Details of Proposed Corporate Minimum Tax and Billionaires Tax Released

October 2021

BY

Todd SimmensManaging Partner, National Tax Policy and Legislation Technical Practice Leader

Senate Democrats have released details of two tax proposals – a minimum tax on large corporations and a tax on billionaires – that, if enacted, would be used to help pay for spending for social infrastructure under the Build Back Better Plan.

The proposed “corporate profits minimum tax” would impose a 15% minimum tax on companies that report over $1 billion in financial statement profits. Foreign tax credits and business credits such as R&D, clean energy and housing tax credits would continue to apply, as would loss carryforwards in certain cases. The minimum tax would be creditable against regular tax paid in future years.

The proposed billionaires tax would apply to individual taxpayers with more than $100 million in annual income or more than $1 billion in assets for three consecutive years. Under this proposal:
  • Tradable assets (stocks, etc.) would be marked to market annually, with tax paid on any unrealized gains. Unrealized losses would be deductible and could be carried back three years in certain circumstances.
  • Nontradable assets (such as real estate) would be subject to an additional tax in the form of a deferred interest charge (deferral recapture amount) when sold, which would be calculated on the realized gain over the holding period of the asset.
  • Transition rules would apply in the first year to treat $1 billion of tradable stock as nontradable and would allow the tax on first year mark to market gains to be spread over five years.
 
Other specific rules would apply. The proposed taxes reportedly would raise hundreds of billions of dollars and are being embraced by many in the Democratic party as ways to close loopholes and ensure large corporations and the wealthiest individuals pay their fair share of federal tax.

If enacted, the billionaire tax would apply to taxable years beginning after December 31, 2021 and the corporate profits minimum tax would apply to taxable years beginning after December 31, 2022.

Stay tuned to BDO for more information on developments relating to these and other legislative proposals.