II 

118TH CONGRESS 

2D SESSION S. 5188 

To amend the Internal Revenue Code of 1986 to incentivize the divestiture 

of certain securities connected to the People’s Republic of China. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 25, 2024 

Mr. RUBIO introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to incentivize 

the divestiture of certain securities connected to the People’s Republic of China. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Patriotic Investment 

5 Act’’. 

6 SEC. 2. INCENTIVES TO DIVEST DISQUALIFIED PRC SECU7 RITIES. 

8 (a) TREATMENT AS ORDINARY GAIN.—Part IV of 

9 subchapter P of chapter 1 of the Internal Revenue Code 


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1 of 1986 is amended by adding at the end the following 

2 new section: 

3 ‘‘SEC. 1261. GAIN FROM DISPOSITION OF DISQUALIFIED 

4 PRC SECURITIES. 

5 ‘‘(a) IN GENERAL.—Any gain on the disposition of 

6 any disqualified PRC security shall be treated as ordinary 

7 income and shall be recognized notwithstanding any other 

8 provision of this subtitle. 

9 ‘‘(b) DEFINITIONS.—For purposes of this section— 

10 ‘‘(1) DISQUALIFIED PRC SECURITY.—The term 

11 ‘disqualified PRC security’ means any specified in12 terest held directly or indirectly with respect to any 

13 of the following: 

14 ‘‘(A) The Government of the People’s Re15 public of China or any other governmental enti16 ty based in the People’s Republic of China. 

17 ‘‘(B) The Chinese Communist Party or 

18 any subdivision or affiliate thereof. 

19 ‘‘(C) A person who is a citizen, national, or 

20 resident of the People’s Republic of China, pro21 vided that such person is not an individual who 

22 is— 

23 ‘‘(i) a citizen or lawful permanent 

24 resident of the United States, or 


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1 ‘‘(ii) domiciled in Taiwan possessing a 

2 valid identification card or number issued 

3 by the government of Taiwan. 

4 ‘‘(D) A person (including a legal entity) 

5 headquartered, organized under the laws of, or 

6 having its principal place of business in the 

7 People’s Republic of China. 

8 ‘‘(E) A person at least 15 percent of the 

9 outstanding voting interest of which is held di10 rectly or indirectly by an entity described in 

11 subparagraphs (A)–(D). 

12 ‘‘(F) A person at least 25 percent of the 

13 outstanding voting interest of which is held di14 rectly or indirectly by any combination of per15 sons described in subparagraphs (A)–(E). 

16 ‘‘(2) SPECIFIED INTEREST.—The term ‘speci17 fied interest’— 

18 ‘‘(A) means, with respect to a person— 

19 ‘‘(i) stock or any other equity or prof20 its interest of such person, 

21 ‘‘(ii) debt issued by such person, and 

22 ‘‘(iii) any contract or derivative with 

23 respect to an interest described in clause 

24 (i) or (ii), and 


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1 ‘‘(B) includes any interest held, directly or 

2 indirectly, through— 

3 ‘‘(i) a regulated investment company, 

4 exchange traded fund, or other pooled in5 vestment, or 

6 ‘‘(ii) any derivative financial instru7 ment or other contractual arrangement 

8 with respect to such interest (including any 

9 financial instrument or other contract 

10 which seeks to replicate any financial re11 turn with respect to such interest). 

12 ‘‘(3) PEOPLE’S REPUBLIC OF CHINA.—The 

13 term ‘People’s Republic of China’ includes Special 

14 Administrative Regions, including Hong Kong and 

15 Macau, but does not include Taiwan.’’. 

16 (b) NET PRC SECURITIES GAIN SUBJECT TO HIGH17 EST RATE OF INCOME TAX.— 

18 (1) INDIVIDUALS.—Section 1 of such Code is 

19 amended by adding at the end the following sub20 section: 

21 ‘‘(k) NET PRC SECURITIES GAIN SUBJECT TO

22 HIGHEST RATE OF INCOME TAX.— 

23 ‘‘(1) IN GENERAL.—The tax imposed under 

24 subsections (a), (b), (c), (d), and (e) shall be in25 creased by the product of— 


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1 ‘‘(A) the highest rate of tax in effect under 

2 such subsection, multiplied by 

3 ‘‘(B) the net PRC securities gain of the 

4 taxpayer for the taxable year. 

5 ‘‘(2) PREVENTION OF DOUBLE TAXATION.—For 

6 purposes of subsections (a), (b), (c), (d) and (e), 

7 taxable income (determined without regard to this 

8 paragraph) shall be reduced by the net PRC securi9 ties gain of the taxpayer for the taxable year. 

10 ‘‘(3) NET PRC SECURITIES GAIN.—For pur11 poses of this subsection, the term ‘net PRC securi12 ties gain’ means the excess (if any) of— 

13 ‘‘(A) the taxpayer’s aggregate gains on the 

14 dispositions of disqualified PRC securities for 

15 the taxable year, over 

16 ‘‘(B) the taxpayer’s aggregate losses on the 

17 dispositions of disqualified PRC securities for 

18 such taxable year.’’. 

19 (2) CORPORATIONS.—Section 11(b) of such 

20 Code is amended to read as follows: 

21 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im22 posed by subsection (a) shall be the sum of— 

23 ‘‘(1) 21 percent of the excess (if any) of— 

24 ‘‘(A) taxable income, over 

25 ‘‘(B) net PRC securities gain, plus 


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1 ‘‘(2) the product of— 

2 ‘‘(A) the highest rate of tax in effect under 

3 section 1, multiplied by 

4 ‘‘(B) the lesser of taxable income or net 

5 PRC securities gain (as defined in section 

6 1(k)(3)).’’. 

7 (c) CLERICAL AMENDMENT.—The table of sections 

8 for part IV of subchapter P of chapter 1 of the Internal 

9 Revenue Code of 1986 is amended by adding at the end 

10 the following new item: 

‘‘Sec. 1261. Gains from disposition of disqualified PRC securities.’’. 

11 (d) EFFECTIVE DATE.— 

12 (1) IN GENERAL.—The amendments made by 

13 this section shall apply to dispositions after the date 

14 which is 6 months after the date of the enactment 

15 of this Act. 

16 (2) APPLICATION TO FIRST TAXABLE YEAR.— 

17 For purposes of determining net PRC securities gain 

18 with respect to any taxable year which includes the 

19 date which is 6 months after the date of the enact20 ment of this Act, only dispositions of disqualified 

21 PRC securities (as defined in section 1261(b)(1) of 

22 the Internal Revenue Code of 1986, as amended by 

23 this section) after such date shall be taken into ac24 count. 


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1 (e) ELECTION TO PAY TAX LIABILITY ATTRIB2 UTABLE TO DISPOSITIONS MADE IN ANTICIPATION OF IN3 CREASED TAX IN INSTALLMENTS.— 

4 (1) IN GENERAL.—In the case of any taxpayer 

5 which has a net PRC tax liability for any taxable 

6 year, such taxpayer may elect to pay such liability 

7 in 3 equal installments. 

8 (2) DATE FOR PAYMENT OF INSTALLMENTS.— 

9 If an election is made under paragraph (1), the first 

10 installment shall be paid on the due date (deter11 mined without regard to any extension of time for 

12 filing the return) for the return of tax for the tax13 able year referred to in paragraph (1) and each suc14 ceeding installment shall be paid on the due date (as 

15 so determined) for the return of tax for the taxable 

16 year following the taxable year with respect to which 

17 the preceding installment was made. 

18 (3) ACCELERATION OF PAYMENT.—If there is 

19 an addition to tax for failure to timely pay any in20 stallment required under this subsection, a liquida21 tion or sale of substantially all the assets of the tax22 payer (including in a title 11 or similar case), a ces23 sation of business by the taxpayer, or any similar 

24 circumstance, then the unpaid portion of all remain25 ing installments shall be due on the date of such 


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1 event (or in the case of a title 11 or similar case, 

2 the day before the petition is filed). The preceding 

3 sentence shall not apply to the sale of substantially 

4 all the assets of a taxpayer to a buyer if such buyer 

5 enters into an agreement with the Secretary of the 

6 Treasury (or the Secretary’s delegate) under which 

7 such buyer is liable for the remaining installments 

8 due under this subsection in the same manner as if 

9 such buyer were the taxpayer. 

10 (4) PRORATION OF DEFICIENCY TO INSTALL11 MENTS.—If an election is made under paragraph (1) 

12 to pay the net PRC tax liability in installments and 

13 a deficiency has been assessed with respect to such 

14 liability, the deficiency shall be prorated to the in15 stallments payable under paragraph (1). The part of 

16 the deficiency so prorated to any installment the 

17 date for payment of which has not arrived shall be 

18 collected at the same time as, and as a part of, such 

19 installment. The part of the deficiency so prorated 

20 to any installment the date for payment of which 

21 has arrived shall be paid upon notice and demand 

22 from the Secretary of the Treasury (or the Sec23 retary’s delegate). This subsection shall not apply if 

24 the deficiency is due to negligence, to intentional disVerDate Sep 11 2014 01:16 Oct 12, 2024 Jkt 059200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S5188.IS S5188

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1 regard of rules and regulations, or to fraud with in2 tent to evade tax. 

3 (5) ELECTION.—Any election under paragraph 

4 (1) shall be made not later than the due date for the 

5 return of tax for the taxable year referred to in 

6 paragraph (1) and shall be made in such manner as 

7 the Secretary of the Treasury (or the Secretary’s 

8 delegate) shall provide. 

9 (6) NET PRC TAX LIABILITY.—For purposes of 

10 this subsection— 

11 (A) IN GENERAL.—The term ‘‘net PRC 

12 tax liability’’ means, with respect to any tax13 payer for any taxable year, the excess (if any) 

14 of— 

15 (i) such taxpayer’s net income tax for 

16 such taxable year, over 

17 (ii) such taxpayer’s net income tax for 

18 such taxable year determined without re19 gard to any gains or losses from the dis20 position of disqualified PRC securities (as 

21 defined in section 1261(b)(1) of the Inter22 nal Revenue Code of 1986, as added by 

23 this section) during the 6-month period be24 ginning on the date of the enactment of 

25 this Act. 


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1 (B) NET INCOME TAX.—The term ‘‘net in2 come tax’’ means the regular tax liability re3 duced by the credits allowed under subparts A, 

4 B, and D of part IV of subchapter A. 

5 (7) INSTALLMENTS TREATED AS TAX.—For 

6 purposes of subtitle F of the Internal Revenue Code 

7 of 1986, any installment due under this subsection 

8 shall be treated in the same manner as tax except 

9 as otherwise provided in this subsection. 

10 SEC. 3. DENIAL OF FOREIGN TAX CREDIT FOR INCOME AT11 TRIBUTABLE TO DISPOSITION OF DISQUALI12 FIED PRC SECURITIES. 

13 (a) IN GENERAL.—Section 901 of the Internal Rev14 enue Code of 1986 is amended by redesignating subsection 

15 (n) as subsection (o) and by inserting after subsection (m) 

16 the following new subsection: 

17 ‘‘(n) DENIAL OF FOREIGN TAX CREDIT WITH RE18 SPECT TO INCOME ATTRIBUTABLE TO DISPOSITION OF

19 DISQUALIFIED PRC SECURITIES.—No credit shall be al20 lowed under subsection (a) with respect to any foreign in21 come tax on income attributable to gain from the disposi22 tion of a disqualified PRC security (as defined in section 

23 1261(b)(1)).’’. 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to dispositions after the date which 

3 is 6 months after the date of the enactment of this Act. 

Æ 


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