Billionaire Tax Proposed for Wealthy Individuals, Estates and Trusts

Source: RSM US LLP.  PBMares is a member of RSM US Alliance. 


The Senate Finance Committee released draft language of a bill that would require applicable taxpayers to mark liquid investments to market and create an interest charge for illiquid investments. This has been popularly termed The Billionaire Tax. Moderate Democrats have already voiced concern about the provisions making inclusion in the broader Budget Reconciliation Bill problematic. The proposal is summarized at a high-level below with an effective date for taxable years beginning after Dec. 31, 2021.

Applicable Taxpayers

The proposed tax increases would only apply to ‘applicable taxpayers’ that meet either specified income or asset thresholds in the three preceding taxable years. For joint and single filers, the income threshold would be adjusted gross income (AGI) in excess of $100 million or aggregate covered assets in excess of $1 billion. For married filing separate filers, these thresholds are cut in half and if one spouse is deemed an applicable taxpayer, the other spouse would also be deemed an applicable taxpayer. Property held in a grantor trust is treated as if owned directly by the grantor for purposes of determining applicable taxpayer treatment. Nongrantor trusts (other than charitable trusts) are applicable taxpayers if there is at least $10 million in income before the income distribution deduction or $100 million in assets for the preceding three years. If an individual is deemed an applicable taxpayer in the year of death or any of the three preceding years, then the individual’s estate is also deemed an applicable taxpayer. In the first year a taxpayer becomes an applicable taxpayer, an election could be made to pay the net first-year tax liability over five years in equal installments. An applicable taxpayer’s income and assets would have to drop below one-half of the threshold amounts for three consecutive years before an election could be made to not be treated as an applicable taxpayer.

Annual Mark-to-Market on Tradable Covered Assets and Disregarded Nonrecognition Events

The proposal would require applicable taxpayers to mark-to-market certain assets at year-end and recognize any gain or loss. This would only apply to ‘tradable covered assets’ which are those with a readily ascertainable value traded on an established securities market or readily tradable on a secondary market. Any capital gain or loss related to a tradable covered asset will receive long term treatment, regardless of holding period absent another provision in the tax code that stipulates otherwise. This would also apply to pass-through entities for which an applicable taxpayer holds a nontradable interest of at least 5% or whose ownership interest is valued at $50 million or more.

In addition, any exchange to which section 351 (contribution to a corporation) or section 1031 (like-kind exchanges) applies or transfers of built-in-gain or loss property by C corporations would no longer be considered a disregarded nonrecognition event for applicable taxpayers.

Deferral Recapture on Applicable Transfers of Covered Nontradable Assets

Applicable taxpayers with nontradable assets would have a deferral recapture charged on the gain deferral once an applicable transfer occurred. A nontradable asset is defined as any asset not included in the tradable asset definition outlined above and an applicable transfer includes any sale, exchange, disposition or other transfer that results in recognized gain or loss outside the ordinary course of a trade or business. The deferral recapture is essentially an interest rate charge and would be equal to the short term applicable federal rate plus 1%. The proposal specifies that the total tax due upon sale of an asset, including any deferral recapture amount, would not exceed 49%. If the taxpayer has a net capital loss for the year, the loss may be used to offset any deferral recapture amount with some limitations. Similar to the mark-to-market rules, this would also apply to pass-through entities as outlined above.

Gifts, Bequests and Transfers in Trust

Applicable taxpayers making gifts, bequests or transfers in trust would be treated as an applicable transfer for which gain recognition would occur. If the asset transferred is loss property, the loss would be disallowed. The proposal mentions exceptions for transfers to a U.S. spouse, surviving spouse or a former spouse incident to divorce as well as transfers to charity. Transfers of nontradable covered assets by an applicable taxpayer into a grantor trust are also deemed recognition events, unless made to a revocable grantor trust. Actual distributions and deemed distributions also result in gain or loss recognition. Deemed distributions include when an owner ceases to be treated as the owner for income tax purposes, when the property would no longer be included in the grantor’s estate or when the owner dies. There is also a proposal to prevent the indefinite deferral of gains in a dynasty trust.


The thresholds for meeting the applicable taxpayer status seem to target a much broader group of taxpayers than only billionaires. The thresholds for nongrantor trusts are significantly reduced as compared to individuals and the income threshold would be applied before the income distribution deduction. This limitation would prevent trustees from utilizing income distributions to avoid being subject to the new tax. It should be noted that either threshold can be met from year to year to be deemed an applicable taxpayer.

The mark-to-market proposal would create an annual taxable event for applicable taxpayers which not only increases the tax burden but also increases the compliance burden each year. It would also remove the benefit of certain nonrecognition planning strategies that might be otherwise considered for this group of taxpayers such as the use of deferred compensation planning, private placement life insurance, exclusion of gain from the sale of certain small business stock and modification of qualified opportunity zone provisions. The burden on certain pass-through entities would also be significant as increased information reporting could be costly. Taxpayers considering taking advantage of nonrecognition strategies, dispositions, gifts or other transfers of appreciated assets may want to consider completing these transactions in 2021.

PBMares will be carefully watching the development of this proposed legislation and providing further insights as appropriate.


This article was written by Carol Warley, Rebecca Warren, Tandilyn Cain and originally appeared on 2021-10-29.
2021 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.


RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.


RSM US AllianceRSM US Alliance

PBMares is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to the resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market.

The content of this post is accurate as of the date below. Always ensure you are reviewing the most recent information available. Contact your tax advisor if you need clarification.

2021-11-02T12:11:20-04:00October 30, 2021|Categories: Estate and Trust, Tax: Individual|Tags: , |


Go to Top

As Internet Explorer will discontinue browser security updates by August of 2021, this site is best viewed using Google Chrome, Safari or Microsoft Edge.

Click to Continue