Billionaires Income Tax Act

Bill Number

H.R. 5427

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-09-17: Referred to the House Committee on Ways and Means.

Last Updated

2026-06-25T08:09:03Z

AI-Generated Summary

Purpose of the Legislation

The Billionaires Income Tax Act (H.R. 5427) aims to ensure that high-income and high-net-worth individuals—referred to as "applicable taxpayers"—pay taxes annually on their income and asset appreciation, similar to how wage earners are taxed. It targets tax deferral strategies like "buy, borrow, die," where wealthy individuals buy appreciating assets, borrow against them without triggering taxes, and pass them to heirs tax-free upon death. The act amends the Internal Revenue Code (IRC) to close loopholes, impose mark-to-market taxation on certain assets, and modify over 30 existing tax rules to prevent indefinite deferral.

Key Provisions

Title I: Elimination of Deferral for Applicable Taxpayers

This title introduces new rules under IRC Part IV (Subchapter E, Chapter 1) to require annual taxation of unrealized gains on covered assets for applicable taxpayers.

• Applicable Taxpayer Definition (IRC §495): Applies to individuals with adjusted gross income (AGI) exceeding $100 million ($50 million for married filing separately) or aggregate value of covered assets over $1 billion ($500 million for married filing separately) for each of the prior three years. Trusts and estates meeting lower thresholds ($10 million income or $100 million assets) are also included. Special rules apply for married couples, divorces, expatriates (10-year extension for covered expatriates), and foreign persons (higher thresholds). Status continues until thresholds are halved and an election is made to opt out.

• Covered Assets (IRC §497): Includes most assets except savings plans (e.g., IRAs, 401(k)s), cash equivalents, and certain private life insurance/annuity contracts. Divided into:
• Tradable Covered Assets: Publicly traded stocks, bonds, derivatives, or assets with readily determinable fair market value (FMV). Taxed annually on unrealized gains/losses as if sold at year-end (mark-to-market).
• Nontradable Covered Assets: Other assets (e.g., real estate, private stock). Taxed on transfers (sales, gifts, death) with a "deferral recapture" interest charge on prior unrealized gains (up to 49% of gain, using underpayment rates plus 1%). Investments in qualified opportunity funds treated as nontradable.

• Taxable Events and Transfers (IRC §§490-492):
• Annual mark-to-market for tradable assets; gains/losses treated as long-term capital (unless ordinary income applies).
• On transfers of nontradable assets, recognize gain as if sold at FMV; add interest on deferred tax from holding period.
• Special rules for dividends (excess treated as transfers), REIT capital gain dividends, and capital losses (carryback allowed for mark-to-market losses over three prior years, IRC §1212(d)).

• Applicable Entities and Trusts (IRC §493): Partnerships, S corporations, and other pass-throughs where applicable taxpayers hold significant interests (5% ownership or $50 million value). Requires entity reporting of gains/losses; owners take pro-rata share. Elections allow entities to be treated as applicable taxpayers.

• Gifts, Bequests, and Trusts (IRC §494): Deemed sale at FMV on gifts, death, or trust transfers (no loss recognition on gifts). Exceptions for spouses (U.S. citizens/residents only), charities, disability trusts, and certain grantor trusts. Transferee basis steps up to FMV (or carryover for spousal transfers).

• Entry/Exit Rules (IRC §496): First-year taxpayers can elect to treat nontradable assets as tradable (with self-reported FMV ≥ basis) and pay net new tax liability in five annual installments (accelerates on sales or defaults). Special elections for certain pre-2025 stock. Re-entry includes prior holding periods for recapture.

• Other Rules (IRC §498): Defines "applicable transfers" (e.g., sales, like-kind exchanges, §351 transfers). Secretary has broad authority to prevent avoidance.

Title II: Application of Other Provisions to Applicable Taxpayers and Entities

Subtitle A: Individuals

• Net Investment Income Tax (IRC §201, amending §1411): Removes AGI threshold; applicable taxpayers pay 3.8% on all net investment income.
• Expatriates (IRC §202, amending §877A): Covered expatriates who are applicable taxpayers cannot defer tax on deemed sale of assets; must pay on all property over 10 years, treated as meeting long-term expatriate rules.

Subtitle B: Rules for Applicable Entities and Trusts

• Like-Kind Exchanges (IRC §211, amending §1031): Denied for applicable entities with significant applicable taxpayer owners.
• Transfers for Stock (IRC §212, amending §351): Nonrecognition denied if 20%+ owned by applicable taxpayers.
• Trusts (IRC §213): In-kind distributions from applicable trusts/estates treated as sales at FMV; loans from trusts taxable; anti-avoidance for multiple/foreign trusts. Foreign trusts add recapture tax on distributions; reporting expanded.

Subtitle C: Treatment of Deferred Compensation and Certain Life Insurance/Annuity Contracts

• Deferred Compensation (IRC §221, new §409B): Adds recapture interest (up to 10% of amount) on deferred pay (e.g., nonqualified plans, §83 property) and 10% tax on severance pay >$5 million (inflation-adjusted). Reporting required for payments >$5 million.
• Life Insurance/Annuities (IRC §222, amending §72, §101, new §6050BB): Ends tax-free treatment for private placement contracts held by applicable taxpayers (e.g., distributions taxed as ordinary income; 10% penalty on early withdrawals; death benefits taxable). Reporting for amounts received.

Subtitle D: Repeal of Special Treatment for Certain Investments

• Small Business Stock (IRC §231, amending §1202): Eliminates gain exclusion for applicable taxpayers on post-November 30, 2025 acquisitions.
• Opportunity Zones (IRC §232, amending §1400Z-2): Ends deferral elections after 2026 (or earlier for applicable taxpayers); limits 10-year gain exclusion to lesser of FMV at 10 years or sale price for applicable taxpayers/entities.

Significant Changes to Existing Law

• Mark-to-Market Taxation: New annual taxation on unrealized gains for tradable assets (previously deferred until sale); recapture on nontradable transfers replaces step-up basis at death.
• Repeals/Modifications: Ends like-kind exchanges (§1031), corporate formations (§351), small business stock exclusions (§1202), and opportunity zone deferrals (§1400Z-2) for applicable taxpayers/entities. Removes AGI limits on net investment tax (§1411); taxes deferred compensation, severance, and private life insurance/annuities.
• Reporting and Basis Rules: Mandates entity/trust reporting; adjusts basis on elections/transfers; carryback for mark-to-market losses (new to §1212).
• Effective Dates: Generally taxable years beginning after December 31, 2025; some sales/exchanges after November 30, 2025.

Potential Impacts

• Government Agencies: Increases IRS administrative burden due to expanded reporting (e.g., for entities, trusts, contracts) and valuation rules; potential revenue gain from taxing unrealized gains and closing loopholes, estimated to affect a small number of ultra-wealthy taxpayers.
• Citizens: Applicable taxpayers (fewer than 1,000 individuals/trusts initially) face higher annual taxes on asset growth, limiting borrowing against assets tax-free and inheritance planning. May encourage asset sales or restructuring; provides loss carrybacks for volatility. Broader citizens unaffected directly but could see indirect benefits from increased federal revenue for public programs.
• International Relations: Stricter rules for expatriates and foreign trusts may deter wealthy non-residents; aligns U.S. tax with annual income recognition but could prompt international tax competition or treaty negotiations.

Main Stakeholders Affected

• Primary: Ultra-high-net-worth individuals (e.g., billionaires meeting income/asset tests), their heirs, and family trusts—subject to annual taxation on wealth growth.
• Secondary: Pass-through entities (partnerships, S corps) with significant applicable taxpayer ownership; financial institutions issuing private life insurance/annuities or deferred compensation; real estate investment trusts (REITs) and opportunity zone funds.
• Tertiary: IRS (enforcement/reporting); charities/spouses (benefiting from exceptions); divorced individuals (easier opt-out).

Notable Legal, Constitutional, or Political Implications

• Legal: Relies on Congress's taxing power under Article I; broad Secretary of Treasury authority for regulations raises delegation concerns but includes anti-avoidance safeguards. Challenges possible on retroactivity (e.g., pre-enactment holding periods) or valuation accuracy for nontradable assets.
• Constitutional: Potential Fifth Amendment due process issues if seen as retroactive taxation on unrealized gains, though upheld precedents (e.g., mark-to-market for traders) exist; equal protection unlikely as targets specific high-wealth group.
• Political: Addresses wealth inequality by targeting "billionaire loopholes," potentially polarizing along partisan lines (Democratic sponsors emphasize fairness); could influence estate planning and capital markets but applies narrowly to avoid broader economic disruption.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Cohen, Steve [D-TN-9]

Cosponsors (33)

Rep. Beyer, Donald S. [D-VA-8], Rep. Tlaib, Rashida [D-MI-12], Rep. García, Jesús G. "Chuy" [D-IL-4], Rep. McGovern, James P. [D-MA-2], Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Davis, Danny K. [D-IL-7], Rep. DeLauro, Rosa L. [D-CT-3], Rep. Boyle, Brendan F. [D-PA-2], Rep. McCollum, Betty [D-MN-4], Rep. Nadler, Jerrold [D-NY-12], Rep. Garamendi, John [D-CA-8], Rep. Kelly, Robin L. [D-IL-2], Rep. Dean, Madeleine [D-PA-4], Rep. Mullin, Kevin [D-CA-15], Rep. Omar, Ilhan [D-MN-5], Rep. Landsman, Greg [D-OH-1], Rep. Scanlon, Mary Gay [D-PA-5], Rep. Clarke, Yvette D. [D-NY-9], Rep. Huffman, Jared [D-CA-2], Rep. Norcross, Donald [D-NJ-1], Rep. Sánchez, Linda T. [D-CA-38], Rep. Evans, Dwight [D-PA-3], Rep. Frost, Maxwell [D-FL-10], Rep. Lee, Summer L. [D-PA-12], Rep. Simon, Lateefah [D-CA-12], Rep. Jackson, Jonathan L. [D-IL-1], Rep. Ramirez, Delia C. [D-IL-3], Rep. Chu, Judy [D-CA-28], Rep. Lofgren, Zoe [D-CA-18], Rep. Budzinski, Nikki [D-IL-13], Rep. Larson, John B. [D-CT-1], Rep. Deluzio, Christopher R. [D-PA-17], Rep. Dexter, Maxine [D-OR-3]

Recent Actions

• 2025-09-17: Referred to the House Committee on Ways and Means.
• 2025-09-17: Introduced in House
• 2025-09-17: Sponsor introductory remarks on measure. (CR H4397)
• 2025-09-17: Introduced in House
• 2025-09-16: Sponsor introductory remarks on measure. (CR E863)

Bill Versions

• Billionaires Income Tax Act — issued 2025-09-17 — PDF (116 pages)

Related Bills

• S. 2845 (119th Congress)