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: |
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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.
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| | | FISCAL NOTE ACT MAY APPLY | |
| | A BILL FOR |
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| 1 | | AN ACT concerning revenue.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 1. Short title. This Act may be cited as the | 5 | | Extremely High Wealth Mark-to-Market Tax Act. | 6 | | Section 5. Tax imposed; tax years beginning on or after | 7 | | January 1, 2020 and beginning prior to January 1, 2021. | 8 | | (a) Notwithstanding any other provision of law, resident | 9 | | individual taxpayers with net assets worth more than the | 10 | | exemption allowance of $50,000,000, as specified in Section | 11 | | 15, or more on December 31, 2020, shall recognize gain or loss | 12 | | as if each asset owned by the individual taxpayer were sold for | 13 | | its fair market value on that date. Any resulting net gains | 14 | | from these deemed sales, up to the phase-in cap amount, shall | 15 | | be included in the taxpayer's income for tax years beginning | 16 | | on or after January 1, 2020 and beginning prior to January 1, | 17 | | 2021. Proper adjustment shall be made in the amount of any gain | 18 | | or loss subsequently realized for gains or losses taken into | 19 | | account under this subsection. At the taxpayer's option, the | 20 | | tax payable as a result of this Section shall either be payable | 21 | | in one installment or else shall be payable annually in 10 | 22 | | equal installments beginning in the year of the effective date | 23 | | of this Act and with all such installment payments commencing |
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| 1 | | after the initial installment payment also being subject to an | 2 | | annual nondeductible deferral charge at a rate to be | 3 | | determined and published by the Department of Revenue, that | 4 | | conservatively estimates the borrowing cost that the State of | 5 | | Illinois would incur to borrow the present value of the | 6 | | deferred payments over a ten-year term. For resident | 7 | | individual taxpayers who would recognize net gains as a result | 8 | | of this Section except for the operation of this sentence, if | 9 | | the taxpayer can show that any portion of such gains was | 10 | | accumulated prior to the taxpayer becoming a resident | 11 | | individual of Illinois, and if the taxpayer can also show that | 12 | | such portion of such gains was previously taxed by any prior | 13 | | state or jurisdiction in which the taxpayer was a resident | 14 | | prior to becoming a resident individual of Illinois, then | 15 | | credit shall be provided in the amount of any such tax on such | 16 | | gains paid to any such prior states or jurisdictions in which | 17 | | the taxpayer was a resident prior to becoming a resident | 18 | | individual of Illinois. Any credits so provided by this | 19 | | subsection, however, shall not exceed the lesser of the total | 20 | | tax owed under this Section on such gains and the tax imposed | 21 | | on such gains by such other prior states or jurisdictions in | 22 | | which the taxpayer was a resident prior to becoming a resident | 23 | | individual of Illinois. | 24 | | (b) For tax years included in this Section, whether an | 25 | | individual is a resident individual for purposes of this Act | 26 | | shall be determined using the pursuant to the criteria in the |
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| 1 | | Illinois Income Tax Act.
| 2 | | Section 10. Tax imposed; subsequent years. For taxable | 3 | | years beginning on or after January 1, 2021, resident | 4 | | individual taxpayers with net assets that are worth more than | 5 | | the exemption-allowance amount of $50,000,000, as specified in | 6 | | Section 15, at the end of the last day of any tax year shall | 7 | | recognize gain or loss as if each asset owned by such taxpayer | 8 | | at the end of the last day of the tax year were sold for its | 9 | | fair market value on such date, but with adjustment made for | 10 | | tax paid on gain in previous years. Any resulting net gains | 11 | | from these deemed sales, up to the phase-in cap amount, shall | 12 | | be included in the taxpayer's income for such taxable year. | 13 | | Proper adjustment shall be made in the amount of any gain or | 14 | | loss subsequently realized for gain or loss taken into account | 15 | | under the preceding sentence. To the extent that the losses of | 16 | | a taxpayer exceed such taxpayer's gains, such net losses shall | 17 | | not be recognized in such taxable year and shall instead carry | 18 | | forward indefinitely. Notwithstanding the prior sentence, if a | 19 | | taxpayer has such net losses carried forward for more than | 20 | | five consecutive years, and if the taxpayer previously | 21 | | included in the taxpayer's income for any prior year net gains | 22 | | from any deemed sales as a result of this Act, then the | 23 | | taxpayer may file to claim a refund in the amount of lesser of | 24 | | either one fifth of the amount of the taxpayer's net losses | 25 | | that have been carried forward for more than 5 years or the |
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| 1 | | amount of tax the taxpayer paid in prior years as a result of | 2 | | any net gains included in the taxpayer's income from deemed | 3 | | sales as a result of this Act. For resident individual | 4 | | taxpayers who would recognize net gains as a result of this | 5 | | Section except for the operation of this sentence, but who | 6 | | were not resident individuals for all of the preceding five | 7 | | tax years, solely for purposes of deemed sales pursuant to | 8 | | this Section, the tax basis of each asset owned on the last day | 9 | | of the last tax year before the resident individual became an | 10 | | Illinois resident shall be the fair market value of the asset | 11 | | as of that day. | 12 | | Section 15. Exemption-allowance amount and phase-in cap | 13 | | amount.
| 14 | | (a) The exemption-allowance amount shall be $50,000,000. | 15 | | (b) The phase-in cap amount, for each date on which gains | 16 | | or losses are recognized as a result of this Act, shall be | 17 | | equal to a quarter of the extent to which the worth of a | 18 | | taxpayer's net assets exceeds the exemption-allowance amount | 19 | | on such date. | 20 | | Section 20. Net worth calculation. For the purposes of | 21 | | determining whether a resident individual taxpayer has net | 22 | | assets worth more than the exemption-allowance amount, the | 23 | | term "assets" shall include all of the following, but only to | 24 | | the extent allowable under the Illinois Constitution, the |
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| 1 | | United States Constitution, and any other governing federal | 2 | | law: all owned real or personal, tangible or intangible, | 3 | | property, wherever situated, (1) owned by the taxpayer, (2) | 4 | | owned by the taxpayer's spouse, minor children, or any trust | 5 | | or estate of which the taxpayer is a beneficiary, (3) | 6 | | contributed by the taxpayer, or the taxpayer's spouse, minor | 7 | | children, or any trust or estate of which the taxpayer is a | 8 | | beneficiary, to any private foundation, donor advised fund, | 9 | | and any other entity described in Section 501(c) or Section | 10 | | 527 of the Internal Revenue Code of which the taxpayer, or the | 11 | | taxpayer's spouse, minor children, or any trust or estate of | 12 | | which the taxpayer is a beneficiary, is a substantial | 13 | | contributor (as such term is defined in Section | 14 | | 4958(c)(3)(B)(i) of the Internal Revenue Code), and (4) | 15 | | without duplication, all gifts and donations made within the | 16 | | past five years by the taxpayer, or the taxpayer's spouse, | 17 | | minor children, or any trust or estate of which the taxpayer is | 18 | | a beneficiary, as if such gifts and donations were still owned | 19 | | by the taxpayer. For the purpose of this Section, "net assets" | 20 | | shall include the fair market value of assets less the fair | 21 | | market value of liabilities of the taxpayer and, in | 22 | | appropriate cases as determined by the Department of Revenue, | 23 | | liabilities of such other persons described in the definition | 24 | | of assets. | 25 | | Section 25. Determining Valuations. |
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| 1 | | (a) The Department of Revenue shall adopt rules for | 2 | | determining the fair market value of assets for all purposes | 3 | | of this Act. Such rules may require the use of formulaic | 4 | | valuation approaches for designated assets, including | 5 | | formulaic approaches based on proxies for determining | 6 | | presumptive valuations (such as, for example, requiring that | 7 | | privately held business entities be valued based on a blended | 8 | | formula of book value plus a multiple of book profits), | 9 | | formulaic approaches based on prospective adjustments from | 10 | | purchase prices or other prior events, or formulaic approaches | 11 | | based on retrospectively adding deferral charges based on | 12 | | eventual sale prices or other specified later events | 13 | | indicative of valuation. | 14 | | (b) Except as might otherwise be specified through rules | 15 | | adopted by the Department of Revenue, the fair market value of | 16 | | each asset owned by the taxpayer shall be the price at which | 17 | | such asset would change hands between a willing buyer and a | 18 | | willing seller, neither being under any compulsion to buy or | 19 | | to sell, and both having reasonable knowledge of relevant | 20 | | facts. The value of a particular asset shall not be the price | 21 | | that a forced sale of the property would produce. Further, the | 22 | | fair market value of an asset shall not be the sale price in a | 23 | | market other than that in which such item is most commonly sold | 24 | | to the public, taking into account the location of the item | 25 | | wherever appropriate. In the case of an asset which is | 26 | | generally obtained by the public in the retail market, the |
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| 1 | | fair market value of such an asset shall be the price at which | 2 | | such item or a comparable item would be sold at retail. | 3 | | (c) For purposes of this Section, any feature of an asset, | 4 | | such as a poison pill, that was added with the intent, and has | 5 | | the effect, of reducing the value of the asset shall be | 6 | | disregarded, and no valuation or other discount shall be taken | 7 | | into account if it would have the effect of reducing the value | 8 | | of a pro rata economic interest in an asset below the pro rata | 9 | | portion of the value of the entire asset. | 10 | | Section 30. Administration. | 11 | | (a) The Department of Revenue shall amend or create tax | 12 | | forms as necessary for the reporting of gains by assets. | 13 | | Assets shall be listed with: (i) a description of the asset; | 14 | | (ii) the asset category; (iii) the year the asset was | 15 | | acquired; (iv) the adjusted Illinois basis of the asset as of | 16 | | December 31 of the tax year; (v) the fair market value of the | 17 | | asset as of December 31 of the tax year; and (vi) the amount of | 18 | | gain that would be taxable under this Act; unless the | 19 | | Department shall determine that one or more categories is not | 20 | | appropriate for a particular type of asset. | 21 | | (b) Asset categories separately listed shall include, but | 22 | | not 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 | 20 | | of such forms by any resident individual expected to have net | 21 | | assets in excess of the exemption-allowance amount. Such | 22 | | taxpayers shall include, but not be limited to, taxpayers with | 23 | | an adjusted gross income summed over the previous ten years in | 24 | | excess of three fifths of the exemption-allowance amount and | 25 | | any taxpayer with adjusted gross income of more than | 26 | | $10,000,000 for the tax year (as calculated prior to |
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| 1 | | accounting for any gains or losses recognized as a result of | 2 | | this Act). | 3 | | Section 35. Mark-to-market in other states. If any | 4 | | resident individual taxpayer becomes an Illinois resident | 5 | | subsequent to paying tax to another state as a result of | 6 | | recognizing gain or loss pursuant to any mark-to-market or | 7 | | deemed-realization regime of that other state, proper | 8 | | adjustment shall be made in the amount of any gain or loss | 9 | | subsequently realized for gain or loss taken into account | 10 | | under such mark-to-market or deemed-realization regime of that | 11 | | other state for purposes of computing gain or loss under | 12 | | Sections 5 or 10 of this Act. | 13 | | Section 40. Collection. The Department of Revenue shall | 14 | | collect the mark-to-market taxes imposed by this Act. Money | 15 | | collected, after deducting amounts necessary for | 16 | | administration and enforcement by the Department, shall be | 17 | | paid 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 | 20 | | tax administration. | 21 | | (b) The purpose of the Task Force will be to assure | 22 | | adequate funding and staffing for the administration of the | 23 | | mark-to-market tax. Adequate funding should result in an audit |
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| 1 | | rate for taxpayers with net worth of $1,000,000,000 or greater | 2 | | of 100%. Adequate funding should result in an audit rate for | 3 | | taxpayers with net worth between $50,000,000 and $1,000,000 of | 4 | | at least 25%. Adequate funding should additionally make it | 5 | | both possible and feasible for the Department of Revenue to | 6 | | hire any outside experts or outside counsel as appropriate and | 7 | | helpful for vigorously enforcing this Act. | 8 | | For the first two years of operation, $50,000,000 or 1% of | 9 | | all projected revenues from the mark-to-market tax, whichever | 10 | | is greater, shall be deposited in the Tax Compliance and | 11 | | Administration Fund for the purpose of setting up the | 12 | | administration and enforcement of the mark-to-market tax. | 13 | | The Task Force shall recommend prudently spending down any | 14 | | excess funds deposited into the Tax Compliance and | 15 | | Administration Fund under this provisions of this subsection. | 16 | | (c) The Task Force shall propose an appropriate level of | 17 | | funding for mark-to-market tax administration annually, with | 18 | | the first proposal due 6 months after the effective date of | 19 | | this Act. | 20 | | (d) The Governor, the Comptroller, the Treasurer, the | 21 | | General Assembly, and the Director of Revenue shall each | 22 | | appoint one member from each of the following 3 categories: | 23 | | (1) a current or retired Illinois revenue official; (2) a | 24 | | taxpayer representative; (3) a policy analyst or academic. | 25 | | (e) All appointments shall be made within 40 days after | 26 | | the effective date of this Act. If any of the appointments are |
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| 1 | | not completed within that time, the Task Force shall proceed | 2 | | to operate with the appointments that are in place, provided | 3 | | that at least 60% of the appointments have been made. | 4 | | Forty-five days after the effective date of this Act, the | 5 | | Director of Revenue shall convene a meeting of the appointed | 6 | | members of the Task Force to elect a chairperson and vice | 7 | | chairperson from among the individuals nominated pursuant to | 8 | | subsection (d). | 9 | | The members shall serve 8-year terms. Members shall serve | 10 | | a maximum of 2 terms. | 11 | | If a vacancy occurs within a term, the appointing | 12 | | authority shall appoint a replacement member within 90 days to | 13 | | serve the remainder of the term. | 14 | | When a term expires, the appointing authority shall | 15 | | appoint a member within 90 days. Task Force members shall | 16 | | continue to serve until their replacements are appointed. | 17 | | Actions of the Task Force may be taken only by a majority | 18 | | vote of a quorum of the Task Force. | 19 | | Section 50. Penalties. | 20 | | (a) A taxpayer subject to the tax imposed under this Act | 21 | | with an understatement of tax for any taxable year shall be | 22 | | subject to the penalty imposed under this Section if that | 23 | | understatement 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 | 4 | | equal to 20% of any understatement of tax. For purposes of this | 5 | | Section, "understatement of tax" means the amount by which the | 6 | | tax imposed by this Act exceeds the amount of tax shown on an | 7 | | original return or shown on an amended return filed on or | 8 | | before the original or extended due date of the return for the | 9 | | taxable year. | 10 | | The penalty under this Section shall be an amount equal to | 11 | | 40% of any understatement of tax if that understatement was | 12 | | substantially the result of not reporting an asset required to | 13 | | be listed under Section 30. | 14 | | (c) The penalty imposed by this Section shall be in | 15 | | addition to any other penalty imposed under the personal | 16 | | income tax or other relevant provision of law. | 17 | | (d) A refund or credit for any amounts paid to satisfy a | 18 | | penalty imposed under this Section may be allowed only on the | 19 | | grounds that the amount of the penalty was not properly | 20 | | computed by the
Department of Revenue. | 21 | | (e) No penalty shall be imposed under this Section on any | 22 | | understatement to the extent that the understatement is | 23 | | attributable 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 | 7 | | statutory change or an interpretation of law or rule of law by | 8 | | regulation, legal ruling of counsel, or a published federal or | 9 | | Illinois court decision. | 10 | | The Department of Revenue shall implement this Section in | 11 | | a reasonable manner. | 12 | | (f) No penalty shall be imposed under this Section to the | 13 | | extent that a taxpayer's understatement is attributable to the | 14 | | taxpayer's reasonable reliance on written advice of the | 15 | | Department of Revenue, but only if the written advice was a | 16 | | formal legal ruling. | 17 | | Section 55. Rules. The Department of Revenue shall adopt | 18 | | rules necessary or appropriate to carry out the purposes of | 19 | | this Act, including rules to prevent the use of year-end | 20 | | transfers, related parties, or other arrangements to avoid its | 21 | | provisions.
| 22 | | Section 99. Effective date. This Act takes effect upon | 23 | | becoming law.
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