Billionaires Income Tax Act
- Bill Number
- S. 2845
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-09-17: Read twice and referred to the Committee on Finance.
- Last Updated
- 2026-01-10T07:27:22Z
AI-Generated Summary
Billionaires Income Tax Act (S. 2845)
Purpose This legislation amends the Internal Revenue Code of 1986 to require certain high-income and high-net-worth taxpayers (referred to as "applicable taxpayers") to pay taxes annually on income from assets, rather than deferring taxes indefinitely. It targets strategies such as holding appreciating assets, borrowing against them, and passing them to heirs tax-free. The bill modifies more than 30 existing tax provisions to close loopholes in areas including capital gains, pass-through entities, deferred compensation, trusts, and specific investment incentives.
Key Provisions
- Title I – Elimination of Deferral for Applicable Taxpayers:
- Defines an "applicable taxpayer" as an individual (or certain trusts/estates) meeting an income test (modified adjusted gross income exceeding $100 million, or $50 million for married filing separately) or an asset test (covered assets exceeding $1 billion, or $500 million for married filing separately) for three consecutive years.
- Introduces mark-to-market rules requiring annual recognition of gain or loss on "tradable covered assets" (assets traded on markets or readily valued) at fair market value.
- For "nontradable covered assets" (other assets), requires gain recognition on transfers or certain events, plus a "deferral recapture amount" calculated as interest on the tax that would have been due if gains were taxed annually.
- Establishes special rules for pass-through entities (partnerships, S corporations), requiring significant owners to report and account for entity-level gains/losses.
- Treats gifts, bequests, and certain trust transfers as deemed sales at fair market value, with exceptions for spouses, charities, and qualified disability trusts.
- Provides transition rules allowing installment payments of initial-year tax liabilities over five years and elections to treat certain assets as tradable.
- Title II – Application of Other Provisions:
- Removes the adjusted gross income limitation on the net investment income tax for applicable taxpayers.
- Modifies expatriation rules to treat covered expatriates as applicable taxpayers for 10 years post-expatriation.
- Disallows like-kind exchanges (Section 1031) and certain Section 351 stock-for-asset transfers for applicable entities.
- Alters trust distribution and loan rules to prevent tax avoidance.
- Limits deferral on nonqualified deferred compensation and certain severance pay, imposing recapture interest.
- Changes treatment of private placement life insurance and annuity contracts, including taxing distributions and repealing the death benefit exclusion for applicable contracts.
- Repeals the exclusion for gains on qualified small business stock for applicable taxpayers (with a grandfathering exception for pre-enactment stock).
- Modifies qualified opportunity fund rules to limit or eliminate deferral benefits for applicable taxpayers and entities.
Significant Changes to Existing Law
- Adds a new Part IV to Subchapter E of the Internal Revenue Code establishing comprehensive non-deferral rules, including mark-to-market taxation and deferral recapture with interest.
- Overrides standard recognition and basis rules (e.g., Sections 1014, 1015, 1031, 351) for applicable taxpayers on transfers and certain exchanges.
- Introduces new information reporting requirements for entities, compensation, and life insurance/annuity contracts.
- Modifies capital loss carryback rules to allow limited carrybacks of marked-to-market losses.
- Alters holding period, basis adjustment, and character rules for gains/losses attributed to applicable taxpayers.
Potential Impacts
- Government Agencies: The IRS and Treasury Department would administer expanded reporting, valuation, and enforcement rules for high-net-worth taxpayers and pass-through entities, potentially increasing administrative costs and requiring new guidance.
- Citizens: Primarily affects ultra-wealthy individuals and families by accelerating tax payments on unrealized gains and limiting deferral options; lower- and middle-income taxpayers are not directly impacted.
- International Relations: Applies modified rules to nonresident aliens, expatriates, and foreign trusts, which could affect cross-border tax planning and reporting.
Main Stakeholders Affected
- Ultra-high-net-worth individuals and families meeting the income or asset thresholds.
- Pass-through entities (partnerships, S corporations) and their significant owners.
- Trusts, estates, and grantor trusts holding covered assets.
- Heirs and beneficiaries receiving transfers from applicable taxpayers.
- Issuers of deferred compensation, life insurance, and annuity contracts.
- The Department of the Treasury and IRS for implementation and enforcement.
Notable Legal, Constitutional, or Political Implications
- Raises questions about the constitutionality of taxing unrealized gains on an annual basis for a defined class of taxpayers, as the rules require recognition without a traditional realization event.
- Introduces complex tiered reporting and notice requirements between taxpayers and entities to prevent avoidance.
- Includes anti-abuse provisions and regulatory authority for the Secretary to address valuation, holding periods, and structuring.
- Features effective dates generally applying to taxable years beginning after December 31, 2025, with some provisions keyed to the date of introduction.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (21)
Sen. Whitehouse, Sheldon [D-RI], Sen. Warren, Elizabeth [D-MA], Sen. Sanders, Bernard [I-VT], Sen. Smith, Tina [D-MN], Sen. Luján, Ben Ray [D-NM], Sen. Welch, Peter [D-VT], Sen. Alsobrooks, Angela D. [D-MD], Sen. Baldwin, Tammy [D-WI], Sen. Blumenthal, Richard [D-CT], Sen. Duckworth, Tammy [D-IL], Sen. Fetterman, John [D-PA], Sen. Heinrich, Martin [D-NM], Sen. Hirono, Mazie K. [D-HI], Sen. Markey, Edward J. [D-MA], Sen. Merkley, Jeff [D-OR], Sen. Murphy, Christopher [D-CT], Sen. Murray, Patty [D-WA], Sen. Reed, Jack [D-RI], Sen. Schatz, Brian [D-HI], Sen. Van Hollen, Chris [D-MD], Sen. Schiff, Adam B. [D-CA]
Recent Actions
- 2025-09-17: Read twice and referred to the Committee on Finance.
- 2025-09-17: Introduced in Senate
Bill Versions
- Billionaires Income Tax Act — issued 2025-09-17 — PDF (117 pages)