Billionaires Income Tax Act
- Sponsor
- Rep. Cohen, Steve [D-TN-9]
- Committees
- Ways and Means Committee (primary)
- Last action
- Sep 17, 2025
Bottom line
The bill aims to ensure that the wealthiest Americans pay annual taxes on their accumulated wealth, including unrealized gains, by eliminating key tax deferral strategies.
What it actually does
This bill fundamentally reforms the taxation of wealth for ultra-high-net-worth individuals and related entities, termed "applicable taxpayers." It introduces annual mark-to-market taxation for tradable assets, imposes a deferral recapture amount on transfers of nontradable assets, and eliminates the step-up in basis for assets transferred by gift or at death. Additionally, it closes various tax deferral loopholes related to deferred compensation, private placement life insurance, like-kind exchanges, and opportunity zone investments.
Proponents argue
Proponents argue this bill ensures the wealthiest Americans pay their "fair share" of taxes, similar to how working individuals pay taxes on wages. They contend it addresses wealth inequality, generates significant federal revenue, and directly targets specific tax avoidance strategies like "buy, borrow, die" where assets appreciate, are borrowed against, and then passed on tax-free at death.
Opponents contend
Opponents would likely argue that this bill constitutes an unconstitutional or impractical "wealth tax" that is difficult to implement and could lead to capital flight or discourage investment. They might also raise concerns about liquidity issues for taxpayers holding illiquid assets, the administrative burden of annual valuations, and the potential for retroactive taxation on long-held assets.
This is a highly technical and lengthy bill, requiring substantial time and expertise to fully comprehend, far exceeding typical public review periods for complex legislation.
Sec. 101, adding new IRC Sec. 491
Mark-to-Market Taxation for Tradable Covered Assets
This provision requires "applicable taxpayers" to recognize gain or loss annually on their "tradable covered assets" as if these assets were sold at their fair market value at the end of each taxable year. This means that unrealized gains on publicly traded stocks, bonds, and certain derivatives would be subject to taxation each year, rather than only upon actual sale. Proper adjustments are made to the asset's basis for future gain or loss calculations.
Supporters argue
Supporters argue this provision ensures the wealthiest individuals pay taxes annually on their investment gains, mirroring how wage earners are taxed on their income, thereby preventing indefinite deferral of tax on appreciating assets.
Critics contend
Critics contend that this constitutes a wealth tax, creates significant liquidity challenges for taxpayers, especially during market downturns, and could lead to capital flight or discourage investment in publicly traded assets.
Tradeoffs
The provision balances the goal of achieving greater tax fairness and increasing federal revenue with concerns about potential economic disincentives, administrative complexity, and the practical challenges of taxing unrealized gains.
Sec. 101, adding new IRC Sec. 492
Deferral Recapture Amount on Applicable Transfers of Nontradable Covered Assets
When an "applicable taxpayer" transfers a "nontradable covered asset" (such as private business interests or certain real estate), gain is recognized as if the asset were sold at fair market value immediately before the transfer. In addition to this gain, an extra "deferral recapture amount" is added to the tax liability. This recapture amount is calculated as an aggregate interest charge on the deemed tax that would have been paid in prior years if the gain had been recognized ratably over the holding period.
Sec. 101, adding new IRC Sec. 494
Deemed Sale on Gifts, Bequests, and Transfers in Trust
This section treats the transfer of any covered asset by an "applicable taxpayer" or "applicable entity" through gift, upon death, or into a trust as a deemed sale of that asset at its fair market value to the transferee. This effectively eliminates the 'step-up in basis' at death for these taxpayers, meaning that unrealized gains are taxed at the time of transfer. Exceptions are provided for transfers to spouses, certain charitable organizations, and qualified disability trusts.
Sec. 101, adding new IRC Sec. 495
Definition of "Applicable Taxpayer"
This section defines who is considered an "applicable taxpayer" and thus subject to the bill's new tax rules. An individual qualifies if they meet either an income test (over $100 million in adjusted gross income for three consecutive years) or an asset test (over $1 billion in aggregate covered assets for three consecutive years). Special rules are included for married individuals, certain trusts, estates, and expatriates, ensuring comprehensive coverage of high-net-worth individuals and their associated entities.
Sec. 101, adding new IRC Sec. 496
Transition Rules for New Applicable Taxpayers
For taxpayers who are newly classified as "applicable taxpayers," this section provides transition relief. They can elect to pay their net first-year tax liability (attributable to the new mark-to-market rules) in five equal annual installments. Additionally, they can choose to treat certain nontradable covered assets as tradable for mark-to-market purposes in their first year, establishing a new basis and potentially spreading the initial tax impact over time.
Sec. 222, amending IRC Sec. 72, 101, and adding Sec. 6050BB
Enhanced Taxation and Reporting for Private Placement Life Insurance and Annuity Contracts
This section significantly alters the tax treatment of "applicable private placement life insurance or annuity contracts" (PPLI/PPVA) for applicable taxpayers. It mandates that amounts received from these contracts are taxed on a 'last-in, first-out' (LIFO) basis, meaning gains are taxed first, regardless of when they are received. It also imposes a 10% additional tax on distributions and, crucially, repeals the income tax exclusion for death benefits from these contracts. New information reporting requirements are also introduced for issuers of these contracts.
Sec. 231, amending IRC Sec. 1202(a)
Elimination of Qualified Small Business Stock (QSBS) Exclusion for Applicable Taxpayers
This provision disallows the 100% exclusion for gain from Qualified Small Business Stock (QSBS) under Internal Revenue Code Section 1202 for "applicable taxpayers." This means that applicable taxpayers would no longer be able to exclude capital gains from the sale of QSBS from their taxable income. An exception is made for QSBS acquired before November 30, 2025, allowing existing investments to retain their exclusion.
Sec. 232, amending IRC Sec. 1400Z-2
Termination and Modification of Opportunity Zone Benefits for Applicable Taxpayers
This section terminates the ability for "applicable taxpayers" or "applicable entities" to defer capital gains by investing in Qualified Opportunity Funds (QOFs) after December 31, 2026, or earlier if they become an applicable taxpayer. It also modifies the special rule for investments held for 10 years, limiting the basis step-up to the lesser of the fair market value at the 10-year mark (or when applicable taxpayer status began) or at the time of sale. This significantly reduces the tax benefits of Opportunity Zone investments for the ultra-rich.
Assets typically excluded from direct mark-to-market taxation (such as cash, applicable savings plans, and private placement life insurance) are still included when calculating a taxpayer's aggregate applicable value for the $1 billion asset test to determine "applicable taxpayer" status.
Sec. 497(c)(2)
Why it matters:This is standard legislative practice for defining the scope and applicability of a new tax regime, ensuring that the criteria for being subject to the rules are comprehensive and prevent easy circumvention.
Case for: Supporters argue that including these assets in the asset test prevents individuals from structuring their wealth in ways that would allow them to avoid being classified as an "applicable taxpayer" despite having substantial net worth.
Case against: Critics might contend that including assets like cash and savings plans in the asset test broadens the definition of who is considered a "billionaire" for tax purposes, potentially capturing individuals whose wealth is not primarily in mark-to-market assets.
Estimated impact: This provision broadens the pool of individuals who could be classified as "applicable taxpayers," thereby extending the reach of the bill's core tax provisions to a wider segment of the ultra-wealthy.
The bill defines "disregarded nonrecognition event" to include transactions that are typically tax-deferred under current law, such as like-kind exchanges (IRC Section 1031) and transfers to a corporation in exchange for stock (IRC Section 351). For applicable taxpayers, these events trigger immediate gain recognition and potentially the deferral recapture amount under Section 492.
Sec. 498(a)(2)
Why it matters:This is a technical provision designed to prevent the use of common tax deferral strategies by applicable taxpayers. Placing it in a definitions section is standard legislative practice for terms that have broad implications across the bill.
Case for: Supporters argue that this provision is essential to prevent applicable taxpayers from using established tax deferral mechanisms to circumvent the bill's intent of taxing wealth annually or upon transfer.
Case against: Critics would argue that this provision disrupts long-standing and legitimate tax planning tools for business and investment, potentially hindering economic activity and making corporate restructurings or real estate exchanges more costly.
Estimated impact: This provision significantly limits tax deferral opportunities for applicable taxpayers and entities, accelerating tax liabilities on transactions that were previously tax-deferred, thereby increasing federal revenue.
This section establishes special rules for "covered expatriates" who are also "applicable taxpayers." Such individuals will be treated as applicable taxpayers for a 10-taxable-year period beginning with their expatriation date, even if they no longer meet the income or asset tests. This disallows certain deferral elections upon expatriation and subjects them to enhanced expatriation tax rules under Section 877A, including a deemed sale of all property at the end of the 10-year period.
Sec. 495(d)(2)
Why it matters:This is a technical anti-avoidance provision designed to prevent ultra-wealthy individuals from renouncing U.S. citizenship to escape the new tax regime. Such measures are often placed in specialized sections to address specific avoidance strategies.
Case for: Supporters argue that this provision is crucial to prevent the ultra-wealthy from circumventing the new tax rules by expatriating, ensuring a continued tax obligation for a significant period after renouncing U.S. status.
Case against: Critics might view this as an overly punitive and potentially extraterritorial measure that extends U.S. tax reach beyond its borders, potentially leading to legal challenges and discouraging highly skilled individuals from residing in the U.S.
Estimated impact: This provision significantly increases the financial cost of expatriation for the ultra-wealthy, making it a less attractive option for tax avoidance and potentially increasing federal revenue from exit taxes.