,,ii #aaith ,,congress #ast ,session ,s4 #bhde ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,september #ag 7legislative day1 ,september #af71 #bjbe,mr4 ,wyden 7for himself1 ,mr4 ,whitehouse1 ,ms4 ,warren1 ,mr4 ,sanders1 ,ms4 ,smith1 ,mr4 ,lujn1 ,mr4 ,welch1 ,ms4 ,alsobrooks1 ,ms4 ,baldwin1 ,mr4 ,blumenthal1 ,ms4 ,duckworth1 ,mr4 ,fetterman1 ,mr4 ,heinrich1 ,ms4 ,hirono1 ,mr4 ,markey1 ,mr4 ,merkley1 ,mr4 ,murphy1 ,mrs4 ,murray1 ,mr4 ,reed1 ,mr4 ,schatz1 and ,mr4 ,van ,hollen7 introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to eliminate tax loopholes that allow billionaires to defer tax indefinitely through planning strategies such as buy1 borrow1 die1 to modify over #cj tax provisions so that billionaires are required to pay taxes annually1 and for other purposes4 #a4 ,short title2 amendment of #aihf ,code2 table of contents 7a7 ,short ,title ,this ,act may be cited as the ,billionaires ,income ,tax ,act4 7b7 ,amendment of #aihf ,code ,except as otherwise expressly provided1 whenever in this ,act an amendment or repeal is expressed in terms of an amendment to1 or repeal of1 a section or other provision1 the reference shall be considered to be made to a section or other provision of the ,internal ,revenue ,code of #aihf4 7c7 ,table of contents ,the table of contents of this ,act is as follows3 ,sec4 #a4 ,short title2 amendment of #aihf ,code2 table of contents4,sec4 #b4 ,purpose4,,title ,i--,elimination of deferral for applicable taxpayers,sec4 #aja4 ,elimination of deferral of tax4,sec4 #ajb4 ,carryback of capital losses attributable to mark-to-market rules4,,title ,,ii--,application of other provisions to applicable taxpayers and entities,subtitle ,a--,individuals,sec4 #bja4 ,applicable taxpayers not eligible for adjusted gross income limitation on net investment tax4,sec4 #bjb4 ,treatment of covered expatriates4,subtitle ,b--,rules for applicable entities and trusts,sec4 #baa4 ,treatment of like-kind exchanges by applicable entities4,sec4 #bab4 ,treatment of transfers by applicable entities in exchange for stock4,sec4 #bac4 ,special rules for applicable trusts4,subtitle ,c--,treatment of deferred compensation and certain life insurance and annuity contracts,sec4 #bba4 ,elimination of deferral of tax on certain compensation4,sec4 #bbb4 ,rules relating to certain life insurance and annuity contracts of applicable taxpayers4,subtitle ,d--,repeal of special treatment for certain investments,sec4 #bca4 ,treatment of exclusion for certain small business stock4,sec4 #bcb4 ,modifications for investments in qualified opportunity funds4 #b4 ,purpose ,the purpose of this ,act is to require billionaires to pay taxes annually by eliminating the ability of high income and high net worth taxpayers to use tax planning strategies such as buy1 borrow1 die to defer paying taxes indefinitely1 specifically by-- 7#a7 under the provisions of title ,i of this ,act-- 7,a7 requiring high income and high net worth taxpayers to pay tax on the income they earn on an annual basis1 just like working people do on their income from wages1 through mark-to-market taxation1 and 7,b7 shutting down the ability of the ultra wealthy to buy and hold appreciating assets and borrow against those assets to support their lavish lifestyles1 all completely tax-free1 and 7#b7 under the provisions of title ,,ii of this ,act1 closing loopholes in the tax code that allow high income and high net worth taxpayers to shield their income from taxation1 including the loophole that allows ultra wealthy taxpayers to transfer untaxed appreciated assets to their heirs at death and such heirs to sell such assets completely tax-free4 ,i ,elimination of deferral for applicable taxpayers #aja4 ,elimination of deferral of tax 7a7 ,in general ,subchapter ,e of chapter #a is amended by adding at the end the following new part3 ,,iv ,elimination of deferral for applicable taxpayers ,subpart ,a4 ,general provisions4,subpart ,b4 ,definitions and rules relating to applicable taxpayers4,subpart ,c4 ,other definitions and rules4 ,a ,general provisions ,sec4 #dij4 ,elimination of deferral of tax for applicable taxpayers4,sec4 #dia4 ,treatment of tradable covered assets4,sec4 #dib4 ,deferral recapture amount on applicable transfers of nontradable covered assets4,sec4 #dic4 ,special rules for application of nondeferral rules to certain pass-through entities4,sec4 #did4 ,treatment of gifts1 bequests1 and transfers in trust4 #dij4 ,elimination of deferral of tax for applicable taxpayers ,in the case of an applicable taxpayer for any taxable year-- 7#a7 if there is a taxable event with respect to any tradable covered asset of the taxpayer during the taxable year1 gain or loss shall be recognized as provided in section #dia1 7#b7 if there is an applicable transfer by the taxpayer during the taxable year of any nontradable covered asset-- 7,a7 if such applicable transfer is a disregarded nonrecognition event1 gain or loss shall be recognized as provided in section #dib7;a77#a71 and 7,b7 the tax imposed by this chapter for the taxable year shall be increased as provided in section #dib with respect to any gain from any such transfer1 7#c7 gain or loss with respect to any applicable entity held by the taxpayer shall be taken into account as provided in section #dic1 and 7#d7 in the case of any gift1 bequest1 or transfer in trust by an applicable taxpayer or applicable entity held by an applicable taxpayer1 section #did shall apply4 #dia4 ,treatment of tradable covered assets 7a7 ,in general ,for purposes of this title1 in the case of a taxable event with respect to any tradable covered asset of an applicable taxpayer-- 7#a7 notwithstanding any other provision of this title-- 7,a7 gain or loss shall be recognized and taken into account in the taxable year in which the taxable event occurs as if the taxpayer had sold the tradable covered asset for its fair market value-- 7i7 in the case of a taxable event described in subsection 7b77#a71 on the date of the taxable event1 and 7ii7 in the case of a taxable event described in subsection 7b77#b71 immediately before the taxable event1 and 7,b7 except as provided in subsection 7c77#a71 gain or loss taken into account by reason of a taxable event described in subsection 7b77#a7 with respect to a tradable covered asset which is a capital asset shall be treated as long-term capital gain or long-term capital loss1 respectively1 and 7#b7 proper adjustments shall be made in the amount of gain or loss subsequently realized for gain or loss taken into account under paragraph 7#a74 7b7 ,taxable event ,for purposes of this part1 the term taxable event means1 with respect to any tradable covered asset-- 7#a7 the holding of such asset as of the close of any taxable year with respect to which a taxpayer is an applicable taxpayer1 and 7#b7 any disregarded nonrecognition event4 7c7 ,special rules 7#a7 ,characterization as ordinary income or loss ,except as provided by the ,secretary1 subsection 7a77#a77;,b7 shall not apply to any gain or loss from a tradable covered asset if1 under any other provision of this title1 such gain or loss-- 7,a7 is treated as gain or loss from the sale or exchange of an asset which is not a capital asset1 or 7,b7 is treated as ordinary income or loss on a basis other than the taxpayer's holding period in such asset4 7#b7 ,holding period ,for purposes of this title1 any taxable event described in subsection 7b77#a7 with respect to any tradable covered asset shall not be taken into account in determining the holding period of the taxpayer with respect to such tradable covered asset4 7#c7 ,proper adjustments for subsequent gain or loss ,for purposes of subsection 7a77#b71 section #dib7;a77#a77;,b71 section #dic7;c77#a77;,a77ii71 and section #dic7;c77#c77;,c71 the proper adjustments required under such provisions shall include such adjustments in basis of property1 or such other adjustments in respect of property1 as the ,secretary determines necessary or appropriate4 #dib4 ,deferral recapture amount on applicable transfers of nontradable covered assets 7a7 ,in general ,if there is an applicable transfer during a taxable year of a nontradable covered asset of an applicable taxpayer-- 7#a7 in the case of an applicable transfer which is a disregarded nonrecognition event-- 7,a7 notwithstanding any other provision of this title1 gain or loss shall be recognized and taken into account by the taxpayer 7including for purposes of paragraph 7#b7 and subsection 7c77 in the taxable year in which the transfer occurs as if the taxpayer had sold the nontradable covered asset for its fair market value immediately before such transfer1 and 7,b7 proper adjustments shall be made in the amount of gain or loss subsequently realized for gain or loss taken into account under subparagraph 7,a71 and 7#b7 if there is gain from the applicable transfer1 the tax imposed by this chapter for the taxable year 7determined without regard to this section7 shall be increased by the sum of the deferral recapture amounts determined under subsection 7b7 for each such transfer4 7b7 ,deferral recapture amount 7#a7 ,in general ,for purposes of this part-- 7,a7 ,in general ,the term deferral recapture amount means1 with respect to any applicable transfer of any nontradable covered asset1 the aggregate amount of interest 7determined in the manner provided under paragraph 7#c77 on the deemed tax amount determined under paragraph 7#b7 for each taxable year to which gain is allocated under paragraph 7#b77;,a7 and which precedes the taxable year of the applicable transfer4 7,b7 ,limitation on amount ,the amount determined under subparagraph 7,a7 with respect to any applicable transfer shall not exceed the applicable percentage of the gain from such transfer4 ,for purposes of this subparagraph1 the applicable percentage is the excess of-- 7i7 #di percent1 over 7ii7 in the case of the transfer of a nontradable covered asset which-- 7,i7 is a capital asset1 the rate of tax in effect under section #a7;h77#a77;,d7 for the taxable year of the transfer1 or 7,,ii7 is not a capital asset1 the highest rate of tax in effect under section #a for such taxable year4 7#b7 ,deemed tax amount ,for purposes of paragraph 7#a7-- 7,a7 ,in general ,the deemed tax amount for any taxable year preceding the taxable year of any applicable transfer of a nontradable covered asset shall be the amount determined-- 7i7 first1 except as provided in subparagraph 7,b71 by allocating the amount of gain from such transfer ratably to each day in the taxpayer's holding period of such asset1 and 7ii7 then by multiplying the amount allocated under clause 7i7 to days in such preceding taxable year by-- 7,i7 if such asset is a capital asset1 the rate of tax in effect under section #a7;h77#a77;,d7 for the taxable year of such transfer1 or 7,,ii7 if such asset is not a capital asset1 the highest rate of tax in effect under section #a for such taxable year4 7,b7 ,special rule for periods before becoming applicable taxpayer ,notwithstanding subparagraph 7,a77i71 any gain allocated under such subparagraph to any taxable year preceding the first taxable year for which the taxpayer is treated as an applicable taxpayer shall be allocated to such first taxable year4 7,c7 ,increase in deemed tax amount by tax on net investment income ,if gain from a transfer to which this section applies for any taxable year is of a type taken into account in computing net investment income 7as defined in section #adaa71 the deemed tax amount under this paragraph for any preceding taxable year to which such gain is allocated under subparagraph 7,a77i7 shall be increased by an amount equal to the amount of such allocated gain multiplied by the rate of tax in effect under section #adaa7;a77#a7 for the taxable year of such transfer4 7#c7 ,computation of interest 7,a7 ,in general ,the amount of interest referred to in paragraph 7#a7 on any deemed tax amount determined under paragraph 7#b7 for any preceding taxable year shall be determined for the period-- 7i7 beginning on the due date for such preceding taxable year1 and 7ii7 ending on the date on which the applicable transfer occurs1 by using the rates determined under section #ffba7;b7 7plus #a percentage point71 and the method applicable under section #ffba1 for underpayments of tax for such period4 7,b7 ,due date ,for purposes of this paragraph1 the term due date means1 with respect to any preceding taxable year1 the date prescribed by law 7determined without regard to extensions7 for filing the return of the tax imposed by this chapter for such taxable year4 7c7 ,special rule for taxpayers with net capital losses 7#a7 ,in general ,if a taxpayer has a net capital loss for any taxable year for which there is an increase in tax under subsection 7a77#b71 such increase in tax shall be reduced 7but not below zero7 by the credit equivalent of such net capital loss4 7#b7 ,credit equivalent ,for purposes of this subsection1 the term credit equivalent means1 with respect to any net capital loss for any taxable year1 an amount equal to such loss multiplied by the rate of tax in effect under section #a7;h77#a77;,d7 for such taxable year4 7#c7 ,coordination with carryovers of loss ,for purposes of subsection 7b7 of section #abab1 the net capital loss for a taxable year to which paragraph 7#a7 applies 7determined without regard to this subsection7 shall be reduced 7but not below zero7 by an amount equal to the amount of the reduction under paragraph 7#a7 for such taxable year divided by the rate of tax in effect under section #a7;h77#a77;,d7 for such taxable year4 7d7 ,special rules for certain dividend distributions 7#a7 ,excess dividend distributions 7,a7 ,in general ,for purposes of applying this section1 any excess dividend shall be treated as gain from an applicable transfer of a nontradable covered asset occurring on the date such dividend is received4 7,b7 ,excess dividend ,for purposes of this part1 the term excess dividend means1 with respect to any nontradable covered asset which consists of stock in a ,c corporation1 any dividend in respect of such stock received during any taxable year to the extent such dividend does not exceed its ratable portion of the total excess dividends 7if any7 for such taxable year4 7,c7 ,total excess dividends ,for purposes of this paragraph-- 7i7 ,in general ,the term total excess dividends means1 with respect to stock in a ,c corporation described in subparagraph 7,b71 the excess 7if any7 of-- 7,i7 the amount of the dividends in respect of such stock received by the taxpayer during the taxable year1 over 7,,ii7 #abe percent of the average amount of dividends received in respect of such stock by the taxpayer during the #c preceding taxable years 7or1 if shorter1 the portion of the taxpayer's holding period before the taxable year74 7ii7 ,no excess for #ast year ,except as provided by the ,secretary1 the total excess dividends with respect to any stock shall be zero for the taxable year in which the taxpayer's holding period in such stock begins4 7,d7 ,adjustments ,under regulations prescribed by the ,secretary-- 7i7 determinations under this paragraph shall be made on a share-by-share basis1 except that shares with the same holding period may be aggregated and other shares may be aggregated to the extent provided by the ,secretary1 7ii7 proper adjustments shall be made for stock splits and stock dividends1 7iii7 if the taxpayer does not hold the stock during the entire taxable year1 dividends received during such year shall be annualized1 and 7iv7 if the taxpayer's holding period includes periods during which the stock was held by #a or more other persons1 dividends with respect to such stock received by such other person shall be taken into account as if received by the taxpayer4 7#b7 ,capital gain dividends of certain ,,reits 7,a7 ,in general ,for purposes of applying this section1 if an applicable taxpayer holds directly 7or indirectly through #a or more nontradable interests7 stock in a real estate investment trust which is a nontradable covered asset1 any capital gain dividend received by such taxpayer from such entity shall be treated as gain from an applicable transfer of a nontradable covered asset occurring on the date such dividend is received4 7,b7 ,reporting ,a real estate investment trust shall include in the written notice for a capital gain dividend under section #heg7;b77#c77;,b7 its holding period in the asset giving rise to the capital gain dividend4 ,the ,secretary shall provide rules for the determination of holding periods in cases where the dividend is properly allocable to gain from more than #a asset4 7#c7 ,holding period ,except as prescribed by the ,secretary1 if an applicable taxpayer is treated under this subsection as receiving gain from an applicable transfer of a nontradable covered asset1 the taxpayer's holding period for purposes of computing the deferral recapture amount under this section shall be the taxpayer's holding period with respect to the stock or ownership interest in the entity to which paragraph 7#a7 or 7#b7 applies 7or1 if shorter1 the holding period included in the notice described in paragraph 7#b77;,b7 in the case of a capital gain dividend74 7e7 ,holding period ,for purposes of this section-- 7#a7 ,in general ,the taxpayer's holding period shall be determined under section #abbc1 except that if a tradable covered asset of an applicable taxpayer is converted to1 or exchanged for1 a nontradable covered asset1 such period shall only include the period after the most recent taxable event under this part with respect to such tradable covered asset4 7#b7 ,secretarial authority ,the ,secretary shall prescribe such regulations1 rules1 or guidance providing for other modifications to holding periods as may be necessary to carry out the purposes of this section4 #dic4 ,special rules for application of nondeferral rules to certain pass-through entities 7a7 ,treatment of ownership interests in applicable entities ,for purposes of applying this part1 except as provided in this section1 any ownership interest in an applicable entity held directly 7or indirectly through #a or more nontradable interests7 by an applicable taxpayer which is a tradable or nontradable covered asset shall be treated in the same manner as any other such asset4 7b7 ,additional requirements for applicable taxpayers who are significant owners ,for purposes of this part-- 7#a7 ,in general ,in the case of any applicable taxpayer which is a significant owner of an applicable entity-- 7,a7 such taxpayer shall meet the reporting requirements under paragraph 7#b7 with respect to such entity1 and 7,b7 such taxpayer shall take into account amounts with respect to such entity as required under paragraph 7#c74 7#b7 ,reporting requirements for significant owners 7,a7 ,notice to entity of status 7i7 ,in general ,in the case of the first taxable year for which a taxpayer-- 7,i7 is an applicable taxpayer1 7,,ii7 is a significant owner of an applicable entity1 and 7,,iii7 holds directly a nontradable interest in such applicable entity1 such taxpayer shall1 at such time and in such manner as the ,secretary shall prescribe1 notify such applicable entity that such taxpayer is a taxpayer meeting the requirements of subclauses 7,i71 7,,ii71 and 7,,iii7 and that the applicable entity is subject to the notice requirements under subsection 7c7 with respect to such taxpayer4 ,such taxpayer shall include with such notice such information as the ,secretary may prescribe4 7ii7 ,period of notice ,any notice provided by a taxpayer under clause 7i7 shall remain in effect1 and such entity shall continue to be subject to the reporting requirements under subsection 7c7 with respect to such taxpayer1 for the period specified by the ,secretary4 ,the ,secretary may require additional reporting by the taxpayer for purposes of carrying out this clause4 7,b7 ,reporting of elections to treat nontradable interests as tradable assets ,if-- 7i7 section #dif7;a77#a7 applies to an applicable taxpayer for any taxable year for which a notice with respect to such taxpayer is in effect under subparagraph 7,a71 and 7ii7 the applicable taxpayer made the election under section #dif7;a77#c7 to treat any nontradable interest in an applicable entity as a tradable covered asset for purposes of section #dif7;a77#a71 the applicable taxpayer shall1 at such times and in such manner as the ,secretary shall prescribe1 report to such applicable entity notice of such election1 the amount of gain described in section #dif7;c77#a7 with respect to such treatment1 and the requirement for the entity to make the basis adjustments described in section #dif7;c77#b74 7#c7 ,certain gain or loss of applicable entity taken into account by significant owners 7,a7 ,in general ,each applicable taxpayer for which a notice with respect to such taxpayer is in effect under paragraph 7#b77;,a7 or subsection 7c77#b7 with respect to an applicable entity for any taxable year of the taxpayer shall1 in computing the taxpayer's tax liability under this chapter for such taxable year1 take into account such taxpayer's share of any gain or loss reported under subsection 7c77#a77;,a77i7 or 7c77#a77;,b77i7 to the taxpayer for any taxable year of such entity ending with or within such taxable year of the taxpayer4 7,b7 ,basis adjustments ,under rules prescribed by the ,secretary1 if gain or loss is taken into account by an applicable taxpayer under subparagraph 7,a7 with respect to any tradable covered asset by reason of the taxpayer holding a nontradable interest in an applicable entity-- 7i7 the applicable entity's adjusted basis of such asset 7solely for purposes of computing the taxpayer's share of such adjusted basis71 and 7ii7 the taxpayer's adjusted basis of such nontradable interest1 shall each be appropriately adjusted to reflect gain or loss so taken into account4 ,such rules shall also provide proper adjustments to adjusted bases where such ownership is held through tiered entities4 7,c7 ,special rules for deferral recapture amount 7i7 ,holding period ,except as prescribed by the ,secretary1 if an applicable taxpayer takes into account gain under subparagraph 7,a7 for any taxable year from an applicable transfer by such applicable entity of a nontradable covered asset1 the taxpayer's holding period with respect to such asset for purposes of computing the deferral recapture amount under section #dib shall be the shorter of-- 7,i7 the entity's holding period in such asset1 or 7,,ii7 the taxpayer's holding period in such entity4 7ii7 ,other rules ,the ,secretary shall prescribe rules for purposes of this section-- 7,i7 for the treatment of fragmented holding periods1 7,,ii7 for the determination of holding periods in the case of tiered structures1 and 7,,iii7 to prevent the shifting of any deferral recapture amount between taxpayers holding ownership interests in an applicable entity4 7,d7 ,taxpayers failing to file notice ,under rules required by the ,secretary1 if a taxpayer fails to file a notice with any applicable entity as required under paragraph 7#b77;,a71 such taxpayer shall take into account1 in computing the taxpayer's tax liability under this chapter for any taxable year for which such notice 7or a related notice under subsection 7c77#b77 would otherwise have been in effect1 gain or loss described in subparagraph 7,a7 which would have been reported if such notice had been filed4 7#d7 ,significant owner ,for purposes of this subsection-- 7,a7 ,in general ,the term significant owner means1 with respect to any applicable entity1 an applicable taxpayer who1 at any time during the applicable taxpayer's taxable year-- 7i7 is a #e-percent owner with respect to such entity1 or 7ii7 holds nontradable interests in such entity with an aggregate applicable value of greater than #ej1jjj1jjj4 7,b7 #e-percent owner 7i7 ,in general ,the term #e-percent owner means1 with respect to any applicable entity1 an applicable taxpayer who owns 7or is considered as owning within the meaning of section #cah7 at least #e percent of-- 7,i7 in the case of a corporation1 the stock 7by vote or value7 in such corporation1 or 7,,ii7 in the case of an applicable entity other than a corporation1 the capital or profits interests in such entity4 7ii7 ,constructive ownership rules ,for purposes of this subparagraph-- 7,i7 subparagraph 7,c7 of section #cah7;a77#b7 shall be applied by substituting #e percent for #ej percent1 and 7,,ii7 in the case of an applicable entity which is not a corporation1 ownership in such entity shall be determined in accordance with regulations prescribed by the ,secretary which shall be based on principles similar to the principles of section #cah 7as modified by subclause 7,i774 7c7 ,additional entity reporting requirements 7#a7 ,in general ,except as provided in paragraph 7#d71 an applicable entity for any taxable year shall1 at such times and in such manner as the ,secretary shall prescribe1 report to each applicable taxpayer with respect to which a notice is in effect under subsection 7b77#b77;,a7 or paragraph 7#b7-- 7,a7 in the case of tradable covered assets held by such entity1 such taxpayer's share of-- 7i7 gain or loss determined by the entity under rules similar to the rules under section #dia1 and 7ii7 proper adjustments shall be made in the amount of gain or loss subsequently realized for gain or loss taken into account under clause 7i71 7,b7 in the case of nontradable covered assets held by such entity-- 7i7 such person's share of any gain or loss on any applicable transfer during such taxable year of any such asset1 and 7ii7 the holding period in each such asset1 and 7,c7 such other information as the ,secretary determines necessary to carry out this part4 7#b7 ,notice of taxpayers holding indirect interests in other applicable entities 7,a7 ,in general ,under rules prescribed by the ,secretary1 except as provided in subparagraph 7,b71 if an applicable entity in a tier of entities-- 7i7 receives a notice under subsection 7b77#b77;,a7 with respect to an applicable taxpayer1 such entity shall notify each other applicable entity in which such applicable taxpayer holds1 by reason of holding a nontradable interest in such entity1 a nontradable interest in such other entity that the person holding such interest in such other entity is an applicable taxpayer with respect to which the notice requirements of paragraph 7#a7 apply to such other entity1 or 7ii7 receives a notice under clause 7i7 or this clause1 such entity shall notify each other applicable entity in which the applicable taxpayer holds1 by reason of holding an interest in the entity receiving such notice1 a nontradable interest in such other entity that the person holding such interest in such other entity is an applicable taxpayer with respect to which the notice requirements of paragraph 7#a7 apply to such other entity4 ,any such notice shall remain in effect1 and any entity receiving such notice shall treat such taxpayer as an applicable taxpayer1 for the period specified by the ,secretary4 ,the ,secretary may require additional reporting by such entities for purposes of carrying out this clause4 7,b7 ,requirement only applies if applicable taxpayer is significant owner ,an applicable entity shall be required to report under subparagraph 7,a7 to another applicable entity only if the applicable taxpayer is a significant owner 7within the meaning of subsection 7b77#d77 of such other entity1 determined only by taking into account interests in such other entity which such applicable taxpayer holds by reason of its ownership interests in the entity otherwise required to report and such other ownership interests in such other entity as the ,secretary may require to be taken into account to prevent the avoidance of the purposes of this part4 7#c7 ,special rules for disregarded nonrecognition events ,in the case of an applicable transfer of a nontradable covered asset of an applicable entity which is a disregarded nonrecognition event-- 7,a7 notwithstanding any other provision of this title1 gain or loss shall be recognized and taken into account in the taxable year in which the transfer occurs as if the entity had sold the nontradable covered asset for its fair market value immediately before such transfer 7or such other value as is determined as of such time under rules prescribed by the ,secretary71 7,b7 such entity shall report the amount of gain or loss required to be taken into account under subparagraph 7,a7 to-- 7i7 each applicable taxpayer with respect to which a notice is in effect which such entity has received under subsection 7b77#a71 and 7ii7 each other applicable entity from which it has received a notice under paragraph 7#b7 with respect to such an applicable taxpayer1 and 7,c7 proper adjustments shall be made in the amount of gain or loss subsequently realized for gain or loss taken into account under subparagraph 7,a74 7#d7 ,delay in reporting requirement ,if-- 7,a7 a notice is received by an applicable entity under subsection 7b77#b77;,a7 or paragraph 7#b7 for any taxable year of the entity with respect to any person holding directly 7or indirectly through #a or more nontradable interests7 a nontradable interest in such entity1 and 7,b7 no notice is in effect with respect to such person or any other person for the preceding taxable year1 then1 except as provided by the ,secretary1 such notice shall be treated as first taking effect for purposes of this subsection1 section #cea7;h71 and section #ajca7;i7 for the taxable year immediately following the taxable year in which the notice is received4 ,this paragraph shall not apply to a notice described in subparagraph 7,a7 received by an applicable entity from a person who was a significant owner 7within the meaning of subsection 7b77#d77 of such entity 7or any predecessor entity7 on the date of the enactment of this part4 7#e7 ,secretarial authority ,in prescribing rules for the application of this subsection1 the ,secretary may provide-- 7,a7 simplified methods for applicable entities to meet the requirements of this subsection1 including the aggregation of gains and losses where appropriate1 7,b7 rules for determining a holder's share of amounts required to be reported by an applicable entity under paragraph 7#a71 and 7,c7 any rules necessary to prevent the avoidance of the purposes of this section1 including through the delay in the reporting requirement under paragraph 7#d74 7d7 ,definitions and rules relating to application of section ,for purposes of this part-- 7#a7 ,applicable entity ,the term applicable entity means any-- 7,a7 partnership1 7,b7 ,s corporation1 or 7,c7 other pass-through entity specified in regulations or guidance prescribed by the ,secretary4 7#b7 ,election to treat entity as applicable taxpayer for taxable events involving tradable assets ,if an applicable entity elects the application of this paragraph for any taxable year-- 7,a7 this section shall not apply with respect to any gain or loss in connection with a taxable event involving any tradable covered asset held directly 7or indirectly through #a or more nontradable interests7 by such entity1 and 7,b7 such entity shall be treated as an applicable taxpayer for purposes of applying sections #dij7a7 and #dia to such taxable event4 ,such an election shall be made at such time and in such manner as the ,secretary may prescribe and1 once made1 shall be irrevocable without the consent of the ,secretary4 7e7 ,nontradable interest ,for purposes of this part1 the term nontradable interest means any ownership interest in an applicable entity which is a nontradable covered asset4 7f7 ,regulations and guidance ,the ,secretary shall prescribe such regulations and guidance as are necessary to carry out the provisions of this section1 including regulations or guidance necessary-- 7#a7 to prevent the use of pass-through entities to avoid the purposes of this part1 and 7#b7 to simplify the application of this part4 #did4 ,treatment of gifts1 bequests1 and transfers in trust 7a7 ,in general 7#a7 ,deemed sale ,if any person described in paragraph 7#c7 transfers any covered asset by gift1 upon death1 or in trust1 such covered asset shall be treated as sold by such person for its fair market value to the transferee on the date of such gift1 death1 or transfer4 7#b7 ,no recognition for losses on transfers by gift or in trust 7,a7 ,in general ,no loss shall be recognized with respect to any covered asset which is treated as sold under subsection 7a7 by reason of a transfer by gift or in trust4 7,b7 ,amount of gain for transferee ,if a loss is not recognized by the transferor by reason of subparagraph 7,a7 and the transferee sells or otherwise disposes of the covered asset 7or of other property the basis of which in the taxpayer's hands is determined directly or indirectly by reference to such property7 at a gain1 then such gain shall be recognized only to the extent that it exceeds so much of such loss as is properly allocable to the covered asset sold or otherwise disposed of by the transferee4 7#c7 ,person described ,a person is described in this section if such person is-- 7,a7 an individual who is an applicable taxpayer for the taxable year in which the transfer is made1 or 7,b7 an applicable entity with respect to which a notice received by the entity under subsection 7b77#b77;,a7 or 7c77#b7 of section #dic is in effect at the time of such transfer4 7b7 ,special rules for certain grantor trusts 7#a7 ,transfers of nontradable covered assets into certain grantor trusts ,for purposes of applying this section to any transfer in trust1 except as otherwise provided in this paragraph1 any transfer of a nontradable covered asset from the person treated as the owner of an applicable grantor trust 7other than a grantor trust which is a wholly revocable trust7 to such trust shall be treated as a transfer to which subsection 7a7 applies4 7#b7 ,deemed distributions ,in the case of any applicable grantor trust1 any property held by such trust shall be treated as transferred by the owner in a transfer to which subsection 7a7 applies-- 7,a7 on any date that-- 7i7 the owner ceases to be treated as the owner under this chapter1 7ii7 such property is distributed to any person other than the owner1 or 7iii7 the property would no longer be included in the owner's gross estate under chapter #aa1 or 7,b7 on the date of the death of the owner4 7#c7 ,applicable grantor trust ,for purposes of this subsection-- 7,a7 ,in general ,the term applicable grantor trust means the portion of any trust with respect to which an applicable taxpayer is considered the owner under subpart ,e of part ,i of subchapter ,j4 7,b7 ,exceptions ,the ,secretary shall provide for appropriate exceptions to the treatment of categories of trusts as applicable grantor trusts under subparagraph 7,a71 including arrangements which are ordinarily used in the course of a trade or business1 employee benefit arrangements1 and arrangements for securitization transactions4 7c7 ,exceptions 7#a7 ,spousal exception 7,a7 ,in general ,subsection 7a7 shall not apply to any transfer if such transfer-- 7i7 is-- 7,i7 made to the spouse or the surviving spouse of the transferor1 or 7,,ii7 made to a former spouse of the transferor if the transfer is incident to divorce1 or 7ii7 is a transfer of qualified terminable interest property or of property to which section #bjef7;b77#e7 or #bebc7;e7 applies4 7,b7 ,certain remainder interests treated as transferred by spouse ,property described in subparagraph 7,a77ii7 shall be treated as sold by the spouse or surviving spouse on the earlier of the date of the disposition of such property by such spouse or surviving spouse or the date of the death of such spouse or surviving spouse4 7,c7 ,qualified terminable interest property ,for purposes of this paragraph1 the term qualified terminable interest property means any property described in section #bjef7;b77#g7 or #bebc7;f77#b74 7,d7 ,disallowance of spousal exception where spouse or surviving spouse not ,united ,states citizen or long-term resident 7i7 ,in general ,subparagraph 7,a7 shall not apply if the spouse or surviving spouse of the decedent is not a citizen or long-term resident of the ,united ,states4 7ii7 ,long-term resident ,for purposes of clause 7i71 the term long-term resident means any individual 7other than a citizen of the ,united ,states7 who is a lawful permanent resident of the ,united ,states-- 7,i7 for the taxable year in which the transfer described in subsection 7a7 occurs1 and 7,,ii7 in at least #h taxable years during the period of #ae taxable years ending with the taxable year during which the transfer described in subsection 7a7 or 7b77#a7 occurs4 ,for purposes of the preceding sentence1 an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the ,united ,states and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country4 7#b7 ,gifts and bequests to charity 7,a7 ,in general ,subsection 7a7 shall not apply to any transfer if such transfer is made to or for the use of an organization described in section #agj7;c74 7,b7 ,special rule for split-interest trusts ,in the case of any transfer-- 7i7 to a charitable remainder annuity trust 7as defined in section #ffd7 or a charitable remainder unitrust 7as defined in section #ffd71 or 7ii7 of an interest described in section #agj7;f77#b77;,b71 subsection 7a7 shall not apply to the portion of such transfer which is to or for the use of an organization described in section #agj7;c74 7,c7 ,special rule for pooled income funds ,in the case of any transfer to a pooled income fund 7as defined in section #fdb7;c77#e771 subsection 7a7 shall not apply to the portion of such transfer which is to or for the use of an organization described in section #agj7;b77#a77;,a7 7other than in clauses 7vii7 or 7viii774 7#c7 ,qualified disability trusts and cemetery perpetual care funds ,subsection 7a7 shall not apply to transfers to any qualified disability trust 7as defined in section #fdb7;b77#b77;,c77ii77 or to transfers to any cemetery perpetual care fund described in section #fdb7;i74 7d7 ,basis of transferee 7#a7 ,in general ,notwithstanding sections #ajad and #ajae1 to the extent that subsection 7a7 applies to any transfer of property-- 7,a7 except as provided in subparagraph 7,b71 the basis of the property in the hands of the transferee shall be the fair market value of the property 7consistent with the amount taken into account by the transferor under subsection 7a771 and 7,b7 in the case such transfer is a transfer upon death to any individual described in subsection 7c77#a77;,a77i71 the basis of the property in the hands of the transferee shall be the same as it would be in the hands of the transferor1 except that if such basis 7adjusted for the period before the date of the transfer as provided in section #ajaf7 is greater than the fair market value of the property at the time of death1 then for the purpose of determining loss the basis shall be such fair market value4 7#b7 ,consistent basis rules for transfers by death ,in the case of any transfer upon death1 rules similar to section #ajad7;f7 shall apply for purposes of this section4 7e7 ,application of depreciation recapture rules ,paragraphs 7#a7 and 7#b7 of section #abde7;b7 and paragraphs 7#a7 and 7#b7 of section #abej7;d7 shall not apply to any property treated as sold by reason of subsection 7a74 ,b ,definitions and rules relating to applicable taxpayers ,sec4 #die4 ,applicable taxpayer defined4,sec4 #dif4 ,special rules for taxpayers entering or changing status as applicable taxpayers4 #die4 ,applicable taxpayer defined 7a7 ,in general ,for purposes of this part-- 7#a7 ,in general ,the term applicable taxpayer means1 with respect to any taxable year1 any taxpayer-- 7,a7 which is an individual who met either the income test of paragraph 7#b7 or the asset test of paragraph 7#c7 for each of the #c immediately preceding taxable years 7including taxable years beginning before the date of the enactment of this part which are included in any such #c-taxable-year period71 or 7,b7 which is-- 7i7 an applicable trust1 or 7ii7 the estate of an individual who was an applicable taxpayer for any taxable year during the #d-taxable-year period ending with the taxable year in which the individual died4 7#b7 ,income test ,the requirements of this paragraph are met for any taxable year if the applicable adjusted gross income of the taxpayer for the taxable year exceeds #ajj1jjj1jjj 7#ej1jjj1jjj in the case of a married individual filing separately74 7#c7 ,asset test ,the requirements of this paragraph are met for any taxable year if the aggregate applicable value of all tradable and nontradable covered assets held by the taxpayer as of the close of the taxable year exceeds #a1jjj1jjj1jjj 7#ejj1jjj1jjj in the case of a married individual filing separately74 7#d7 ,special rules relating to applicable taxpayer status 7,a7 ,termination of status of individual taxpayers ,a taxpayer who is treated as an applicable taxpayer under paragraph 7#a77;,a7 for any taxable year shall continue to be so treated until the first taxable year with respect to which-- 7i7 the taxpayer does not1 for each of the #c taxable years immediately preceding such taxable year1 meet either-- 7,i7 the income test of paragraph 7#b7 in effect for such preceding taxable year1 or 7,,ii7 the asset test of paragraph 7#c7 in effect for such preceding taxable year1 except that each such paragraph shall be applied for purposes of this clause by substituting an amount equal to one-half of the dollar amount otherwise in effect for such taxpayer under such paragraph for each such preceding taxable year for such dollar amount1 and 7ii7 the taxpayer elects1 in such manner and form and at such time as the ,secretary may prescribe1 not to be so treated for such first taxable year4 7,b7 ,earlier termination election of applicable taxpayer status for divorced individuals ,if-- 7i7 an applicable taxpayer ceases to be a married individual by reason of a decree of divorce or separate maintenance issued during any taxable year1 and 7ii7 such taxpayer1 for the first taxable year following the taxable year described in clause 7i71 does not meet either-- 7,i7 the income test of paragraph 7#b71 except that such paragraph shall be applied for purposes of this subclause by substituting #a1jjj1jjj for the dollar amount otherwise in effect for such taxpayer under such paragraph1 or 7,,ii7 the asset test of paragraph 7#c71 except that such paragraph shall be applied for purposes of this subclause by substituting #aj1jjj1jjj for the dollar amount otherwise in effect for such taxpayer under such paragraph1 then such taxpayer may elect1 in such manner and form and at such time as the ,secretary may prescribe1 not to be treated as an applicable taxpayer beginning with such first taxable year4 7,c7 ,election ,an election under subparagraph 7,a7 or 7,b7-- 7i7 shall be made with the taxpayer's return of tax for the taxable year to which such election first applies 7or such other time as the ,secretary shall prescribe7 and shall be in such form and manner as the ,secretary may prescribe1 and 7ii7 shall apply to such first taxable year and all subsequent taxable years until the first taxable year for which the taxpayer is again treated as an applicable taxpayer by reason of meeting the requirements of paragraph 7#a77;,a74 7#e7 ,special rules for married individuals 7,a7 ,applicable taxpayers becoming married individuals ,if an individual was an applicable taxpayer for the taxable year before the individual became a married individual 7within the meaning of section #ggjc71 such individual and the individual's spouse shall be treated as applicable taxpayers for such taxable year of marriage and subsequent taxable years until such status is otherwise terminated under this section4 7,b7 ,married individuals filing separately ,if a married individual filing separately is treated as an applicable taxpayer for any taxable year1 such individual's spouse shall be treated as an applicable taxpayer for such taxable year4 7,c7 ,first-year elections ,under rules prescribed by the ,secretary1 if an individual is first treated as an applicable taxpayer for a taxable year by reason of the application of subparagraph 7,a7 or 7,b71 section #dif shall apply to such taxpayer for such first taxable year only with respect to assets held separately by such individual unless such taxable year is also the first taxable year for which the individual's spouse is an applicable taxpayer4 7#f7 ,regulatory authority ,the ,secretary shall prescribe such regulations and guidance as may be necessary to carry out the provisions of this subsection1 including-- 7,a7 rules waiving the application of paragraph 7#e77;,b7 in cases where the ,secretary determines equitable relief is appropriate1 7,b7 rules providing for the application of this subsection in cases where the filing status of a taxpayer changes between any taxable year and any of the #c immediately preceding taxable years1 including the first taxable year in which a taxpayer files a joint return after becoming married1 and 7,c7 rules requiring such information reporting as the ,secretary determines necessary to determine whether a taxpayer is an applicable taxpayer4 7b7 ,applicable adjusted gross income ,for purposes of this section1 the term applicable adjusted gross income means modified adjusted gross income as defined in section #cf;,b7d77#b77;,b71 except that-- 7#a7 clause 7i7 thereof shall be applied by substituting sections #iaa1 #ica1 and #icc for section #iaa1 and 7#b7 in the case of a trust1 no deduction under section #fea or #ffa shall be allowed4 7c7 ,applicable trust ,for purposes of this section-- 7#a7 ,in general ,the term applicable trust means a trust 7other than a grantor trust7 which1 for each of the #c taxable years immediately preceding such taxable year 7including taxable years beginning before the date of the enactment of this part which are included in any such #c-taxable-year period71 meets either-- 7,a7 the income test of subsection 7a77#b71 except that such subsection shall be applied for purposes of this subparagraph by substituting #aj1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph1 or 7,b7 the asset test of subsection 7a77#c71 except that such subsection shall be applied for purposes of this subparagraph by substituting #ajj1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph4 7#b7 ,exceptions ,such term shall not include-- 7,a7 a qualified disability trust 7as defined in section #fdb7;b77#b77;,c77ii771 7,b7 any portion of a trust which consists of property permanently set aside for the exclusive use of an organization described in section #agj7;c71 7,c7 a pooled income fund 7as defined in section #fdb7;c77#e77 or a cemetery perpetual care fund 7as described in section #fdb7;i771 7,d7 a settlement trust 7as defined in section #fdf71 7,e7 any charitable remainder annuity trust 7as defined in section #ffd71 7,f7 any charitable remainder unitrust 7as defined in section #ffd71 or 7,g7 any other category of trust identified in regulations or guidance provided by the ,secretary4 7#c7 ,grantor trusts 7,a7 ,grantor trust defined ,for purposes of this section1 the term grantor trust means any portion of a trust with respect to which the grantor or any other person is considered the owner under subpart ,e of part ,i of subchapter ,j4 7,b7 ,assets of grantor trust taken into account ,for purposes of subsection 7a77#a77;,a71 the assets of a grantor trust shall be included in the assets of-- 7i7 the grantor of such trust if the grantor is considered the owner of such assets1 and 7ii7 if a person other than the grantor is considered the owner of such assets1 both the grantor and such person4 7d7 ,special rules for foreign persons and expatriates ,for purposes of this part-- 7#a7 ,nonresident alien individuals ,the following rules shall apply in determining whether a nonresident alien individual is an applicable taxpayer3 7,a7 ,income test ,for purposes of the income test under subsection 7a77#b7-- 7i7 such subsection shall be applied for purposes of this subparagraph by substituting #ej1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph1 and 7ii7 the applicable adjusted gross income of such individual shall be equal to the taxable income of such individual1 determined by only taking into account items of income1 gain1 deduction1 and loss which are effectively connected with the conduct of trades or businesses within the ,united ,states4 7,b7 ,asset test ,for purposes of the asset test under subsection 7a77#c7-- 7i7 such subsection shall be applied for purposes of this subparagraph by substituting #ejj1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph1 and 7ii7 only assets which produce income described in subparagraph 7,a7 shall be taken into account4 7#b7 ,expatriates 7,a7 ,in general ,if1 for the taxable year which includes a covered expatriate's expatriation date1 such expatriate-- 7i7 was an applicable taxpayer 7without regard to this paragraph71 or 7ii7 is an applicable taxpayer under the rules of subparagraph 7,b71 such expatriate shall be treated as an applicable taxpayer during each of the taxable years during the #aj-taxable-year period beginning with such taxable year 7and such status shall not be terminated during such period by reason of any other provision of this part74 7,b7 ,special rules for determining status ,for purposes of subparagraph 7,a77ii71 a covered expatriate not otherwise treated as an applicable taxpayer shall be treated as an applicable taxpayer if1 during any of the #e taxable years immediately preceding the taxable year which includes the covered expatriate's expatriation date 7including taxable years beginning before the date of the enactment of this part which are included in any such #e-taxable-year period71 the expatriate meets either-- 7i7 the income test of subsection 7a77#b71 except that such subsection shall be applied for purposes of this subparagraph by substituting #ej1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph1 or 7ii7 the asset test of subsection 7a77#c71 except that such subsection shall be applied for purposes of this subparagraph by substituting #ejj1jjj1jjj for the dollar amount otherwise in effect for such taxable year under such paragraph4 7,c7 ,definitions ,any term used in this paragraph which is also used in section #hgg;,a shall have the same meaning as when used in such section4 #dif4 ,special rules for taxpayers entering or changing status as applicable taxpayers 7a7 ,initial treatment as applicable taxpayer 7#a7 ,in general ,in the case of the first taxable year for which a taxpayer is an applicable taxpayer-- 7,a7 the taxpayer may make the election under paragraph 7#c7 with respect to nontradable covered assets1 and 7,b7 if the taxpayer elects the application of this subparagraph1 the net first-year tax liability of the taxpayer for such taxable year shall be payable in #e equal annual installments over the #e-taxable-year period beginning with such taxable year4 7#b7 ,net first-year tax liability ,for purposes of this section-- 7,a7 ,in general ,the term net first-year tax liability means1 with respect to the first taxable year described in paragraph 7#a71 the excess 7if any7 of-- 7i7 such taxpayer's net income tax for such taxable year1 over 7ii7 such taxpayer's net income tax for such taxable year determined without regard to gain or loss of the taxpayer taken into account for such taxable year by reason of a taxable event described in section #dia7;b77#a74 7,b7 ,net income tax ,the term net income tax means the regular tax liability reduced by the credits allowed under subparts ,a1 ,b1 and ,d of part ,,iv of subchapter ,a4 7#c7 ,election to pay and defer tax on nontradable assets 7,a7 ,in general ,except as provided in subparagraph 7,c71 a taxpayer may elect to treat any nontradable covered asset held by the taxpayer as of the end of the first taxable year described in paragraph 7#a7 as a tradable covered asset for purposes of applying section #dia7;b77#a7 and this subsection4 7,b7 ,determination of gain 7i7 ,in general ,for purposes of applying section #dia7;a77#a77;,a71 the fair market value of any asset with respect to which an election is in effect under subparagraph 7,a7 shall be the amount specified by the taxpayer in such election1 except that such value may not1 unless otherwise provided by the ,secretary1 be less than the taxpayer's adjusted basis in such asset as of the end of the first taxable year described in paragraph 7#a74 7ii7 ,no deductions or credits for basis increases ,if there is any increase under this part in the taxpayer's adjusted basis of any asset by reason of an election under this paragraph1 no deduction or credit shall be allowed under this title with respect to the portion of such adjusted basis attributable to such increase4 7,c7 ,only significant owner of applicable entity may elect ,in the case of a nontradable covered asset which is a nontradable interest in an applicable entity1 an applicable taxpayer may make an election under subparagraph 7,a7 with respect to such asset only if such taxpayer is a significant owner 7as defined in section #dic7;b77#d77;,a77 of such entity with respect to whom a notice is in effect under section #dic7;b77#b77;,a7 for the taxable year for which the election is being made4 7#d7 ,special rule where delay in reporting by applicable entity 7,a7 ,in general ,if-- 7i7 there is a delay in reporting to an applicable taxpayer by #a or more applicable entities by reason of section #dic7;c77#d71 and 7ii7 any gain or loss is reported by such entities to such taxpayer under section #dic7;c77#a77;,a77i7 and is taken into account in such taxpayer's taxable year immediately succeeding the first taxable year described in paragraph 7#a71 then1 subject to such rules as the ,secretary may prescribe1 the taxpayer may elect under paragraph 7#a77;,b7 to treat the net tax liability described in subparagraph 7,b7 as net first-year tax liability payable in #e equal annual installments beginning with such succeeding taxable year4 ,the rules of paragraph 7#e7 shall apply to such installments in the same manner as such rules apply to installments for such first taxable year4 7,b7 ,net tax liability ,for purposes of subparagraph 7,a71 the net tax liability described in this subparagraph is1 with respect to the taxable year described in such subparagraph1 the excess 7if any7 of-- 7i7 such taxpayer's net income tax for such taxable year1 over 7ii7 such taxpayer's net income tax for such taxable year determined without regard to gain or loss of the taxpayer described in subparagraph 7,a77ii74 7#e7 ,rules relating to installment payments 7,a7 ,date for payment of installments ,if an election is made under paragraph 7#a71 the first installment shall be paid on the due date 7determined without regard to any extension of time for filing the return7 for the return of tax for the first taxable year described in paragraph 7#a7 and each succeeding installment shall be paid on the due date 7as so determined7 for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made4 7,b7 ,acceleration of payment 7i7 ,disposition of assets 7,i7 ,in general ,if1 before the close of the #e-year period described in paragraph 7#a71 a taxpayer sells or exchanges1 transfers1 or otherwise disposes of an asset with respect to which an election is in effect under paragraph 7#a77;,b71 then the applicable percentage of the unpaid portion of all remaining installments described in paragraph 7#a77;,b7 shall be due on the date of such disposition 7or such later date as the ,secretary may prescribe74 7,,ii7 ,applicable percentage ,for purposes of this subparagraph1 the applicable percentage is the percentage determined by dividing the gain not taken into account in determining net income tax under paragraph 7#b77;,a77ii7 with respect to the asset described in subclause 7,i7 by the aggregate amount of all gain not so taken into account4 7ii7 ,failure to pay1 etc ,in the case of an addition to tax for failure to timely pay any installment required under this subsection1 the death of the taxpayer1 or the filing of a petition by the taxpayer in a title #aa or similar case1 then the unpaid portion of all remaining installments shall be due on the date of such event 7or in the case of a title #aa or similar case1 the day before the petition is filed74 7,c7 ,proration of deficiency to installments ,if an election is made under paragraph 7#a7 to pay the net first-year tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability1 the deficiency shall be prorated to the installments payable under paragraph 7#a74 ,the part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as1 and as a part of1 such installment4 ,the part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the ,secretary4 ,this subsection shall not apply if the deficiency is due to negligence1 to intentional disregard of rules and regulations1 or to fraud4 7,d7 ,installments not to prevent credit or refund of overpayments or increase estimated taxes ,if an election is made under paragraph 7#a7 to pay the net first-year tax liability under this subsection in installments-- 7i7 no installment of such liability shall-- 7,i7 in the case of a request for credit or refund1 be taken into account as a liability for purposes of determining whether an overpayment exists for purposes of section #fdjb before the date on which such installment is due1 or 7,,ii7 be treated as a tax imposed by section #a for purposes of section #ffed1 and 7ii7 the first sentence of section #fdjc shall not apply with respect to any such installment4 7#f7 ,elections 7,a7 ,in general ,any election under paragraph 7#a71 7#c77;,a71 or 7#d77;,a7 shall be made not later than the due date for the return of tax for the first taxable year described in paragraph 7#a7 and shall be made in such manner as the ,secretary shall provide4 7,b7 ,extensions ,the ,secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make any election under paragraph 7#a71 7#c77;,a71 or 7#d77;,a74 ,in determining whether to grant relief under this subparagraph1 the ,secretary shall take into account all relevant circumstances and the time for making the election shall be treated as not expressly provided by statute4 7b7 ,treatment of taxpayers leaving and reentering applicable status ,if a taxpayer's status as an applicable taxpayer is terminated under section #die7;a77#d7 and the taxpayer is again treated as an applicable taxpayer for a subsequent taxable year by reason of meeting the requirements of section #die7;a77#a77;,a71 the following rules shall apply3 7#a7 ,subsequent year not treated as first year of applicable taxpayer status ,subsection 7a7 shall not apply to any taxable year in which the taxpayer is again treated as an applicable taxpayer and such subsequent taxable year shall not be treated as the first taxable year for which the taxpayer is an applicable taxpayer for any other purpose of this part4 7#b7 ,nontradable assets ,if there is an applicable transfer by a taxpayer of a nontradable covered asset after the taxpayer is again treated as an applicable taxpayer1 the taxpayer's holding period of such asset for purposes of section #dib shall include all periods during which the taxpayer's status as an applicable taxpayer was previously terminated and the taxpayer held such asset4 7c7 ,special rules relating to ownership of nontradable interests in applicable entities 7#a7 ,in general ,for purposes of subsection 7a71 if an applicable taxpayer elects under subsection 7a77#c7 to treat a nontradable interest in an applicable entity held directly as a tradable covered asset for the first taxable year described in subsection 7a77#a71 the amount of the gain taken into account under subsection 7a7 with respect to such interest shall be equal to the excess 7if any7 of-- 7,a7 the value of such interest specified by the taxpayer under subsection 7a77#c77;,b71 over 7,b7 the taxpayer's adjusted basis in such interest as of the close of such taxable year4 7#b7 ,adjustments to bases of entity's nontradable assets 7,a7 ,partnerships 7i7 ,in general ,if the applicable entity is a partnership1 the partnership shall increase the adjusted bases of the partnership's assets by the amount described in paragraph 7#a74 ,such increase shall constitute an adjustment to the bases of partnership assets solely for determining the applicable taxpayer's share of such bases4 7ii7 ,allocation ,the ,secretary shall prescribe rules for the allocation of the increase in adjusted bases among partnership assets in a manner which has the effect of reducing the difference between the value and such adjusted bases4 ,such rules shall also provide proper adjustments to adjusted bases where ownership is held through tiered entities4 7,b7 ,other applicable entities ,rules similar to the rules of clause 7i7 shall apply to applicable entities other than partnerships4 7,c7 ,no deductions or credits for basis increases ,if there is any increase in the applicable entity's adjusted basis of any asset by reason of subparagraph 7,a71 no deduction or credit shall be allowed under this title with respect to the portion of such adjusted basis attributable to such increase4 7#c7 ,definitions ,any term used in this subsection which is also used in section #dic shall have the same meaning as when used in such section4 7d7 ,special election for certain tradable assets of applicable taxpayers 7#a7 ,in general ,if a qualified taxpayer makes an election under this subsection1 then any stock held by such qualified taxpayer which would 7but for such election7 be a tradable covered asset and which is specified in such election shall be treated as a nontradable capital asset of the taxpayer for purposes of this part4 7#b7 ,limitations 7,a7 ,only stock of a single entity taken into account ,an election made under this subsection may not specify stock in more than one ,c corporation or specify more than one class of stock in such corporation4 7,b7 ,value 7i7 ,in general ,the aggregate value of stock specified in an election made under this subsection shall not exceed #a1jjj1jjj1jjj4 7ii7 ,determination ,for purposes of clause 7i71 the value of any stock specified in an election made under this section shall be determined as of the last day of the first taxable year for which the taxpayer is an applicable taxpayer4 7#c7 ,qualified taxpayer ,for purposes of this subsection1 the term qualified taxpayer means any taxpayer-- 7,a7 which is not an estate or trust1 and 7,b7 for which the first taxable year for which such taxpayer is an applicable taxpayer is a taxable year that begins before ,january #a1 #bjbg4 7#d7 ,election 7,a7 ,in general ,any election under this subsection shall be made not later than the due date for the return of tax for the first taxable year for which the taxpayer is an applicable taxpayer and shall be made in such manner as the ,secretary shall provide4 7,b7 ,extensions ,the ,secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make any election under this subsection4 ,in determining whether to grant relief under this subparagraph1 the ,secretary shall take into account all relevant circumstances and the time for making the election shall be treated as not expressly provided by statute4 ,c ,other definitions and rules ,sec4#dig4 ,terms and rules relating to covered assets4,sec4#dih4 ,other definitions2 coordination with title4 #dig4 ,terms and rules relating to covered assets 7a7 ,covered asset ,for purposes of this part1 except as otherwise provided in this part1 the term covered asset means any asset other than-- 7#a7 any interest of the taxpayer in an applicable savings plan or in a defined benefit plan1 7#b7 any cash or cash equivalent1 or 7#c7 any private placement life insurance or annuity contract described in section #gb7;e77#ab77;,d74 7b7 ,tradable covered asset ,for purposes of this part1 except as provided in section #dif7;d71 the term tradable covered asset means-- 7#a7 any covered asset if-- 7,a7 interests in such asset are traded on an established securities market1 7,b7 interests in such assets are readily tradable on a secondary market 7or the substantial equivalent thereof71 7,c7 interests in such assets are available on an online or electronic platform that regularly matches1 or facilitates the matching of1 buyers and sellers of such assets1 or 7,d7 such asset is an asset for which the ,secretary determines there is a reasonable basis to determine the asset's fair market value annually1 and 7#b7 any derivative with respect to an underlying investment which-- 7,a7 is an asset described in paragraph 7#a71 or 7,b7 is a nontradable covered asset which is identified in regulations or other guidance provided by the ,secretary4 7c7 ,nontradable covered asset ,for purposes of this part-- 7#a7 ,in general ,the term nontradable covered asset means any covered asset which is not a tradable covered asset4 7#b7 ,certain assets only counted for determining aggregate value of assets 7,a7 ,in general ,any asset excluded from treatment as a covered asset under paragraph 7#a71 7#b71 or 7#c7 of subsection 7a7 shall be taken into account as a nontradable covered asset in computing the aggregate applicable value of all tradable and nontradable covered assets held by the taxpayer as of the close of any taxable year for purposes of section #die7;a77#c74 7,b7 ,private placement life insurance and annuity contracts ,for purposes of subparagraph 7,a7-- 7i7 ,in general ,the applicable value of a private placement life insurance or annuity contract 7as defined in section #gb7;e77#ab77;,d77 as of any date shall be its cash surrender value 7as determined under section #ggjb7;f77#b77;,a77 on such date4 7ii7 ,adjustments ,the ,secretary shall by regulation provide for adjustments to the cash surrender value determined under clause 7i7 with respect to any contract to the extent necessary to prevent the avoidance of the purposes of this part1 including regulations which ensure that such value as of any time properly reflects the value of any underlying investments with respect to such contract as of such time4 7#c7 ,investments in qualified opportunity funds ,notwithstanding subsection 7b71 any investment in a qualified opportunity fund 7as defined in section #adjj,z-#b7;d77 shall be treated as a nontradable covered asset4 7d7 ,applicable value ,for purposes of this part-- 7#a7 ,tradable covered assets ,the applicable value of any tradable covered asset as of any date shall be its fair market value on such date4 7#b7 ,nontradable covered assets ,the applicable value of any nontradable covered asset as of any date shall be the greatest of-- 7,a7 the original cost basis of such asset1 7,b7 the adjusted basis of such asset1 7,c7 the value determined as of the date of the last event with respect to the asset which establishes such value1 7,d7 in the case of an asset the value of which is included in an applicable financial statement1 the value in the latest available statement1 7,e7 the value of such asset determined for purposes of using such asset to secure any indebtedness1 and 7,f7 the value of such asset determined under such other valuation method as the ,secretary may prescribe4 ,if a covered asset would1 but for subsection 7c77#c7 or any other provision of this part1 be treated as a tradable covered asset1 the asset's applicable value shall be determined under paragraph 7#a74 7#c7 ,adjustment for debt and other liabilities of the taxpayer ,except as provided by the ,secretary1 the aggregate applicable value of all covered assets of the taxpayer as of any date 7determined without regard to this paragraph7 shall be reduced by the aggregate outstanding amount of-- 7,a7 indebtedness of the taxpayer as of such date1 and 7,b7 any other liabilities 7other than indebtedness7 of the taxpayer as of such date which the ,secretary determines are appropriate to be taken into account for such purpose4 7#d7 ,reliance on valuation ,in determining the applicable value of any tradable covered asset for purposes of this section1 the taxpayer may rely on a valuation which is-- 7,a7 provided to the taxpayer by a broker under section #fjde7;b71 7,b7 provided to the taxpayer by a dealer in securities or a dealer in commodities1 within the meaning of section #dge1 7,c7 determined under an applicable financial statement1 or 7,d7 provided to the taxpayer by such other persons as may be designated by the ,secretary4 7#e7 ,applicable financial statement ,for purposes of this subsection1 the term applicable financial statement has the meaning given such term by section #dea7;b77#c74 7#f7 ,special rules for applicable entities ,in the case of an applicable entity-- 7,a7 adjustments to basis of any covered asset under section #dic7;b77#b7 shall be taken into account in determining the adjusted basis of such asset for purposes of paragraph 7#b77;,b71 7,b7 the value of a partner's ownership interest in such partnership under paragraph 7#b77;,c7 shall not be less than the value of the partner's capital account under section #gjd1 and 7,c7 the ,secretary shall provide rules for determining the share of a holder of an ownership interest in such an entity of amounts included in an applicable financial statement of such entity for purposes of applying paragraph 7#b77;,d74 7#g7 ,secretarial authority ,the ,secretary shall prescribe such regulations1 rules1 and guidance as may be necessary to carry out the purposes of this subsection1 including regulations1 rules1 and guidance which-- 7,a7 prevent the avoidance of such purposes1 7,b7 provide rules for the application of paragraph 7#b77;,c71 including in cases of transactions in which gain or loss is not recognized in connection with contributions1 distributions1 and sales of substantially similar property from which value may be derived1 and 7,c7 provide rules for determining the applicable value of assets in taxable years beginning before the date of the enactment of this part4 #dih4 ,other definitions2 coordination with title 7a7 ,applicable transfer ,for purposes of this part-- 7#a7 ,in general ,the term applicable transfer means-- 7,a7 any sale1 exchange1 disposition1 or other transfer if-- 7i7 gain or loss 7if any7 is1 without regard to this part1 recognized under this chapter on such sale1 exchange1 disposition1 or other transfer1 and 7ii7 such sale1 exchange1 disposition1 or other transfer is not in the ordinary course of a trade or business1 and 7,b7 any disregarded nonrecognition event4 7#b7 ,disregarded nonrecognition event ,the term disregarded nonrecognition event means-- 7,a7 any exchange to which section #cea applies1 7,b7 any exchange to which section #ajca applies1 7,c7 any transfer of an asset which-- 7i7 is identified by the ,secretary1 7ii7 involves a ,c corporation1 and 7iii7 is in connection with an asset with respect to which no gain or loss has been recognized by such corporation1 or 7,d7 any other transaction in which gain or loss is not otherwise recognized and which the ,secretary determines is necessary to be treated as a disregarded nonrecognition event in order to prevent the avoidance of the purposes of this part4 7#c7 ,conversion of assets 7,a7 ,nontradable to tradable ,if a taxpayer holds a nontradable covered asset 7other than an investment in a qualified opportunity fund 7as defined in section #adjj,z-#b7;d777 which1 as part of a transaction or series of transactions1 is converted to1 or exchanged for1 a tradable covered asset1 such conversion or exchange shall be treated as a disregarded nonrecognition event if gain or loss 7if any7 on such conversion or exchange is1 without regard to this part1 not recognized under this chapter4 7,b7 ,tradable to nontradable ,if a taxpayer holds a tradable covered asset which1 as part of a transaction or series of transactions1 is converted to1 or exchanged for1 a nontradable covered asset1 such conversion or exchange shall be treated as a taxable event with respect to the asset being converted or exchanged if gain or loss 7if any7 on such conversion or exchange is1 without regard to this part1 not recognized under this chapter4 7b7 ,applicable savings plan ,the term applicable savings plan means-- 7#a7 a defined contribution plan to which section #dja7;a7 or #djc7;a7 applies1 7#b7 an annuity contract under section #djc7;b71 7#c7 an eligible deferred compensation plan described in section #deg7;b7 which is maintained by an eligible employer described in section #deg7;e77#a77;,a71 7#d7 an individual retirement plan1 7#e7 an ,archer ,,msa 7within the meaning of section #bbj7;d771 7#f7 a qualified tuition program 7as defined in section #ebi7;b771 7#g7 an ,,able account 7as defined in section #ebi;,a7e77#f771 7#h7 a ,coverdell education savings account 7as defined in section #ecj71 or 7#i7 a health savings account 7within the meaning of section #bbc7;d774 7c7 ,derivative2 underlying investment 7#a7 ,derivative ,the term derivative has the meaning given such term under section #ei;,a7h77#d74 7#b7 ,underlying investment ,the term underlying investment means1 with respect to any derivative1 any item-- 7,a7 which is described in clauses 7i7 through 7v7 of section #ei;,a7h77#d77;,a7 7or any item substantially the same as any such item71 and 7,b7 by reference to which the value of the derivative1 or any payment or other transfer with respect to the derivative1 is determined either directly or indirectly4 7d7 ,regulatory authority ,to prevent avoidance and ,to coordinate with other provisions of this title ,the ,secretary shall issue such regulations or other guidance as are necessary to-- 7#a7 prevent taxpayers from avoiding the application of this part1 and 7#b7 coordinate the provisions of this part with other provisions of this title which require taxpayers to take income into account in the absence of a payment or other distribution4 4 7b7 ,clerical amendment ,the table of parts for subchapter ,e of chapter #a is amended by adding at the end the following new item3 ,part ,,iv4 ,elimination of deferral for applicable taxpayers4 4 7c7 ,effective date ,the amendments made by this section shall apply to taxable events and applicable transfers occurring in taxable years beginning after ,december #ca1 #bjbe4 #ajb4 ,carryback of capital losses attributable to mark-to-market rules 7a7 ,in general ,section #abab is amended by adding at the end the following new subsection3 7d7 ,carryback of losses of applicable taxpayers from assets marked to market 7#a7 ,in general ,if an applicable taxpayer elects to have this subsection apply to any taxable year in which the taxpayer has a net marked-to-market loss 7in this subsection referred to as the loss year71 the amount of such net marked-to-market loss-- 7,a7 shall be a carryback to each of the #c taxable years preceding the loss year1 and 7,b7 to the extent that1 after the application of paragraphs 7#b7 and 7#c71 such loss is allowed as a carryback to any such preceding taxable year1 the amount so allowed shall be treated as a long-term capital loss4 7#b7 ,amount carried to each taxable year ,the entire amount of the net marked-to-market loss for any loss year shall be carried to the earliest of the taxable years to which such loss may be carried back under paragraph 7#a74 ,the portion of such loss which shall be carried to each of the #b other taxable years to which such loss may be carried back shall be the excess 7if any7 of such loss over the portion of such loss which1 after the application of paragraph 7#c71 was allowed as a carryback for any prior taxable year4 7#c7 ,amount which may be used in any prior taxable year ,an amount shall be allowed as a carryback under paragraph 7#a7 from a loss year to any prior taxable year only to the extent-- 7,a7 such amount does not exceed the net marked-to-market gain for such prior year1 and 7,b7 the allowance of such carryback does not increase or produce a net operating loss 7as defined in section #agb7;c77 for such year4 7#d7 ,net marked-to-market loss ,for purposes of this subsection1 the term net marked-to-market loss means1 with respect to any taxable year1 an amount equal to-- 7,a7 the net capital loss for the taxable year determined by taking into account only marked-to-market gains and losses1 reduced 7but not below zero7 by 7,b7 the aggregate amount of gains from the sale or exchange of capital assets which are not marked-to-market gains4 7#e7 ,net marked-to-market gain ,for purposes of this subsection-- 7,a7 ,in general ,the term net marked-to-market gain means1 with respect to any taxable year1 an amount equal to-- 7i7 the capital gain net income for the taxable year determined by taking into account only marked-to-market gains and losses1 reduced 7but not below zero7 by 7ii7 the aggregate amount of losses from the sale or exchange of capital assets which are not marked-to-market losses4 7,b7 ,special rule ,the net marked-to-market gain for any taxable year before the loss year shall be computed without regard to the net marked-to-market loss for the loss year or for any taxable year thereafter4 7#f7 ,coordination with carryforward provisions of subsection 7b77#a7 7,a7 ,carryforward amount reduced by amount used as carryback ,for purposes of applying subsection 7b77#a77;,b71 if any portion of the net marked-to-market loss for any taxable year is allowed as a carryback under paragraph 7#a7 to any preceding taxable year1 the amount allowed as a carryback shall be treated as a long-term capital gain for the loss year4 7,b7 ,carryover loss retains character as attributable to marked-to-market ,any amount carried forward as a long-term capital loss to any taxable year under subsection 7b77#a77;,b7 7after the application of subparagraph 7,a77 shall1 to the extent attributable to marked-to-market losses1 be treated as marked-to-market loss4 7,c7 ,coordination with reduction in net capital loss for credit ,for purposes of this paragraph and paragraph 7#d71 any reduction in net capital loss under section #dib7;c77#c7 7relating to reduction for credit against tax attributable to deferral recapture amount7 shall1 except as provided by the ,secretary1 be applied before the application of such paragraphs4 7#g7 ,other definitions and rules ,for purposes of this subsection-- 7,a7 ,marked-to-market gains and losses 7i7 ,in general ,the terms marked-to-market gains and marked-to-market losses means1 with respect to any applicable taxpayer for any taxable year1 gains or losses which are recognized and taken into account by such taxpayer for such taxable year under section #dia by reason of taxable events described in section #dia7;b77#a7 with respect to tradable covered assets which are capital assets4 ,such terms shall not include gains and losses from nontradable covered assets which are treated as tradable covered assets 7and to which section #dia applies7 by reason of an election under section #dif7;a77#c74 7ii7 ,applicable entities ,in the case of marked-to-market gains or losses of an applicable entity1 this subsection shall be applied at the partner or other ownership level4 7,b7 ,other terms ,any term used in this subsection which is also used in part ,,iv of subchapter ,e shall have the same meaning as when used in such part4 4 7b7 ,effective date ,the amendment made by this section shall apply to loss years beginning after ,december #ca1 #bjbe4 ,,ii ,application of other provisions to applicable taxpayers and entities ,a ,individuals #bja4 ,applicable taxpayers not eligible for adjusted gross income limitation on net investment tax 7a7 ,in general ,section #adaa7;a7 is amended by adding at the end the following new paragraph3 7#c7 ,no adjusted gross income limit for applicable taxpayers ,in the case of an applicable taxpayer 7as defined in section #die7 for any taxable year1 notwithstanding paragraph 7#a7 or 7#b71 the tax under this subsection for such taxable year shall be equal to the product of-- 7,a7 in the case of an individual1 the rate of tax in effect under paragraph 7#a7 multiplied by the amount determined under paragraph 7#a77;,a71 and 7,b7 in the case of an estate or trust1 the rate of tax in effect under paragraph 7#b7 multiplied by the amount determined under paragraph 7#b77;,a74 4 7b7 ,effective date ,the amendment made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4 #bjb4 ,treatment of covered expatriates 7a7 ,application of expatriate rules to applicable taxpayers ,section #hgg;,a is amended by redesignating subsection 7i7 as subsection 7j7 and by inserting after subsection 7h7 the following new subsection3 7i7 ,special rules for applicable taxpayers 7#a7 ,in general ,in the case of a covered expatriate who is an applicable taxpayer 7as defined in section #die7 for the taxable year which includes the expatriation date-- 7,a7 no election may be made under subsection 7b7 with respect to any property treated as sold by reason of subsection 7a7 7after application of subparagraph 7,b771 and 7,b7 the covered expatriate shall1 for purposes of subsection 7a77#a71 also be treated as having sold on the last day of the #aj-taxable-year period described in section #die7;d77#b77;,a7 all property held by the covered expatriate as of the close of such day which is not otherwise treated as sold under part ,,iv of subchapter ,e as of such time4 7#b7 ,application of section #hgg ,notwithstanding section #hgg7;h7-- 7,a7 a covered expatriate described in paragraph 7#a7 shall be treated as an individual to whom section #hgg applies1 and 7,b7 such individual shall be taxable as provided in such section for each of the taxable years in the #aj-taxable-year period described in section #die7;d77#b77;,a74 4 7b7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4 ,b ,rules for applicable entities and trusts #baa4 ,treatment of like-kind exchanges by applicable entities 7a7 ,in general ,section #ajca is amended by adding at the end the following new subsection3 7i7 ,special rules for applicable entities ,subsection 7a7 shall not apply to an exchange by an applicable entity if a notice received by the entity under subsection 7b77#b77;,a7 or 7c77#b7 of section #dic is in effect at the time of such exchange4 4 7b7 ,effective date ,the amendment made by this section shall apply to exchanges completed after ,december #ca1 #bjbe4 #bab4 ,treatment of transfers by applicable entities in exchange for stock 7a7 ,in general ,section #cea is amended by redesignating subsection 7h7 as subsection 7i7 and by inserting after subsection 7g7 the following new subsection3 7h7 ,special rules for applicable entities 7#a7 ,in general ,subsection 7a7 shall not apply to an exchange by an applicable entity if an applicable notice received by the entity is in effect at the time of such exchange4 7#b7 ,applicable notice ,for purposes of paragraph 7#a7-- 7,a7 ,in general ,the term applicable notice means1 with respect to any applicable entity1 a notice-- 7i7 which is received by the entity under subsection 7b77#b77;,a7 or 7c77#b7 of section #dic1 and 7ii7 which relates to an applicable taxpayer who is a #bj-percent owner with respect to such entity4 7,b7 #bj-percent owner ,for purposes of subparagraph 7,a71 a #bj-percent owner shall be determined in the same manner as a #e-percent owner under section #dic7;b77#d77;,b71 except that #bj percent shall be substituted for #e percent in applying clauses 7i7 and 7ii77,i7 thereof4 7#c7 ,applicable entity ,for purposes of this subsection1 the term applicable entity has the meaning given such term by section #dic4 4 7b7 ,effective date ,the amendments made by this section shall apply to exchanges completed after ,december #ca1 #bjbe4 #bac4 ,special rules for applicable trusts 7a7 ,in-,kind distributions ,section #fdc7;e77#c7 is amended-- 7#a7 in subparagraph 7,a71 by striking to which an election under this paragraph applies and inserting to which this paragraph applies1 and 7#b7 by striking subparagraph 7,b7 and inserting the following3 7,b7 ,distributions to which this paragraph applies ,this paragraph shall apply to-- 7i7 any distribution of property by an estate which is described in section #die7;a77#a77;,b77ii7 or by an applicable trust 7as defined in section #die7;c771 and 7ii7 any distribution during the taxable year of any other estate or trust which makes an election under this paragraph4 ,any election made under clause 7ii7 shall be made on the return of such estate or trust for such taxable year1 and1 once made1 may be revoked only with the consent of the ,secretary4 4 7b7 ,treatment of loans ,section #fdc7;i7 is amended-- 7#a7 by inserting or an applicable trust 7as defined in section #die7;c77 after foreign trust in paragraph 7#a71 7#b7 by striking who is a ,united ,states person in paragraph 7#a77;,a7 and inserting who is not exempt from tax under this chapter1 7#c7 by striking ,united ,states person in paragraph 7#a77;,b7 and inserting person 7other than a person who is exempt from tax under this chapter71 7#d7 by striking paragraph 7#b77;,c71 and 7#e7 by striking foreign in the heading thereof and inserting certain4 7c7 ,treatment of multiple trusts ,section #fdc7;f77#b7 is amended by inserting or the rules of part ,,iv of subchapter ,e after this chapter4 7d7 ,foreign trusts 7#a7 ,in general ,subpart ,f of part ,i of subchapter ,j is amended by adding at the end the following new section3 #fhf4 ,special rules for applicable foreign trusts 7a7 ,in general ,for purposes of this part1 in the case of any beneficiary of an applicable foreign trust who is required to include in income any amount attributable to gain on an applicable transfer of any covered asset1 the amount of tax imposed under this chapter shall be increased by the amount which bears the same ratio to the amount of the deferral recapture amount which would be determined on such applicable transfer under section #dib7;a7 7determined as if such trust were an applicable taxpayer and section #dib applied to any covered asset of the trust7 as-- 7#a7 the amount required to be included in income attributable to the gain on such applicable transfer1 bears to 7#b7 the total amount of the gain on such applicable transfer4 7b7 ,exception ,subsection 7a7 shall not apply to any amount to the extent that the applicable foreign trust pays 7at such time and in such manner as provided by the ,secretary7 the tax which would be imposed under section #dib7;a7 7determined as if such trust were an applicable taxpayer and section #dib applied to any covered asset of the trust7 with respect to the applicable transfer described in subsection 7a74 7c7 ,applicable foreign trust ,for purposes of this section1 the term applicable foreign trust means any foreign trust which would be an applicable trust if such trust were a domestic trust4 7d7 ,other terms ,any term used in this section which is also used in part ,,iv of subchapter ,e shall have the same meaning as when used in such part4 4 7#b7 ,reporting ,section #fjdh7;c77#a7 is amended by striking and1 at the end of subparagraph 7,b71 by redesignating subparagraph 7,c7 as subparagraph 7,d71 and by inserting after subparagraph 7,b7 the following new subparagraph3 7,c7 such information as the ,secretary shall require for purposes of determining the increase 7if any7 in tax under section #fhf1 and 4 7#c7 ,clerical amendment ,the table of sections for subpart ,f of part ,i of subchapter ,j is amended by adding at the end the following new item3 ,sec4 #fhf4 ,special rules for applicable foreign trusts4 4 7e7 ,coordination with throwback rules ,the ,secretary of the ,treasury 7or the ,secretary's delegate7 shall provide such regulations or other guidance as necessary to coordinate the amendments made by this section with the rules of subpart ,d of part ,i of subchapter ,j4 7f7 ,effective dates 7#a7 ,in general ,except as provided in paragraph 7#b71 the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4 7#b7 ,foreign trusts ,the amendments made by subsection 7e7 shall apply to applicable transfers occurring in taxable years beginning after ,december #ca1 #bjbe4 ,c ,treatment of deferred compensation and certain life insurance and annuity contracts #bba4 ,elimination of deferral of tax on certain compensation 7a7 ,in general ,subpart ,a of part ,i of subchapter ,d of chapter #a is amended by adding at the end the following new section3 #dji;,b4 ,special rules for certain deferred compensation 7a7 ,in general ,in the case of an individual who is an applicable taxpayer for any taxable year1 the taxpayer's tax under this chapter for the taxable year 7determined without regard to this section7 shall be increased by an amount equal to the sum of-- 7#a7 the deferral recapture amount determined under subsection 7b77#a7 for any applicable deferred compensation which is includible in the gross income of the individual for the taxable year1 and 7#b7 #aj percent of the amount of any severance pay which is includible in the gross income of the individual during the taxable year4 7b7 ,deferral recapture amount ,for purposes of this section-- 7#a7 ,in general ,the term deferral recapture amount means1 with respect to any applicable deferred compensation includible in gross income for the taxable year1 the aggregate amount of interest 7determined in the manner provided under paragraph 7#c77 on the deemed tax amount determined under paragraph 7#b7 for each preceding taxable year to which compensation is allocated under paragraph 7#b77;,a74 7#b7 ,deemed tax amount 7,a7 ,in general ,the deemed tax amount for any taxable year preceding the taxable year in which applicable deferred compensation is includible in gross income shall be the amount determined-- 7i7 first1 except as provided in subparagraph 7,b71 by allocating the amount of such compensation ratably to each day in the deferral period with respect to the applicable deferred compensation1 and 7ii7 then by multiplying the amount1 if any1 allocated under clause 7i7 to such preceding taxable year by the highest rate of tax in effect under section #a for the taxable year in which the compensation is includible in gross income of the individual4 7,b7 ,special rule for periods before becoming applicable taxpayer ,notwithstanding subparagraph 7,a77i71 any compensation which would be otherwise allocated under such subparagraph to any taxable year preceding the first taxable year for which the taxpayer is treated as an applicable taxpayer shall be allocated to such first taxable year4 7#c7 ,computation of interest 7,a7 ,in general ,the amount of interest referred to in paragraph 7#a7 on any deemed tax amount determined under paragraph 7#b7 for any preceding taxable year with respect to applicable deferred compensation shall be determined for the period beginning on the due date for such preceding taxable year and ending on the last day of the deferral period with respect to the applicable deferred compensation1 by using the rates determined under section #ffba7;b7 7plus #a percentage point71 and the method applicable under section #ffba1 for underpayments of tax for such period4 7,b7 ,due date ,for purposes of this paragraph1 the term due date means1 with respect to any preceding taxable year1 the date prescribed by law 7determined without regard to extensions7 for filing the return of the tax imposed by this chapter for such taxable year4 7#d7 ,limitation ,in no case shall the deferral recapture amount determined with respect to any applicable deferred compensation which is includible in gross income for a taxable year exceed an amount equal to #aj percent of the amount of such compensation4 7c7 ,definitions ,for purposes of this section-- 7#a7 ,applicable taxpayer ,the term applicable taxpayer has the meaning given such term by section #die4 7#b7 ,applicable deferred compensation 7,a7 ,in general ,except as provided in subparagraph 7,b71 the term applicable deferred compensation means-- 7i7 any compensation provided under a nonqualified deferred compensation plan1 as defined in section #dji;,a7d77#a71 except that-- 7,i7 such term shall include stock appreciation rights1 and 7,,ii7 compensation shall not fail to be treated as deferred solely because such compensation is not treated as deferred for purposes of section #dji;,a by reason of such compensation being includible in gross income for the first taxable year after a taxable year in which such compensation is no longer subject to a substantial risk of forfeiture1 and 7ii7 any other property transferred in connection with the performance of services which is subject to section #hc4 7,b7 ,exceptions ,such term does not include-- 7i7 severance pay1 or 7ii7 any transfer of a profits interest in a partnership4 7,c7 ,earnings and interest ,any earnings1 interest1 or similar adjustment included in an amount of applicable deferred compensation shall not be treated as separately deferred from such amount4 7#c7 ,severance pay ,the term severance pay means any compensation the payment or vesting of which is contingent1 in whole or in part1 upon the termination of employment or other services1 including cash1 property1 reimbursement or direct provision of living1 travel1 and business expenses1 and life1 health1 or other insurance1 to the extent otherwise includible in gross income4 7#d7 ,deferral period 7,a7 ,in general ,except as provided in subparagraphs 7,b7 and 7,c71 the term deferral period1 with respect to any applicable deferred compensation1 means the period-- 7i7 beginning on the date the compensation was first deferred1 without regard to vesting1 transferability1 or risk of forfeiture1 and 7ii7 ending on the date such compensation is includible in gross income or1 if applicable1 the date described in section #hc7;a77#a7 with respect to such compensation4 ,for purposes of the preceding sentence1 compensation shall be treated as first deferred as of the date the applicable taxpayer first has a legally binding right to the compensation or1 in the case of property subject to section #hc1 the date of transfer of the property4 7,b7 ,computation of interest ,solely for purposes of subsection 7b77#c71 the deferral period shall end on the last day of the taxable year which includes the date described in subparagraph 7,a77ii74 7,c7 ,property transferred pursuant to the exercise of an option ,in the case of property acquired pursuant to an option described in section #hc7;e77#c71 the deferral period shall begin on the date of grant of the option pursuant to which the property was acquired4 7d7 ,regulations ,the ,secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section4 4 7b7 ,information reporting with respect to applicable deferred compensation ,subpart ,b of part ,,iii of subchapter ,a of chapter #fa1 as in effect after the amendments made by section #ccd7;d7 of the ,,secure #b4j ,act of #bjbb and the amendments made by section #gjbjc7;c7 of ,public ,law #aai-ba1 is amended by adding at the end the following new section3 #fjej;,,bb4 ,information with respect to applicable deferred compensation 7a7 ,in general ,every person making a payment to an individual in excess of #e1jjj1jjj of-- 7#a7 any applicable deferred compensation described in section #dji;,b7c77#b77;,a71 or 7#b7 any severance pay 7as defined in section #dji;,b7d77#c771 shall make a return1 not later than ,january #ca of the first calendar year beginning after the close of the taxable year during which such payment is includible in gross income of the individual4 7b7 ,information required ,the return required by subsection 7a7 shall include-- 7#a7 the name1 taxpayer identification number1 and address of the individual to whom the payment of applicable deferred compensation or severance pay is made1 7#b7 the date any applicable deferred compensation was first deferred 7the date of the transfer1 in the case of property subject to section #hc1 or the date of grant of the option1 in the case of property acquired pursuant to an option described in section #hc7;e77#c771 without regard to vesting1 transferability1 or risk of forfeiture1 7#c7 the amount of such compensation includible in gross income of the individual for the taxable year1 7#d7 the amount of such severance pay includible in gross income of the individual for the taxable year1 and 7#e7 such other information as the ,secretary may require4 7c7 ,special rules 7#a7 ,section #hc compensation ,with respect to transfers of property to which section #hc applies1 the information required under paragraphs 7#b7 and 7#c7 of subsection 7b7 shall be reported separately for each item of property transferred1 except that property for which the information required by such paragraphs is identical may be aggregated4 7#b7 ,other compensation ,with respect to any applicable deferred compensation not described in paragraph 7#a71 if such compensation is paid pursuant to more than #a plan or arrangement or involves amounts which were first deferred on more than #a date1 the information required under paragraphs 7#b7 and 7#c7 of subsection 7b7 shall be reported separately with respect to each such plan or arrangement and each such date4 7d7 ,statements ,to be furnished to individuals with respect to whom information is reported ,every person required to make a return under subsection 7a7 shall furnish to each individual with respect to whom such a return is required a written statement showing-- 7#a7 the name1 address1 and phone number of the information contact of the person making such return1 and 7#b7 the information required by paragraphs 7#b7 through 7#e7 of subsection 7b74 ,the written statement required under the preceding sentence shall be furnished to the individual on or before ,january #ca of the first calendar year beginning after the close of the taxable year for which the return under subsection 7a7 was made4 7e7 ,adjustments for inflation 7#a7 ,in general ,in the case of any taxable year beginning after #bjbf1 the #e1jjj1jjj amount under subsection 7a7 shall be increased by an amount equal to the product of-- 7,a7 such dollar amount1 and 7,b7 the cost-of-living adjustment under section #a7;f77#c7 for the calendar year in which such taxable year begins1 determined by substituting calendar year #bjbe for calendar year #aiib in subparagraph 7,b7 thereof4 7#b7 ,rounding ,if any amount as adjusted under paragraph 7#a7 is not a multiple of #bej1jjj1 such amount shall be rounded to the next lowest multiple of #bej1jjj4 7f7 ,regulations ,the ,secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section1 including regulations specifying what constitutes a payment to an individual of applicable deferred compensation for purposes of subsection 7a74 4 7c7 ,penalties 7#a7 ,returns ,section #fgbd7;d77#a77;,b71 as in effect after the amendments made by section #ccd7;d7 of the ,,secure #b4j ,act of #bjbb and section #gjbjc7;c7 of ,public ,law #aai-ba1 is amended by striking or at the end of clause 7xxviii71 by inserting or at the end of clause 7xxix71 and by inserting after clause 7xxix7 the following new clause3 7xxx7 section #fjej;,,bb7a7 7relating to returns of information with respect to applicable deferred compensation71 and 4 7#b7 ,statements ,section #fgbd7;d77#b71 as in effect after the amendments made by section #ccd7;d7 of the ,,secure #b4j ,act of #bjbb and sections #gjbjc7;c7 and #gjdba7;d77#b77;,b7 of ,public ,law #aai-ba1 is amended-- 7,a7 by striking or at the end of subparagraph 7,,nn71 7,b7 by striking the period at the end of subparagraph 7,,oo7 and inserting 1 or1 and 7,c7 by inserting after subparagraph 7,,oo7 the following new subparagraph3 7,,pp7 section #fjej;,,bb7d7 7relating to statements of information with respect to applicable deferred compensation74 4 7d7 ,clerical amendments 7#a7 ,in general ,the table of sections for subpart ,a of part ,i of subchapter ,d of chapter #a is amended by inserting after the item relating to section #dji;,a the following new item3 ,sec4 #dji;,b4 ,special rules for certain deferred compensation4 4 7#b7 ,information reporting ,the table of sections for subpart ,b of part ,,iii of subchapter ,a of chapter #fa1 as in effect after the amendments made by section #ccd7;d7 of the ,,secure #b4j ,act of #bjbb and section #gjbjc7;d77#b7 of ,public ,law #aai-ba1 is amended by inserting after the item relating to section #fjej;,,aa the following new item3 ,sec4 #fjej;,,bb4 ,information with respect to applicable deferred compensation4 4 7e7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4 #bbb4 ,rules relating to certain life insurance and annuity contracts of applicable taxpayers 7a7 ,treatment of amounts received 7#a7 ,in general ,section #gb7;e7 is amended by redesignating paragraph 7#ab7 as paragraph 7#ac7 and by inserting after paragraph 7#aa7 the following3 7#ab7 ,treatment of certain amounts received under certain life insurance and annuity contracts of applicable taxpayers 7,a7 ,in general ,in the case of any applicable amount which is received during any taxable year1 notwithstanding paragraph 7#e77;,a7 or 7#e77;,e7-- 7i7 if such amount is received on or after the annuity starting date1 paragraph 7#b77;,a7 shall apply1 and 7ii7 if such amount is received before the annuity starting date or is received with respect to a life insurance contract to which this section applies1 the rules of clauses 7i7 and 7ii7 of paragraph 7#b77;,b7 shall apply4 7,b7 ,applicable amount 7i7 ,in general ,for purposes of this paragraph1 the term applicable amount means-- 7,i7 any amount to which this subsection applies which is received under an applicable private placement life insurance or annuity contract1 and 7,,ii7 in the case of an applicable taxpayer1 notwithstanding paragraph 7#e77;,a71 7#e77;,e71 or 7#aj77;,a71 any amount or portion described in paragraph 7#d77;,a7 with respect to a life insurance or annuity contract1 except that any applicable taxpayer or any related person 7as defined in section #add7;a77#c77 to an applicable taxpayer shall be substituted for an individual in applying such paragraph4 7ii7 ,treatment of refunds1 surrenders1 redemptions and maturities ,notwithstanding paragraph 7#e77;,a7 or 7#e77;,e71 amounts described in clause 7i77,i7 shall include amounts described in clause 7i7 or 7ii7 of paragraph 7#e77;,e7 received under an applicable private placement life insurance or annuity contract4 7iii7 ,amounts under pre-#aihb and qualified plan contracts1 etc4 excluded ,such term shall not include amounts received-- 7,i7 under a contract which is described in paragraph 7#e77;,b7 or 7#e77;,d71 or 7,,ii7 under a qualified tuition program 7as defined in section #ebi7;b77 or under a ,coverdell education savings account 7as defined in section #ecj7;b774 7,c7 ,applicable private placement life insurance or annuity contract ,for purposes of this paragraph-- 7i7 ,in general ,the term applicable private placement life insurance or annuity contract means a private placement life insurance or annuity contract the holder of which 7whether directly or indirectly7 is an applicable taxpayer4 7ii7 ,secretarial authority ,the ,secretary shall prescribe regulations or other guidance which treat a private placement life insurance or annuity contract as an applicable private placement life insurance or annuity contract in cases where an applicable taxpayer 7or a related person7 has an interest in such contract not described in clause 7i7 if such treatment is necessary to prevent the avoidance of the purposes of this paragraph4 7,d7 ,private placement life insurance or annuity contract ,for purposes of this paragraph1 the term private placement life insurance or annuity contract means any contract-- 7i7 which is an annuity contract or a life insurance contract1 and 7ii7 with respect to which the holder of the contract is required1 for purposes of obtaining a registration exemption under securities laws as in effect on the date of enactment of this section 7including the ,securities ,exchange ,act of #aicd and the ,investment ,advisors ,act of #aidj71 to make a representation that such owner-- 7,i7 has a specified minimum amount of income or assets1 7,,ii7 has completed a specified minimum level of education1 or 7,,iii7 holds a specific license or credential4 7,e7 ,applicable taxpayer ,for purposes of this paragraph1 the term applicable taxpayer has the meaning given such term under section #die4 4 7#b7 ,conforming amendment ,section #gb7;e77#e77;,c7 is amended by inserting or 7#ab7 after 7#aj74 7#c7 ,effective date ,the amendments made by this subsection shall apply to amounts received in taxable years beginning after ,december #ca1 #bjbe4 7b7 #aj-,percent additional tax for distributions from applicable private placement life insurance or annuity contracts 7#a7 ,in general ,section #gb7v7 is amended-- 7,a7 by inserting or an applicable private placement life insurance or annuity contract 7as defined in subsection 7e77#ab77 after a modified endowment contract 7as defined in section #ggjb;,a7 in paragraph 7#a71 and 7,b7 by inserting and applicable private placement life insurance or annuity contracts after modified endowment contracts in the heading thereof4 7#b7 ,effective date ,the amendments made by this subsection shall apply to amounts received in taxable years beginning after ,december #ca1 #bjbe4 7c7 ,repeal of exclusion for death benefits 7#a7 ,in general ,section #aja is amended by adding at the end the following new subsection3 7k7 ,exclusion not ,to apply 7#a7 ,in general ,subsection 7a77#a7 shall not apply to amounts received by reason of the death of the insured under an applicable private placement life or annuity contract 7within the meaning of section #gb7;e77#ab774 7#b7 ,amounts previously included ,the ,secretary shall prescribe rules to ensure that paragraph 7#a7 shall not apply to any portion of any amount received which was previously included in gross income4 4 7#b7 ,conforming amendment ,section #aja7;a77#a7 is amended by striking and subsection 7j71 and inserting subsection 7j71 and subsection 7k714 7#c7 ,effective date ,the amendments made by this subsection shall apply to amounts received in taxable years beginning after ,december #ca1 #bjbe4 7d7 ,reporting requirements 7#a7 ,in general ,subpart ,b of part ,,iii of subchapter ,a of chapter #fa1 as amended by this ,act1 is amended by adding at the end the following new section3 #fjej;,,cc4 ,returns relating to amounts received under certain life insurance and annuity contracts 7a7 ,in general ,every person who issues a life insurance or annuity contract or who reinsures such a contract shall make an annual return 7at such time and in such manner as the ,secretary shall prescribe7 setting forth-- 7#a7 the name1 address1 and ,,tin of such person1 7#b7 the name1 address1 and ,,tin of each person who receives an applicable amount 7as defined in section #gb7;e77#ab77 during the year with respect to any life insurance or annuity contract issued or reinsured by such person1 7#c7 the aggregate applicable amounts received by each person identified in paragraph 7#b71 and 7#d7 such other information as the ,secretary may require4 7b7 ,statement ,to be furnished to taxpayers with respect to whom information is required 7#a7 ,in general ,every person that is required to make a return under subsection 7a7 shall furnish to each person whose identity is required to be set forth under subsection 7a77#b7 a written statement showing-- 7,a7 the name1 address1 and phone number of the information contact of the person required to make such return1 and 7,b7 the information required to be shown on such return with respect to the person described in subsection 7a77#b7 and with respect to applicable amounts received by such person4 7#b7 ,furnishing of information ,the written statement required under paragraph 7#a7 shall be furnished to the person on or before ,january #ca of the year following the calendar year for which the return under subsection 7a7 is required to be made4 7c7 ,regulatory authority ,the ,secretary may prescribe such regulations and other guidance as necessary for purposes of carrying out this section1 including regulations or other guidance to require reporting under this section by such other persons as necessary to carry out the purposes of section #gb7;e77#ab74 4 7#b7 ,penalties 7,a7 ,returns ,section #fgbd7;d77#a77;,b71 as amended by this ,act1 is amended by striking or at the end of clause 7xxix71 by striking and at the end of clause 7xxx7 and inserting or1 and by inserting after clause 7xxx7 the following new clause3 7xxxi7 section #fjej;,,cc7a7 7relating to returns of information with respect to private placement life insurance and annuity contracts71 4 7,b7 ,statements ,section #fgbd7;d77#b71 as so amended1 is amended-- 7i7 by striking or at the end of subparagraph 7,,oo71 7ii7 by striking the period at the end of subparagraph 7,,pp7 and inserting 1 or1 and 7iii7 by inserting after subparagraph 7,,pp7 the following new subparagraph3 7,,qq7 section #fjej;,,cc7b7 7relating to statements of information with respect to private placement life insurance and annuity contracts74 4 7#c7 ,clerical amendment ,the table of sections for subpart ,b of part ,,iii of subchapter ,a of chapter #fa1 as amended by this ,act1 is amended by inserting after the item relating to section #fjej;,,bb the following new item3 ,sec4 #fjej;,,cc4 ,returns relating to amounts received under certain life insurance and annuity contracts4 4 7#d7 ,effective date ,the amendments made by this subsection shall apply to taxable years beginning after ,december #ca1 #bjbe4 ,d ,repeal of special treatment for certain investments #bca4 ,treatment of exclusion for certain small business stock 7a7 ,in general ,section #abjb7;a71 as amended by section #gjdcb7;a7 of ,public ,law #aai-ba1 is amended by adding at the end the following new paragraph3 7#g7 ,special rules for applicable taxpayers 7,a7 ,in general ,this subsection shall not apply to any gain from the sale or exchange of qualified small business stock by an applicable taxpayer 7as defined in section #die74 7,b7 ,exception ,subparagraph 7,a7 shall not apply to any qualified small business stock acquired before ,september #ag1 #bjbe4 4 7b7 ,effective date ,the amendment made by this subsection shall apply to sales or exchanges on or after ,september #ag1 #bjbe4 #bcb4 ,modifications for investments in qualified opportunity funds 7a7 ,termination of election 7#a7 ,in general ,section #adjj,z-#b7;a77#b71 as amended by section #gjdba7;c77#a7 of ,public ,law #aai-ba1 is amended to read as follows3 7#b7 ,election ,except as provided in paragraph 7#c71 no election may be made under paragraph 7#a7 with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect4 4 7#b7 ,special rules ,section #adjj,z-#b7;a7 is amended by adding at the end the following new paragraph3 7#c7 ,special rules for applicable taxpayers and entities ,for purposes of paragraph 7#b7-- 7,a7 ,in general ,no election may be made under paragraph 7#a7 with respect to a sale or exchange if-- 7i7 except as provided in subparagraph 7,b71 in the case of a taxpayer which is 7or ever was7 an applicable taxpayer1 such sale or exchange is on or after the first day of the first taxable year for which the taxpayer was an applicable taxpayer1 and 7ii7 in the case of an applicable entity1 a notice received by the entity under subsection 7b77#b77;,a7 or 7c77#b7 of section #dic is in effect at the time of such sale or exchange4 7,b7 ,special rule for #bjbe ,in the case of a taxpayer which would be an applicable taxpayer for its first taxable year beginning in #bjbe 7determined as if part ,,iv of subchapter ,e applied to taxable years beginning in #bjbe71 subparagraph 7,a77i7 shall be applied by substituting ,september #ag1 #bjbe for the date otherwise specified in such subparagraph4 7,c7 ,definitions ,for purposes of this paragraph and subsection 7c71 any term used in this paragraph which is also used in part ,,iv of subchapter ,e shall have the same meaning as when used in such part4 4 7b7 ,modification of special rule for investments held #aj years ,section #adjj,z-#b7;c71 as amended by section #gjdba7;c77#c7 of ,public ,law #aai-ba1 is amended-- 7#a7 by striking ,in the case of and all that follows and inserting3 7#a7 ,in general ,except as provided in paragraph 7#b71 in the case of 1 and 7#b7 by adding at the end the following new paragraph3 7#b7 ,special rule for applicable taxpayers and entities ,in the case of any taxpayer who is an applicable taxpayer for any taxable year during which such investment was held by the taxpayer or any taxpayer which is an applicable entity1 the basis determined under paragraph 7#a7 of any investment held for at least #aj years shall be the lesser of-- 7,a7 the fair market value of such investment as of the last day of the taxable year which includes the later of-- 7i7 the date that such investment has been held for #aj years1 or 7ii7 in the case of-- 7,i7 an applicable taxpayer1 the date that such taxpayer first became an applicable taxpayer1 or 7,,ii7 an applicable entity1 the first date a notice was received by the entity under subsection 7b77#b77;,a7 or 7c77#b7 of section #dic1 or 7,b7 the fair market value of such investment on the date that investment is sold or exchanged 7or1 if earlier1 the date described in paragraph 7#a77;,b774 4 7c7 ,effective date ,the amendments made by this section shall apply to sales or exchanges after ,september #ag1 #bjbe1 in taxable years ending after such date4