H.R. 5427 — Billionaires Income Tax Act

This section eliminates the modified adjusted gross income (MAGI) threshold limitation on the 3.8% net investment income tax (NIIT) for applicable taxpayers (as defined in section 495), requiring individuals to pay tax equal to 3.8% of net investment income (rather than the lesser of net investment income or excess MAGI over thresholds of $200,000 single/$250,000 joint) and estates or trusts to pay tax equal to 3.8% of net investment income (rather than the lesser of net investment income or excess adjusted gross income over the applicable threshold). As background, the NIIT applies to certain investment income such as interest, dividends, capital gains, rental income, and passive business income. The change applies to taxable years beginning after December 31, 2025.

This section establishes special expatriation tax rules under Section 877A for covered expatriates (i.e., certain high-income or high-net-worth U.S. citizens or long-term residents who relinquish citizenship or residency) who qualify as applicable taxpayers (as defined in Section 495) in the taxable year that includes the expatriation date, effective for taxable years beginning after December 31, 2025. The rules (1) prohibit the deferral election under Section 877A(b) for any property deemed sold under Section 877A(a), (2) deem such expatriates to have sold, on the last day of the 10-taxable-year period specified in Section 495(d)(2)(A), all property then held that was not previously deemed sold under part IV of subchapter E of the Internal Revenue Code, and (3) subject such expatriates to Section 877 taxation (i.e., U.S. taxation of worldwide income as if still a U.S. person) for each year of that 10-year period, notwithstanding Section 877(h).

This section denies like-kind exchange treatment under section 1031 to applicable entities if a notice received by the entity under section 493(b)(2)(A) or (c)(2) is in effect at the time of the exchange. The denial applies to exchanges completed after December 31, 2025.

This section denies nonrecognition of gain or loss under IRC §351(a)—which allows tax-free transfers of property to a corporation solely in exchange for stock if the transferors control the corporation immediately after—for exchanges by an applicable entity (as defined in new IRC §493) if an applicable notice under §493(b)(2)(A) or (c)(2) relating to an applicable taxpayer who is a 20-percent owner is in effect. A 20-percent owner is determined similarly to a 5-percent owner under §493(b)(4)(B) but substituting a 20-percent threshold. The provision applies to exchanges completed after December 31, 2025.

This section amends rules governing estates and trusts under subchapter J of the Internal Revenue Code (IRC) to address applicable trusts (as defined in IRC §495(c)). **(a)** Revises the in-kind distribution rules under IRC §643(e)(3) to apply automatically to distributions of property by estates described in §495(a)(1)(B)(ii) or applicable trusts, and electively (on a revocable-only-with-Secretary-consent basis) to other estates or trusts. **(b)** Expands the treatment of loans under IRC §643(i) to include loans by applicable trusts (not just foreign trusts); treats loans to any non-tax-exempt person (not just U.S. persons) as distributions; strikes former paragraph (2)(C); and revises the heading to "certain trusts." **(c)** Modifies the multiple trusts aggregation rules under IRC §643(f)(2) to incorporate the rules of part IV of subchapter E (applicable trust provisions). **(d)** Adds new IRC §686 to increase the tax on any beneficiary of an applicable foreign trust (i.e., a foreign trust that would be an applicable trust if domestic) who includes in income an amount attributable to gain on an applicable transfer of a covered asset, by such beneficiary's pro rata share of the hypothetical deferral recapture amount under §492(a) (i.e., the ratio of income included over total gain, times the §492(a) amount); provides an exception if the trust pays such tax; requires related reporting under §6048(c)(1); and includes a conforming clerical amendment. **(e)** Directs the Secretary of the Treasury to issue regulations coordinating these amendments with the throwback rules of subpart D, part I, subchapter J. The amendments generally apply to taxable years beginning after December 31, 2025 (with subsection (d)(2) applying to applicable transfers in such years).

This section establishes new IRC §409B imposing additional tax on applicable taxpayers (as defined in §495) for any taxable year, equal to (1) the deferral recapture amount on applicable deferred compensation includible in gross income that year, and (2) 10% of any severance pay includible in gross income that year. The deferral recapture amount equals interest (computed at federal short-term underpayment rates under IRC §6621(b) plus 1 percentage point) on the deemed tax amount for each preceding year in the deferral period—calculated by ratably allocating the deferred compensation over that period (beginning on the date first deferred), multiplying by the highest individual income tax rate under IRC §1 for the inclusion year, and accruing interest from each prior year's tax return due date through the end of the deferral period (ending on the inclusion date)—capped at 10% of the compensation amount. (As background, nonqualified deferred compensation plans under IRC §409A allow certain high-income executives to defer taxation on salary, bonuses, or other compensation, including stock appreciation rights and certain IRC §83 property, until distribution; this provision recaptures the time value of that deferral.) Applicable deferred compensation excludes severance pay and partnership profits interests; severance pay includes any compensation contingent on employment termination.

This section modifies the tax treatment under IRC §72(e) of amounts received from applicable private placement life insurance or annuity contracts held by applicable taxpayers (i.e., as defined in IRC §495, generally private foundations and disqualified persons), requiring such amounts to be included in gross income either as annuity payments (if after the annuity starting date) or under investment gain rules (if before that date or for life insurance contracts), overriding prior exclusions for policyholder dividends, refunds, and surrenders. (1) It imposes a 10% additional tax under IRC §72(v) on such distributions, akin to the tax on modified endowment contracts; (2) it repeals under new IRC §101(k) the exclusion from gross income for death benefits under these contracts (with rules preventing double taxation on previously included amounts); and (3) it requires issuers and reinsurers to report under new IRC §6050BB the name, address, TIN, and amounts received under such contracts. The changes apply to amounts received in taxable years beginning after December 31, 2025.

This section denies the exclusion for gain from qualified small business stock (under IRC §1202(a)) to applicable taxpayers (as defined in section 495) for sales or exchanges on or after November 30, 2025, except for stock acquired before that date. (As background, §1202 allows taxpayers to exclude up to 100% of gain—subject to caps—from qualified small business stock held more than five years.)

This section modifies the tax treatment of investments in qualified opportunity funds (QOFs)—which allow taxpayers to defer eligible capital gains by investing in QOFs in designated opportunity zones, with basis step-ups at five and seven years and potential exclusion of post-acquisition appreciation if held at least 10 years—for sales or exchanges after November 30, 2025, as follows: (1) terminates the election to defer gain invested in a QOF after the earlier of (A) December 31, 2026, or (B) for an applicable taxpayer, the last day of the taxable year preceding the first taxable year for which the taxpayer is an applicable taxpayer (with no election permitted by an applicable entity if a notice under section 493(b)(2)(A) or (c)(2) is in effect, and a special rule substituting November 30, 2025, for certain taxpayers first applicable in 2025); and (2) revises the exclusion amount for gain on QOF investments held at least 10 years to, for applicable taxpayers or applicable entities, the lesser of (A) the investment's fair market value as of the later of the 10-year anniversary or the date the taxpayer or entity first became applicable or received a section 493 notice, or (B) the fair market value on the sale or exchange date (previously, the fair market value on the sale or exchange date for all taxpayers).