Patriotic Investment Act

This Act may be cited as the Patriotic Investment Act.

Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

Any gain on the disposition of any disqualified PRC security shall be treated as ordinary income and shall be recognized notwithstanding any other provision of this subtitle.

For purposes of this section—

The term disqualified PRC security means any specified interest held directly or indirectly with respect to any of the following:

(A) The Government of the People’s Republic of China or any other governmental entity based in the People’s Republic of China.

(B) The Chinese Communist Party or any subdivision or affiliate thereof.

(C) A person who is a citizen, national, or resident of the People’s Republic of China, provided that such person is not an individual who is—

(i) a citizen or lawful permanent resident of the United States, or

(ii) domiciled in Taiwan possessing a valid identification card or number issued by the government of Taiwan.

(D) A person (including a legal entity) headquartered, organized under the laws of, or having its principal place of business in the People’s Republic of China.

(E) A person at least 15 percent of the outstanding voting interest of which is held directly or indirectly by an entity described in subparagraphs (A)–(D).

(F) A person at least 25 percent of the outstanding voting interest of which is held directly or indirectly by any combination of persons described in subparagraphs (A)–(E).

The term specified interest —

(A) means, with respect to a person—

(i) stock or any other equity or profits interest of such person,

(ii) debt issued by such person, and

(iii) any contract or derivative with respect to an interest described in clause (i) or (ii), and

(B) includes any interest held, directly or indirectly, through—

(i) a regulated investment company, exchange traded fund, or other pooled investment, or

(ii) any derivative financial instrument or other contractual arrangement with respect to such interest (including any financial instrument or other contract which seeks to replicate any financial return with respect to such interest).

The term People’s Republic of China includes Special Administrative Regions, including Hong Kong and Macau, but does not include Taiwan.

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Section 1 of such Code is amended by adding at the end the following subsection:

The tax imposed under subsections (a), (b), (c), (d), and (e) shall be increased by the product of—

(A) the highest rate of tax in effect under such subsection, multiplied by

(B) the net PRC securities gain of the taxpayer for the taxable year.

For purposes of subsections (a), (b), (c), (d) and (e), taxable income (determined without regard to this paragraph) shall be reduced by the net PRC securities gain of the taxpayer for the taxable year.

For purposes of this subsection, the term net PRC securities gain means the excess (if any) of—

(A) the taxpayer’s aggregate gains on the dispositions of disqualified PRC securities for the taxable year, over

(B) the taxpayer’s aggregate losses on the dispositions of disqualified PRC securities for such taxable year.

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Section 11(b) of such Code is amended to read as follows:

The amount of the tax imposed by subsection (a) shall be the sum of—

(1) 21 percent of the excess (if any) of—

(A) taxable income, over

(B) net PRC securities gain, plus

(2) the product of—

(A) the highest rate of tax in effect under section 1, multiplied by

(B) the lesser of taxable income or net PRC securities gain (as defined in section 1(k)(3)).

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The table of sections for part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

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The amendments made by this section shall apply to dispositions after the date which is 6 months after the date of the enactment of this Act.

For purposes of determining net PRC securities gain with respect to any taxable year which includes the date which is 6 months after the date of the enactment of this Act, only dispositions of disqualified PRC securities (as defined in section 1261(b)(1) of the Internal Revenue Code of 1986, as amended by this section) after such date shall be taken into account.

In the case of any taxpayer which has a net PRC tax liability for any taxable year, such taxpayer may elect to pay such liability in 3 equal installments.

If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year referred to in paragraph (1) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.

If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary of the Treasury (or the Secretary's delegate) under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.

If an election is made under paragraph (1) to pay the net PRC tax liability in installments and a deficiency has been assessed with respect to such liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary of the Treasury (or the Secretary's delegate). This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year referred to in paragraph (1) and shall be made in such manner as the Secretary of the Treasury (or the Secretary's delegate) shall provide.

For purposes of this subsection—

The term net PRC tax liability means, with respect to any taxpayer for any taxable year, the excess (if any) of—

(i) such taxpayer’s net income tax for such taxable year, over

(ii) such taxpayer’s net income tax for such taxable year determined without regard to any gains or losses from the disposition of disqualified PRC securities (as defined in section 1261(b)(1) of the Internal Revenue Code of 1986, as added by this section) during the 6-month period beginning on the date of the enactment of this Act.

The term net income tax means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A.

For purposes of subtitle F of the Internal Revenue Code of 1986, any installment due under this subsection shall be treated in the same manner as tax except as otherwise provided in this subsection.

Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:

No credit shall be allowed under subsection (a) with respect to any foreign income tax on income attributable to gain from the disposition of a disqualified PRC security (as defined in section 1261(b)(1)).

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The amendments made by this section shall apply to dispositions after the date which is 6 months after the date of the enactment of this Act.