II
118th CONGRESS
2d Session
S. 5188
IN THE SENATE OF THE UNITED STATES
September 25, 2024
Mr. Rubio introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to incentivize the divestiture of certain securities connected to the People’s Republic of China.
Short title
This Act may be cited as the Patriotic Investment Act
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Incentives to divest disqualified PRC securities
Treatment as ordinary gain
Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:
Gain from disposition of disqualified PRC securities
In general
Any gain on the disposition of any disqualified PRC security shall be treated as ordinary income and shall be recognized notwithstanding any other provision of this subtitle.
Definitions
For purposes of this section—
Disqualified PRC security
The term disqualified PRC security means any specified interest held directly or indirectly with respect to any of the following:
The Government of the People’s Republic of China or any other governmental entity based in the People’s Republic of China.
The Chinese Communist Party or any subdivision or affiliate thereof.
A person who is a citizen, national, or resident of the People’s Republic of China, provided that such person is not an individual who is—
a citizen or lawful permanent resident of the United States, or
domiciled in Taiwan possessing a valid identification card or number issued by the government of Taiwan.
A person (including a legal entity) headquartered, organized under the laws of, or having its principal place of business in the People’s Republic of China.
A person at least 15 percent of the outstanding voting interest of which is held directly or indirectly by an entity described in subparagraphs (A)–(D).
A person at least 25 percent of the outstanding voting interest of which is held directly or indirectly by any combination of persons described in subparagraphs (A)–(E).
Specified interest
The term specified interest
—
means, with respect to a person—
stock or any other equity or profits interest of such person,
debt issued by such person, and
any contract or derivative with respect to an interest described in clause (i) or (ii), and
includes any interest held, directly or indirectly, through—
a regulated investment company, exchange traded fund, or other pooled investment, or
any derivative financial instrument or other contractual arrangement with respect to such interest (including any financial instrument or other contract which seeks to replicate any financial return with respect to such interest).
People’s Republic of China
The term People’s Republic of China includes Special Administrative Regions, including Hong Kong and Macau, but does not include Taiwan.
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Net PRC securities gain subject to highest rate of income tax
Individuals
Section 1 of such Code is amended by adding at the end the following subsection:
Net PRC securities gain subject to highest rate of income tax
In general
The tax imposed under subsections (a), (b), (c), (d), and (e) shall be increased by the product of—
the highest rate of tax in effect under such subsection, multiplied by
the net PRC securities gain of the taxpayer for the taxable year.
Prevention of double taxation
For purposes of subsections (a), (b), (c), (d) and (e), taxable income (determined without regard to this paragraph) shall be reduced by the net PRC securities gain of the taxpayer for the taxable year.
Net PRC securities gain
For purposes of this subsection, the term net PRC securities gain
means the excess (if any) of—
the taxpayer’s aggregate gains on the dispositions of disqualified PRC securities for the taxable year, over
the taxpayer’s aggregate losses on the dispositions of disqualified PRC securities for such taxable year.
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Corporations
Section 11(b) of such Code is amended to read as follows:
Amount of tax
The amount of the tax imposed by subsection (a) shall be the sum of—
21 percent of the excess (if any) of—
taxable income, over
net PRC securities gain, plus
the product of—
the highest rate of tax in effect under section 1, multiplied by
the lesser of taxable income or net PRC securities gain (as defined in section 1(k)(3)).
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Clerical amendment
The table of sections for part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:
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Effective date
In general
The amendments made by this section shall apply to dispositions after the date which is 6 months after the date of the enactment of this Act.
Application to first taxable year
For purposes of determining net PRC securities gain with respect to any taxable year which includes the date which is 6 months after the date of the enactment of this Act, only dispositions of disqualified PRC securities (as defined in section 1261(b)(1) of the Internal Revenue Code of 1986, as amended by this section) after such date shall be taken into account.
Election To pay tax liability attributable to dispositions made in anticipation of increased tax in installments
In general
In the case of any taxpayer which has a net PRC tax liability for any taxable year, such taxpayer may elect to pay such liability in 3 equal installments.
Date for payment of installments
If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year referred to in paragraph (1) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.
Acceleration of payment
If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary of the Treasury (or the Secretary's delegate) under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.
Proration of deficiency to installments
If an election is made under paragraph (1) to pay the net PRC tax liability in installments and a deficiency has been assessed with respect to such liability, the deficiency shall be prorated to the installments payable under paragraph (1). 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 as, and as a part of, such installment. 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 Secretary of the Treasury (or the Secretary's delegate). This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
Election
Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year referred to in paragraph (1) and shall be made in such manner as the Secretary of the Treasury (or the Secretary's delegate) shall provide.
Net PRC tax liability
For purposes of this subsection—
In general
The term net PRC tax liability
means, with respect to any taxpayer for any taxable year, the excess (if any) of—
such taxpayer’s net income tax for such taxable year, over
such taxpayer’s net income tax for such taxable year determined without regard to any gains or losses from the disposition of disqualified PRC securities (as defined in section 1261(b)(1) of the Internal Revenue Code of 1986, as added by this section) during the 6-month period beginning on the date of the enactment of this Act.
Net income tax
The term net income tax
means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A.
Installments treated as tax
For purposes of subtitle F of the Internal Revenue Code of 1986, any installment due under this subsection shall be treated in the same manner as tax except as otherwise provided in this subsection.
Denial of foreign tax credit for income attributable to disposition of disqualified PRC securities
In general
Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
Denial of foreign tax credit with respect to income attributable to disposition of disqualified PRC securities
No credit shall be allowed under subsection (a) with respect to any foreign income tax on income attributable to gain from the disposition of a disqualified PRC security (as defined in section 1261(b)(1)).
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Effective date
The amendments made by this section shall apply to dispositions after the date which is 6 months after the date of the enactment of this Act.