Illinois General Assembly - Full Text of SB2121
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Full Text of SB2121  102nd General Assembly

SB2121 102ND GENERAL ASSEMBLY

  
  

 


 
102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
SB2121

 

Introduced 2/26/2021, by Sen. Robert Peters

 

SYNOPSIS AS INTRODUCED:
 
New Act

    Creates the Extremely High Wealth Mark-to-Market Tax Act. Contains provisions concerning gains or losses of assets for individual taxpayers with net assets worth $50,000,000 or more. Creates a Task Force on mark-to-market tax administration. Sets forth penalties. Effective immediately.


LRB102 14999 HLH 20354 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB2121LRB102 14999 HLH 20354 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 1. Short title. This Act may be cited as the
5Extremely High Wealth Mark-to-Market Tax Act.
 
6    Section 5. Tax imposed; tax years beginning on or after
7January 1, 2020 and beginning prior to January 1, 2021.
8    (a) Notwithstanding any other provision of law, resident
9individual taxpayers with net assets worth more than the
10exemption allowance of $50,000,000, as specified in Section
1115, or more on December 31, 2020, shall recognize gain or loss
12as if each asset owned by the individual taxpayer were sold for
13its fair market value on that date. Any resulting net gains
14from these deemed sales, up to the phase-in cap amount, shall
15be included in the taxpayer's income for tax years beginning
16on or after January 1, 2020 and beginning prior to January 1,
172021. Proper adjustment shall be made in the amount of any gain
18or loss subsequently realized for gains or losses taken into
19account under this subsection. At the taxpayer's option, the
20tax payable as a result of this Section shall either be payable
21in one installment or else shall be payable annually in 10
22equal installments beginning in the year of the effective date
23of this Act and with all such installment payments commencing

 

 

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1after the initial installment payment also being subject to an
2annual nondeductible deferral charge at a rate to be
3determined and published by the Department of Revenue, that
4conservatively estimates the borrowing cost that the State of
5Illinois would incur to borrow the present value of the
6deferred payments over a ten-year term. For resident
7individual taxpayers who would recognize net gains as a result
8of this Section except for the operation of this sentence, if
9the taxpayer can show that any portion of such gains was
10accumulated prior to the taxpayer becoming a resident
11individual of Illinois, and if the taxpayer can also show that
12such portion of such gains was previously taxed by any prior
13state or jurisdiction in which the taxpayer was a resident
14prior to becoming a resident individual of Illinois, then
15credit shall be provided in the amount of any such tax on such
16gains paid to any such prior states or jurisdictions in which
17the taxpayer was a resident prior to becoming a resident
18individual of Illinois. Any credits so provided by this
19subsection, however, shall not exceed the lesser of the total
20tax owed under this Section on such gains and the tax imposed
21on such gains by such other prior states or jurisdictions in
22which the taxpayer was a resident prior to becoming a resident
23individual of Illinois.
24    (b) For tax years included in this Section, whether an
25individual is a resident individual for purposes of this Act
26shall be determined using the pursuant to the criteria in the

 

 

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1Illinois Income Tax Act.
 
2    Section 10. Tax imposed; subsequent years. For taxable
3years beginning on or after January 1, 2021, resident
4individual taxpayers with net assets that are worth more than
5the exemption-allowance amount of $50,000,000, as specified in
6Section 15, at the end of the last day of any tax year shall
7recognize gain or loss as if each asset owned by such taxpayer
8at the end of the last day of the tax year were sold for its
9fair market value on such date, but with adjustment made for
10tax paid on gain in previous years. Any resulting net gains
11from these deemed sales, up to the phase-in cap amount, shall
12be included in the taxpayer's income for such taxable year.
13Proper adjustment shall be made in the amount of any gain or
14loss subsequently realized for gain or loss taken into account
15under the preceding sentence. To the extent that the losses of
16a taxpayer exceed such taxpayer's gains, such net losses shall
17not be recognized in such taxable year and shall instead carry
18forward indefinitely. Notwithstanding the prior sentence, if a
19taxpayer has such net losses carried forward for more than
20five consecutive years, and if the taxpayer previously
21included in the taxpayer's income for any prior year net gains
22from any deemed sales as a result of this Act, then the
23taxpayer may file to claim a refund in the amount of lesser of
24either one fifth of the amount of the taxpayer's net losses
25that have been carried forward for more than 5 years or the

 

 

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1amount of tax the taxpayer paid in prior years as a result of
2any net gains included in the taxpayer's income from deemed
3sales as a result of this Act. For resident individual
4taxpayers who would recognize net gains as a result of this
5Section except for the operation of this sentence, but who
6were not resident individuals for all of the preceding five
7tax years, solely for purposes of deemed sales pursuant to
8this Section, the tax basis of each asset owned on the last day
9of the last tax year before the resident individual became an
10Illinois resident shall be the fair market value of the asset
11as of that day.
 
12    Section 15. Exemption-allowance amount and phase-in cap
13amount.
14    (a) The exemption-allowance amount shall be $50,000,000.
15    (b) The phase-in cap amount, for each date on which gains
16or losses are recognized as a result of this Act, shall be
17equal to a quarter of the extent to which the worth of a
18taxpayer's net assets exceeds the exemption-allowance amount
19on such date.
 
20    Section 20. Net worth calculation. For the purposes of
21determining whether a resident individual taxpayer has net
22assets worth more than the exemption-allowance amount, the
23term "assets" shall include all of the following, but only to
24the extent allowable under the Illinois Constitution, the

 

 

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1United States Constitution, and any other governing federal
2law: all owned real or personal, tangible or intangible,
3property, wherever situated, (1) owned by the taxpayer, (2)
4owned by the taxpayer's spouse, minor children, or any trust
5or estate of which the taxpayer is a beneficiary, (3)
6contributed by the taxpayer, or the taxpayer's spouse, minor
7children, or any trust or estate of which the taxpayer is a
8beneficiary, to any private foundation, donor advised fund,
9and any other entity described in Section 501(c) or Section
10527 of the Internal Revenue Code of which the taxpayer, or the
11taxpayer's spouse, minor children, or any trust or estate of
12which the taxpayer is a beneficiary, is a substantial
13contributor (as such term is defined in Section
144958(c)(3)(B)(i) of the Internal Revenue Code), and (4)
15without duplication, all gifts and donations made within the
16past five years by the taxpayer, or the taxpayer's spouse,
17minor children, or any trust or estate of which the taxpayer is
18a beneficiary, as if such gifts and donations were still owned
19by the taxpayer. For the purpose of this Section, "net assets"
20shall include the fair market value of assets less the fair
21market value of liabilities of the taxpayer and, in
22appropriate cases as determined by the Department of Revenue,
23liabilities of such other persons described in the definition
24of assets.
 
25    Section 25. Determining Valuations.

 

 

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1    (a) The Department of Revenue shall adopt rules for
2determining the fair market value of assets for all purposes
3of this Act. Such rules may require the use of formulaic
4valuation approaches for designated assets, including
5formulaic approaches based on proxies for determining
6presumptive valuations (such as, for example, requiring that
7privately held business entities be valued based on a blended
8formula of book value plus a multiple of book profits),
9formulaic approaches based on prospective adjustments from
10purchase prices or other prior events, or formulaic approaches
11based on retrospectively adding deferral charges based on
12eventual sale prices or other specified later events
13indicative of valuation.
14    (b) Except as might otherwise be specified through rules
15adopted by the Department of Revenue, the fair market value of
16each asset owned by the taxpayer shall be the price at which
17such asset would change hands between a willing buyer and a
18willing seller, neither being under any compulsion to buy or
19to sell, and both having reasonable knowledge of relevant
20facts. The value of a particular asset shall not be the price
21that a forced sale of the property would produce. Further, the
22fair market value of an asset shall not be the sale price in a
23market other than that in which such item is most commonly sold
24to the public, taking into account the location of the item
25wherever appropriate. In the case of an asset which is
26generally obtained by the public in the retail market, the

 

 

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1fair market value of such an asset shall be the price at which
2such item or a comparable item would be sold at retail.
3    (c) For purposes of this Section, any feature of an asset,
4such as a poison pill, that was added with the intent, and has
5the effect, of reducing the value of the asset shall be
6disregarded, and no valuation or other discount shall be taken
7into account if it would have the effect of reducing the value
8of a pro rata economic interest in an asset below the pro rata
9portion of the value of the entire asset.
 
10    Section 30. Administration.
11    (a) The Department of Revenue shall amend or create tax
12forms as necessary for the reporting of gains by assets.
13Assets shall be listed with: (i) a description of the asset;
14(ii) the asset category; (iii) the year the asset was
15acquired; (iv) the adjusted Illinois basis of the asset as of
16December 31 of the tax year; (v) the fair market value of the
17asset as of December 31 of the tax year; and (vi) the amount of
18gain that would be taxable under this Act; unless the
19Department shall determine that one or more categories is not
20appropriate for a particular type of asset.
21    (b) Asset categories separately listed shall include, but
22not be limited to, the following:
23        (1) stock held in any publicly traded corporation;
24        (2) stock held in any private traded C corporation;
25        (3) stock held in any S corporation;

 

 

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1        (4) interests in any private equity or hedge fund
2    organized as a partnership;
3        (5) interests in any other partnerships;
4        (6) interests in any other noncorporate businesses;
5        (7) bonds and interest bearing savings accounts, cash
6    and deposits;
7        (8) interests in mutual funds or index funds;
8        (9) put and call options;
9        (10) futures contracts;
10        (11) financial assets held offshore reported on IRS
11    tax form 8938;
12        (12) real property;
13        (13) art and collectibles;
14        (14) pension funds;
15        (15) other assets;
16        (16) debts and liabilities; and
17        (17) assets not owned by the taxpayer but which count
18    toward the $50,000,000 threshold pursuant to Section 20.
19    (b) The Department shall specifically request the filing
20of such forms by any resident individual expected to have net
21assets in excess of the exemption-allowance amount. Such
22taxpayers shall include, but not be limited to, taxpayers with
23an adjusted gross income summed over the previous ten years in
24excess of three fifths of the exemption-allowance amount and
25any taxpayer with adjusted gross income of more than
26$10,000,000 for the tax year (as calculated prior to

 

 

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1accounting for any gains or losses recognized as a result of
2this Act).
 
3    Section 35. Mark-to-market in other states. If any
4resident individual taxpayer becomes an Illinois resident
5subsequent to paying tax to another state as a result of
6recognizing gain or loss pursuant to any mark-to-market or
7deemed-realization regime of that other state, proper
8adjustment shall be made in the amount of any gain or loss
9subsequently realized for gain or loss taken into account
10under such mark-to-market or deemed-realization regime of that
11other state for purposes of computing gain or loss under
12Sections 5 or 10 of this Act.
 
13    Section 40. Collection. The Department of Revenue shall
14collect the mark-to-market taxes imposed by this Act. Money
15collected, after deducting amounts necessary for
16administration and enforcement by the Department, shall be
17paid into the General Revenue Fund in the State treasury.
 
18    Section 45. Task Force on administration and enforcement.
19    (a) There is established a Task Force on mark-to-market
20tax administration.
21    (b) The purpose of the Task Force will be to assure
22adequate funding and staffing for the administration of the
23mark-to-market tax. Adequate funding should result in an audit

 

 

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1rate for taxpayers with net worth of $1,000,000,000 or greater
2of 100%. Adequate funding should result in an audit rate for
3taxpayers with net worth between $50,000,000 and $1,000,000 of
4at least 25%. Adequate funding should additionally make it
5both possible and feasible for the Department of Revenue to
6hire any outside experts or outside counsel as appropriate and
7helpful for vigorously enforcing this Act.
8    For the first two years of operation, $50,000,000 or 1% of
9all projected revenues from the mark-to-market tax, whichever
10is greater, shall be deposited in the Tax Compliance and
11Administration Fund for the purpose of setting up the
12administration and enforcement of the mark-to-market tax.
13    The Task Force shall recommend prudently spending down any
14excess funds deposited into the Tax Compliance and
15Administration Fund under this provisions of this subsection.
16    (c) The Task Force shall propose an appropriate level of
17funding for mark-to-market tax administration annually, with
18the first proposal due 6 months after the effective date of
19this Act.
20    (d) The Governor, the Comptroller, the Treasurer, the
21General Assembly, and the Director of Revenue shall each
22appoint one member from each of the following 3 categories:
23(1) a current or retired Illinois revenue official; (2) a
24taxpayer representative; (3) a policy analyst or academic.
25    (e) All appointments shall be made within 40 days after
26the effective date of this Act. If any of the appointments are

 

 

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1not completed within that time, the Task Force shall proceed
2to operate with the appointments that are in place, provided
3that at least 60% of the appointments have been made.
4    Forty-five days after the effective date of this Act, the
5Director of Revenue shall convene a meeting of the appointed
6members of the Task Force to elect a chairperson and vice
7chairperson from among the individuals nominated pursuant to
8subsection (d).
9    The members shall serve 8-year terms. Members shall serve
10a maximum of 2 terms.
11    If a vacancy occurs within a term, the appointing
12authority shall appoint a replacement member within 90 days to
13serve the remainder of the term.
14    When a term expires, the appointing authority shall
15appoint a member within 90 days. Task Force members shall
16continue to serve until their replacements are appointed.
17    Actions of the Task Force may be taken only by a majority
18vote of a quorum of the Task Force.
 
19    Section 50. Penalties.
20    (a) A taxpayer subject to the tax imposed under this Act
21with an understatement of tax for any taxable year shall be
22subject to the penalty imposed under this Section if that
23understatement exceeds the greater of the following:
24        (1)$1,000,000; or
25        (2)20% of the tax shown on an original return or shown

 

 

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1    on an amended return filed on or before the original or
2    extended due date of the return for the taxable year.
3    (b) The penalty under this Section shall be an amount
4equal to 20% of any understatement of tax. For purposes of this
5Section, "understatement of tax" means the amount by which the
6tax imposed by this Act exceeds the amount of tax shown on an
7original return or shown on an amended return filed on or
8before the original or extended due date of the return for the
9taxable year.
10    The penalty under this Section shall be an amount equal to
1140% of any understatement of tax if that understatement was
12substantially the result of not reporting an asset required to
13be listed under Section 30.
14    (c) The penalty imposed by this Section shall be in
15addition to any other penalty imposed under the personal
16income tax or other relevant provision of law.
17    (d) A refund or credit for any amounts paid to satisfy a
18penalty imposed under this Section may be allowed only on the
19grounds that the amount of the penalty was not properly
20computed by the Department of Revenue.
21    (e) No penalty shall be imposed under this Section on any
22understatement to the extent that the understatement is
23attributable to any of the following:
24        (1)A change in law that is enacted, adopted, issued,
25    or becomes final after the earlier of either of the
26    following dates:

 

 

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1            (A) the date the taxpayer files the return for the
2        taxable year for which the change is operative; or
3            (B) the extended due date for the return of the
4        taxpayer for the taxable year for which the change is
5        operative.
6    For purposes of this Section, a "change of law" means a
7statutory change or an interpretation of law or rule of law by
8regulation, legal ruling of counsel, or a published federal or
9Illinois court decision.
10    The Department of Revenue shall implement this Section in
11a reasonable manner.
12    (f) No penalty shall be imposed under this Section to the
13extent that a taxpayer's understatement is attributable to the
14taxpayer's reasonable reliance on written advice of the
15Department of Revenue, but only if the written advice was a
16formal legal ruling.
 
17    Section 55. Rules. The Department of Revenue shall adopt
18rules necessary or appropriate to carry out the purposes of
19this Act, including rules to prevent the use of year-end
20transfers, related parties, or other arrangements to avoid its
21provisions.
 
22    Section 99. Effective date. This Act takes effect upon
23becoming law.