Sponsors
Last progress June 12, 2025 (8 months ago)
Introduced on June 12, 2025 by John Peter Ricketts
Read twice and referred to the Committee on Finance.
Treats gains from certain securities and related property tied to designated “countries of concern” as ordinary income instead of capital gains, and expands related tax rules (dividend treatment and estate/basis rules) so these types of holdings are taxed differently. The SEC and Treasury must identify covered securities/property and issue implementing guidance. The changes apply to dispositions and dividends on or after January 1, 2026. This shifts tax treatment for investors holding targeted foreign-linked assets, creates new reporting and compliance responsibilities for financial firms and issuers, and aims to discourage investment exposure to assets tied to the listed countries by raising the tax cost of sale and distributions.
Adds a new Internal Revenue Code section 1261 stating that gain from the sale, exchange, or other disposition of "specified country of concern property" shall be treated as ordinary income and recognized notwithstanding other provisions of the tax code.
Defines "specified country of concern property" to include (A) any registered or unregistered security of a company or entity meeting criteria (i)–(v) (incorporated/organized in a country of concern; majority of assets or employees in a country of concern; owned/controlled by or subject to jurisdiction/direction of a government of a country of concern; majority of value depends on revenues/profits/assets/value of companies described in (i)–(iii); or controlled by a company described in (i)–(iii)), and (B) any property (other than securities) located or used in a country of concern.
Defines "controlled by" by reference to the meaning given in 17 C.F.R. §230.405, and defines "country of concern" as the People’s Republic of China (including Hong Kong and Macao and excluding Taiwan), Russia, Belarus, Iran, and North Korea.
Amends IRC section 1(h)(11)(C)(iii) to add a new subclause specifying that dividends from any foreign corporation described in section 1261(b)(1)(A) as of the date the dividend is paid are covered by the provision (i.e., the dividend rule is expanded to include those corporations).
Amends IRC section 1014(a) by adding a new paragraph (5) denying the step-up in basis at death for specified country of concern property (as defined in section 1261(b)).
Primary effects: investors who hold or trade securities tied to the designated countries will likely pay higher taxes on gains and some distributions because those gains will be taxed as ordinary income rather than at lower capital gains rates. That change increases the tax cost of selling covered assets and can reduce after-tax returns for individual investors, mutual funds, pension funds, and other institutional investors with exposure.
Market and issuer effects: Issuers and securities associated with the listed countries could see reduced demand or price pressure if buyers avoid assets that trigger ordinary-income taxation. U.S.-listed companies with significant ties to those countries may face investor scrutiny and potential valuation impacts.
Administrative burden: Financial firms, brokers, custodians, and tax preparers will need to implement systems to identify covered property according to the SEC/Treasury lists, adjust withholding and reporting processes, and advise clients on tax consequences. Treasury/IRS will need to issue guidance and potentially new reporting forms or codes.
Government revenue and enforcement: Tax revenues may increase if ordinary-income rates are higher than the capital gains rates that would otherwise apply. The IRS will need enforcement and audit resources to ensure correct classification and reporting. Treasury and the SEC bear responsibility for defining covered instruments, which will shape compliance complexity.
Equity and legal considerations: Taxpayers with legacy holdings or estates that include covered property will face transitional issues; rulemaking will need to address basis adjustments, anti-avoidance, and possible safe harbors. The policy is likely aimed at national-security or economic-policy goals by discouraging financial exposure to certain foreign jurisdictions, but effects will depend on how broadly the lists and rules are drawn.