S-4662-119
Read twice and referred to the Committee on Finance.
Sponsored by Ruben Gallego (D-AZ)
What it does
The bill would amend the Internal Revenue Code so that when an "applicable taxpayer" gets a loan, long-term capital assets (chosen by the taxpayer) with gain at least equal to the loan would be treated as sold at fair market value on the last day of that tax year. Applicable taxpayers are individuals with adjusted gross income over $100 million or net assets over $1 billion in each of the 3 prior years, plus certain trusts and estates (lower thresholds apply to trusts, nonresident aliens, and some expatriates). Leases longer than 5 years would be treated like loans, loans to partnerships and S corporations would be passed to owners pro rata, and capital losses could not offset the deemed gains. Existing loans would be treated as one loan issued January 1, 2027, and the rules would apply to taxable years beginning after December 31, 2026.
Who benefits
The federal Treasury, which could collect more revenue from gains now deferred through borrowing against appreciated assets. Taxpayers and policy advocates who want wealthy borrowers taxed more like wage earners, whose income is taxed as earned. Competitors and smaller investors who lack access to large borrowing strategies. Tax compliance staff and advisers who may see added work.
Who is hurt
Individuals with over $100 million in income or $1 billion in net assets (and certain trusts, estates, and some expatriates) who borrow against appreciated assets or sign long leases, and who could owe tax without selling anything. Owners of partnerships and S corporations whose entities borrow, since loans pass through pro rata. Founders with concentrated, illiquid holdings who may face tax bills without cash. Lenders and lessors who could see reduced demand, plus the IRS, which would need to write rules and handle valuation and reporting.
Supporters argue
Supporters argue that the very wealthy can borrow against appreciated assets to fund spending, never sell, and so avoid capital gains tax entirely, especially when basis steps up at death. They contend the high thresholds ($100 million income or $1 billion assets) confine the bill to a tiny group, the basis step-up prevents double taxation, and treating borrowing as a realization event closes a gap without taxing unrealized gains held without borrowing.
Opponents argue
Opponents argue that a loan is not income and that taxing deemed sales on borrowing departs from the traditional rule that gains are taxed when realized, raising constitutional and valuation questions. They contend the bill could force asset sales to pay tax, bar loss offsets, sweep in leases and pass-through entities, and require complex valuation of illiquid assets, while thresholds that are not indexed could reach more taxpayers over time.
Constitutional context
Congress taxes income under the Sixteenth Amendment, but whether income must be "realized" was left open in Moore v. United States (2024), and Eisner v. Macomber (1920) is the older case tying income to realization. Treating borrowing as a deemed sale could be challenged as a direct tax requiring apportionment under Article I, or on due process grounds, though the bill ties its deemed sales to a transaction (a loan or lease). Because the bill would be a revenue measure, the Origination Clause would also require it to originate in the House before enactment as a tax law.
Checks and balances
Congress would define the tax, the Treasury Secretary would gain broad regulatory authority over valuation, reporting, and exceptions, and courts could review both the statute and the regulations.
Historical precedent
Prior proposals such as the Billionaires Income Tax and the "Buy, Borrow, Die" tax bills have been introduced, but none has been enacted; the closest enacted analogue is the expatriation exit tax in section 877A.