an applicable entity that enters into a lease, subsection (f) shall not apply with respect to such lease unless the transaction is in violation of the economic substance doctrine (as described in section 7701(o)). (i)

Regulations and guidance

The Secretary shall prescribe such guidance and regulations as may be necessary to carry out the purposes of this section, including guidance and regulations—(1)to assist taxpayers in complying with the requirements of this section,(2)that specifies required content to be included in the notification under subsection (h)(2), and(3)to require reporting by—(A)any applicable taxpayer to which a loan was issued, and(B)any entity that issues a loan to an applicable taxpayer.

1299A.

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

(A)

In general

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).(B)

Treatment of ownership interests in applicable entities

For purposes of subparagraph (A), any ownership interest in an applicable entity which is—(i)held directly (or indirectly through 1 or more nontradable interests) by an applicable taxpayer, and(ii)a tradable or nontradable covered asset,

shall be treated in the same manner as any other tradable or nontradable covered asset.

(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.

1299B.

Terms and rules relating to covered assets

(a)

Covered asset

For purposes of this part, the term covered asset means any tradable covered asset and any nontradable covered asset.(b)

Tradable covered asset

For purposes of this part, the term tradable covered asset means—(1)any 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 asset which is not a tradable covered asset, including—(A)any interest of the taxpayer in an applicable savings plan or in a defined benefit plan,(B)any cash or cash equivalent, or(C)any private placement life insurance or annuity contract described in section 72(e)(12)(D).(2)

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)(2) 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)

Private placement life insurance and annuity contracts

(A)

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.(B)

Adjustments

The Secretary shall by regulation provide for adjustments to the cash surrender value determined under subparagraph (A) 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.(6)

Special rules for applicable entities

In the case of an applicable entity—(A)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(B)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.(e)

Other definitions

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)

Applicable financial statement

For purposes of this subsection, the term applicable financial statement has the meaning given such term by section 451(b)(3).(3)

Applicable savings plan

The term applicable savings plan means—(A)a defined contribution plan to which section 401(a) or 403(a) applies,(B)an annuity contract under section 403(b),(C)an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A),(D)an individual retirement plan,(E)an Archer MSA (within the meaning of section 220(d)),(F)a qualified tuition program (as defined in section 529(b)),(G)an ABLE account (as defined in section 529A(e)(6)),(H)a Coverdell education savings account (as defined in section 530), or(I)a health savings account (within the meaning of section 223(d)).(4)

Derivative

The term derivative has the meaning given such term under section 59A(h)(4).(5)

Nontradable interest

The term nontradable interest means any ownership interest in an applicable entity which is a nontradable covered asset.(6)

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.

(b)

Clerical amendment

The table of parts for subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:

Part VII—Treatment of loans for applicable taxpayers

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2026.