Billionaires Income Tax Act
- Sponsor
- Sen. Wyden, Ron [D-OR]
- Committees
- Finance Committee (primary)
- Last action
- Sep 17, 2025
Bottom line
The 'Billionaires Income Tax Act' seeks to fundamentally reform the U.S. tax code to ensure the wealthiest individuals pay annual taxes on their accumulated wealth, addressing perceived inequities in the current system.
What it actually does
This bill fundamentally alters the tax treatment of wealth for the wealthiest Americans by requiring annual taxation of unrealized gains on tradable assets (mark-to-market) and imposing a deferral recapture amount on transfers of nontradable assets. It also eliminates the 'step-up in basis' at death, taxes certain deferred compensation and private placement life insurance products, and restricts tax benefits for qualified small business stock and opportunity funds for applicable taxpayers. The legislation aims to ensure that high-net-worth individuals pay taxes annually on their wealth growth, similar to how wage earners are taxed on their income.
Proponents argue
Proponents argue that the bill is a critical step towards creating a fairer tax system where the ultra-wealthy, like working Americans, pay taxes annually on their economic gains. They contend it closes egregious loopholes that allow billionaires to defer taxes indefinitely through strategies like 'buy, borrow, die,' and ensures that wealth accumulated through appreciated assets contributes to federal revenue, which can then be used to fund public services or reduce the national debt. Supporters emphasize that the bill targets only the highest-income and highest-net-worth taxpayers.
Opponents contend
Opponents contend that taxing unrealized gains is economically unsound, creates significant liquidity challenges for taxpayers, and could force the sale of assets, including family businesses and farms, to pay tax liabilities. They argue that the bill introduces immense complexity into the tax code, leading to administrative burdens for both taxpayers and the IRS, and could disincentivize investment, entrepreneurship, and capital formation. Critics also raise concerns about the constitutionality of taxing unrealized gains and the potential for capital flight.
The bill is highly technical and requires significant time to understand its intricate tax code amendments, likely exceeding the time typically allotted for public review of such complex legislation.
Sec. 101, adding new Sec. 490
Annual Tax on Applicable Taxpayers' Covered Assets
This section establishes the core principle of the bill: applicable taxpayers must recognize gain or loss on tradable covered assets annually (mark-to-market) and pay an additional 'deferral recapture amount' on applicable transfers of nontradable covered assets. It also applies special rules to pass-through entities and transfers by gift, bequest, or in trust, ensuring that wealth growth is taxed more regularly.
Supporters argue
Proponents argue this provision is essential for tax fairness, requiring wealthy individuals to pay taxes on their wealth growth annually, preventing indefinite deferral and aligning their tax obligations more closely with those of wage earners.
Critics contend
Opponents contend that taxing unrealized gains creates liquidity issues and disincentivizes long-term investment, arguing that wealth should only be taxed when it is actually realized through a sale or other taxable event.
Tradeoffs
The provision balances the goal of increased tax fairness and revenue generation with potential economic disincentives and administrative burdens associated with taxing unrealized gains.
Sec. 101, adding new Sec. 491
Mark-to-Market Taxation for Tradable Covered Assets
This provision mandates that applicable taxpayers annually recognize gain or loss on their tradable covered assets, such as publicly traded stocks and bonds, as if they were sold at fair market value at the close of each taxable year. This means that even if an asset is not actually sold, its increase in value will be taxed each year, and its decrease in value can generate a deductible loss.
Sec. 101, adding new Sec. 492
Deferral Recapture Tax on Nontradable Asset Transfers
For nontradable covered assets (e.g., private business interests, certain real estate), gain is recognized upon an 'applicable transfer,' which includes transactions like like-kind exchanges or transfers to corporations that would normally be tax-free. An additional 'deferral recapture amount' is imposed, calculated as interest on the deemed tax that would have been paid if the gain had been recognized annually, capped at a percentage of the gain. This aims to capture the value of tax deferral on illiquid assets.
Sec. 101, adding new Sec. 493
Pass-Through Entity Rules for Applicable Taxpayers
This section extends the mark-to-market and deferral recapture rules to ownership interests in 'applicable entities' (partnerships, S corporations, and other pass-throughs) held by 'significant owners' who are applicable taxpayers. These entities are required to report gain or loss to their significant owners, who then include it in their tax calculations. Entities can also elect to be treated as applicable taxpayers themselves for tradable assets.
Sec. 101, adding new Sec. 494
Deemed Sale on Gifts, Bequests, and Trust Transfers
This section treats gifts, transfers upon death, or transfers into trust by applicable taxpayers (or their applicable entities) as a 'deemed sale' of the covered asset at its fair market value on the date of transfer. This triggers immediate gain recognition, effectively eliminating the 'step-up in basis' at death for these taxpayers. Exceptions are provided for transfers to spouses, charities, and certain disability or perpetual care trusts.
Sec. 101, adding new Sec. 495
Definition of Applicable Taxpayer
This section defines who is an 'applicable taxpayer' subject to the new rules. It includes individuals, certain trusts, and estates that meet either an income test ($100 million in adjusted gross income for three consecutive years) or an asset test ($1 billion in covered assets for three consecutive years). Special rules are provided for married individuals, termination of status, nonresident aliens, and expatriates, ensuring the rules apply to the wealthiest individuals and their associated entities.
Sec. 101, adding new Sec. 496
Transition Rules for Applicable Taxpayer Status
This section provides special rules for taxpayers in their first year as an 'applicable taxpayer.' It allows them to elect to pay their initial increased tax liability in five equal annual installments. It also permits an election to treat nontradable assets as tradable for mark-to-market purposes in that first year, with corresponding basis adjustments. A special election is available for taxpayers becoming applicable before 2027 to treat up to $1 billion of stock in a single C corporation as a nontradable capital asset.
Sec. 101, adding new Sec. 497
Definitions for Covered Assets and Valuation
This section defines 'covered asset' broadly to include most assets, excluding only specific savings plans, cash, and certain private placement life insurance. It distinguishes 'tradable covered assets' (e.g., publicly traded securities, assets on online platforms, or those with readily determinable fair market value) from 'nontradable covered assets' (everything else, including qualified opportunity fund investments). It also specifies how 'applicable value' is determined for these assets, generally using fair market value for tradable assets and the greatest of several metrics (cost basis, adjusted basis, last established value, financial statement value, value for securing debt) for nontradable assets. Debt and other liabilities can reduce the aggregate value.
Sec. 102, amending Sec. 1212
Capital Loss Carryback for Mark-to-Market Losses
This section allows applicable taxpayers to carry back 'net marked-to-market losses' for three taxable years preceding the loss year. These losses, arising from the annual mark-to-market taxation of tradable covered assets, are treated as long-term capital losses when carried back. This provision aims to provide some relief by allowing losses to offset prior mark-to-market gains, potentially smoothing out tax liabilities over time.
Sec. 221, adding new Sec. 409B and 6050BB
Deferral Recapture on Applicable Deferred Compensation
This section imposes a deferral recapture amount (an interest charge) on 'applicable deferred compensation' (including nonqualified deferred compensation and property subject to Section 83) when it becomes includible in an applicable taxpayer's gross income. It also adds a 10% additional tax on severance pay for these taxpayers. To support enforcement, new information reporting requirements are introduced for payments exceeding $5 million, detailing the compensation amount and deferral period.
Sec. 222, amending Sec. 72, 101, and adding new Sec. 6050CC
Enhanced Taxation of Private Placement Life Insurance and Annuities
This section significantly alters the tax treatment of 'applicable private placement life insurance or annuity contracts' (PPLI/PPVA) held by applicable taxpayers. It mandates that amounts received from these contracts are treated as income first (LIFO rule), regardless of when received, and imposes a 10% additional tax on distributions. Crucially, it repeals the exclusion for death benefits under Section 101(a)(1) for these contracts. New information reporting requirements are also established for issuers of these contracts.
This provision disallows like-kind exchange treatment under Section 1031 for applicable entities if a significant owner is an applicable taxpayer. This means that exchanges of real property held for productive use or investment, which would normally defer gain, will now trigger immediate gain recognition for these entities.
Sec. 211, amending Sec. 1031(i)
Why it matters:This is standard legislative practice for modifying existing tax code sections. However, its placement within a long-standing provision that is widely used for tax deferral could make its significant impact on applicable entities less immediately apparent.
Case for: Proponents argue that this closes a significant loophole that allows indefinite deferral of tax on appreciated assets through serial exchanges, particularly for wealthy individuals using entity structures, thereby promoting tax equity.
Case against: Opponents contend that eliminating like-kind exchanges removes a valuable tool for reinvestment and economic growth, particularly in the real estate sector, and could lead to reduced capital mobility and development.
Estimated impact: This change will accelerate tax recognition on billions of dollars in real estate and other property exchanges annually for affected entities.
This provision disallows tax-free treatment under Section 351 for transfers of property to a corporation in exchange for stock by an applicable entity, if an applicable taxpayer is a 20% owner of that entity. This means that such transfers, which would typically allow for deferral of gain, will now trigger immediate gain recognition.
Sec. 212, amending Sec. 351(h)
Why it matters:This is a common method for amending the tax code. However, the impact of disallowing a fundamental tax-free transaction for specific entities is substantial, and its technical placement could obscure its broader policy implications.
Case for: Proponents argue that this measure prevents the use of corporate formation as a deferral strategy for appreciated assets by wealthy individuals and their entities, ensuring that such transfers are subject to tax.
Case against: Opponents contend that this could complicate legitimate business restructuring and capital formation for entities with wealthy owners, potentially hindering economic efficiency and growth.
Estimated impact: This change will accelerate tax recognition on transfers of appreciated assets into corporate structures by affected entities, potentially impacting billions of dollars in such transactions.
This provision specifies the conditions for an individual taxpayer to terminate their status as an 'applicable taxpayer.' To terminate, the taxpayer must not meet either the income test or the asset test for three immediately preceding taxable years, AND the thresholds for these tests are reduced to one-half of their original dollar amounts (e.g., $50M AGI, $500M assets). The taxpayer must also elect to terminate status.
Sec. 101, adding new Sec. 495(a)(4)(A)
Why it matters:This is a technical detail within the definitional section, which is common for complex tax legislation. However, the difference in thresholds for *entering* versus *exiting* applicable taxpayer status is a critical policy choice that could be easily missed.
Case for: Proponents argue that the lower thresholds for termination ensure that individuals who have significantly reduced their wealth or income are not permanently trapped in the applicable taxpayer regime, while still preventing easy re-entry or temporary avoidance.
Case against: Opponents might argue that even the reduced thresholds for termination remain high, making it difficult for individuals to exit the regime even if their financial circumstances substantially change, thereby creating a long-term burden.
Estimated impact: This provision affects the long-term tax planning and liability of applicable taxpayers, determining how and when they can cease to be subject to the new tax rules.
This subsection establishes special rules for nonresident alien individuals and expatriates. For nonresident aliens, it applies lower income ($50M) and asset ($500M) thresholds, and only considers U.S.-effectively connected income and assets. For covered expatriates, it ensures they are treated as applicable taxpayers for a 10-year period if they met certain (lower) income or asset tests in the 5 years prior to expatriation, and imposes additional deemed sales and tax rules upon expatriation.
Sec. 101, adding new Sec. 495(d)
Why it matters:International tax rules are inherently complex and often placed in specific subsections. The detailed nature of these anti-avoidance provisions for foreign persons and expatriates makes them technically dense.
Case for: Proponents argue that these rules are vital to prevent the ultra-wealthy from avoiding U.S. tax obligations by relocating or renouncing citizenship, ensuring that the bill's intent is not undermined by international tax planning.
Case against: Opponents might argue that these provisions are overly punitive, potentially discouraging legitimate international mobility or investment in the U.S., and could lead to complex international tax disputes.
Estimated impact: This provision significantly increases the tax cost of expatriation for wealthy individuals and expands the scope of U.S. tax jurisdiction over certain foreign persons, potentially impacting billions in assets and income.
This provision clarifies that certain assets explicitly excluded from the definition of a 'covered asset' (e.g., interests in applicable savings plans, cash or cash equivalents, and certain private placement life insurance/annuity contracts) are *still taken into account* when computing the aggregate applicable value of all assets for the $1 billion asset test under Section 495(a)(3).
Sec. 101, adding new Sec. 497(c)(2)
Why it matters:This is a technical anti-avoidance measure, ensuring that individuals cannot structure their wealth into excluded categories to avoid meeting the asset test. Its placement is typical for such definitional refinements.
Case for: Proponents argue this ensures that individuals with substantial wealth held in forms like cash or retirement accounts, which are otherwise excluded from direct mark-to-market taxation, are still counted towards the threshold for being an applicable taxpayer, preventing a loophole in the asset test.
Case against: Opponents might argue that including these assets for the threshold, even if not directly taxed, could lead to individuals being classified as 'applicable taxpayers' despite having a significant portion of their wealth in forms not intended for annual taxation, creating a broader reach than implied.
Estimated impact: This provision ensures that the $1 billion asset test for applicable taxpayer status accurately reflects an individual's total wealth, regardless of its form, thereby expanding the potential pool of applicable taxpayers.
This provision defines 'disregarded nonrecognition event' as any exchange to which Section 351 (tax-free incorporation) or Section 1031 (like-kind exchanges) applies, certain transfers involving C corporations identified by the Secretary, and any other transaction the Secretary deems necessary to prevent avoidance. These events trigger gain recognition and the deferral recapture amount for nontradable covered assets.
Sec. 101, adding new Sec. 498(a)(2)
Why it matters:This is a critical anti-avoidance definition, common in tax legislation to prevent taxpayers from using existing tax-free provisions to circumvent new rules. The broad Secretarial authority is also a standard legislative tool.
Case for: Proponents argue that this definition is essential to prevent taxpayers from using existing nonrecognition provisions to indefinitely defer tax on appreciated nontradable assets, thereby ensuring the effectiveness of the deferral recapture regime.
Case against: Opponents contend that treating these common tax-free transactions as taxable events for applicable taxpayers adds significant complexity and burden, potentially disrupting legitimate business and investment activities that rely on these provisions.
Estimated impact: This definition fundamentally alters the tax treatment of many common business and investment transactions for applicable taxpayers, triggering billions of dollars in accelerated tax liabilities.