Surtax on certain amounts received by investment firms from controlled target firms

(a) Imposition of tax Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part: VIII Surtax on certain amounts received by investment firms Sec. 59B. Surtax on certain amounts received by investment firms from controlled target firms. 59B. Surtax on certain amounts received by investment firms from controlled target firms (a) Imposition of tax (1) In general If one or more applicable payments are included in the gross income of a taxpayer for any taxable year, then there is hereby imposed on the taxpayer for the taxable year a tax equal to the applicable percentage of the aggregate amount of such payments. Such tax shall be in addition to any other tax imposed by this subtitle. (2) Applicable percentage For purposes of this subsection, the term applicable percentage means 100 percent, minus the highest rate of tax under section 1 or 11 (whichever is applicable) for the taxable year. (b) Applicable payment For purposes of this section— (1) In general The term applicable payment means any amount paid or incurred by an applicable entity (or any person related within the meaning of section 267(b) or 707(b) to such entity) to any other person which, at the time such amount is paid or incurred, is an applicable controlling entity. An amount shall be treated as an applicable payment without regard to whether it is paid or incurred to the taxpayer including it in gross income and to which subsection (a) applies. (2) Exceptions Such term shall not include any of the following: (A) Interest Any amount paid or incurred which is treated as interest for purposes of this chapter. (B) Distributions of property with respect to stock Any distribution of property (as defined in section 317(a)) to which section 301(a) applies. (c) Definitions relating to entities For purposes of this section— (1) Applicable entity The term applicable entity means any person— (A) which is engaged in the active conduct of a trade or business, and (B) with respect to which any other person conducts activities in connection with an applicable trade or business. (2) Applicable controlling entity The term applicable controlling entity means, with respect to any applicable entity, any person— (A) which is engaged in an applicable trade or business some or all of the activities of which are conducted in connection with the applicable entity, and (B) which controls (or is related within the meaning of section 267(b) or 707(b) to a person which controls) the applicable entity. (3) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in or disposing of specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (4) Specified asset The term specified asset means— (A) securities (as defined in section 475(c)(2) but without regard to the phrase widely held or publicly traded in subparagraph (B) thereof and without regard to the last sentence thereof), and (B) real estate held for rental or investment. (d) Rules and definitions relating to ownership attribution and control For purposes of this section— (1) Constructive ownership rules used in determining related party In determining whether persons are related within the meaning of section 267(b) or 707(b), the constructive ownership rules of section 318 shall apply in lieu of the constructive ownership rules which would otherwise apply, except that in applying such rules the term stock shall include capital, profits, or other beneficial interests in persons other than corporations. (2) Control (A) Corporations In the case of a corporation, the term control has the meaning given such term by section 304(c) (without regard to paragraph (3)(B) thereof). (B) Other entities In the case of a person other than a corporation, such term means the ownership, directly or indirectly, of at least 50 percent of the capital, profits, or other beneficial interests in the person. (e) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations— (1) providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through the use of unrelated persons, or conduit transactions, and (2) modifying the constructive ownership rules under section 318 to the extent necessary to apply such rules to capital, profits, or other beneficial interests as well as stock.. (b) Disallowance of credits against tax Subparagraph (B) of section 26(b)(2) of the Internal Revenue Code of 1986 is amended by inserting or section 59B (relating to surtax on certain amounts received by investment firms from controlled target firms) after anti-abuse tax). (c) Conforming amendments (1) The table of parts for subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding after the item relating to part VII the following new item: Part VIII. Surtax on certain amounts received by investment firms. (2) Section 871(b)(1) of such Code is amended by inserting, and as provided in section 59B on applicable payments included in gross income which are effectively connected with the conduct of a trade or business within the United States before the period. (3) Section 882(a)(1) of such Code is amended— (A) by striking 59A, and inserting 59A; and (B) by inserting, and as provided in section 59B on applicable payments included in gross income which are effectively connected with the conduct of a trade or business within the United States before the period. (4) Subparagraph (A) of section 6425(c)(1) of such Code is amended by striking plus at the end of clause (i), by striking plus at the end of clause (ii), by striking over at the end of clause (iii) and inserting and, and by adding at the end the following new clause: (iv) the tax imposed by section 59B, over. (5) Paragraph (1) of section 6654(f) of such Code is amended by striking tax each place it appears and inserting taxes. (6) Subparagraph (A) of section 6655(g)(1) of such Code is amended by striking plus at the end of clause (iii), by redesignating clause (iv) as clause (v), and by inserting after clause (iii) the following new clause: (iv) the tax imposed by section 59B, and. (d) Effective date The amendments made by this section shall apply to applicable payments (as defined in section 59B(b) of the Internal Revenue Code of 1986, as added by this section) paid or accrued on or after the date of the enactment of this Act.