‘‘(i) such derivative is traded on, or is 
subject to the rules of, a qualified board or 
exchange located in the United States, or 
‘‘(ii) any party with rights under such 
derivative is a United States person. 
‘‘(2) EXCEPTION FOR INITIAL ISSUES.—No tax 
shall be imposed under subsection (a) on any cov-
ered transaction with respect to the initial issuance 
of any security described in subparagraph (A), (B), 
or (C) of subsection (e)(1). 
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) SECURITY.—For purposes of this section, 
the term ‘security’ means— 
‘‘(A) any share of stock in a corporation, 
‘‘(B) any partnership or beneficial owner-
ship interest in a partnership or trust, 
‘‘(C) except as provided in paragraph (2), 
any note, bond, debenture, or other evidence of 
indebtedness, and 
‘‘(D) any derivative (as defined in section 
4476). 
‘‘(2) EXCEPTION FOR CERTAIN TRADED SHORT- 
TERM INDEBTEDNESS.—A note, bond, debenture, or 
other evidence of indebtedness which— 
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‘‘(A) is traded on, or is subject to the rules 
of, a qualified board or exchange located in the 
United States, and 
‘‘(B) has a fixed maturity of not more 
than 100 days, 
shall not be treated as described in paragraph 
(1)(C). 
‘‘(3) QUALIFIED BOARD OR EXCHANGE.—The 
term ‘qualified board or exchange’ has the meaning 
given such term by section 1256(g)(7). 
‘‘(f) BY WHOM PAID.— 
‘‘(1) IN GENERAL.—The tax imposed by this 
section shall be paid by— 
‘‘(A) in the case of a transaction which oc-
curs on, or is subject to the rules of, a qualified 
board or exchange located in the United States, 
such qualified board or exchange, and 
‘‘(B) in the case of a purchase not de-
scribed in subparagraph (A) which is executed 
by a broker (as defined in section 6045(c)(1)) 
which is a United States person, such broker. 
‘‘(2) SPECIAL
RULES
FOR
DIRECT, 
ETC., 
TRANSACTIONS.—In the case of any transaction to 
which paragraph (1) does not apply, the tax imposed 
by this section shall be paid by— 
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‘‘(A) in the case of a transaction described 
in subsection (d)(1)(A)— 
‘‘(i) the purchaser if the purchaser is 
a United States person, and 
‘‘(ii) the seller if the purchaser is not 
a United States person, and 
‘‘(B) in the case of a transaction described 
in subsection (d)(1)(B)— 
‘‘(i) the payor if the payor is a United 
States person, and 
‘‘(ii) the payee if the payor is not a 
United States person. 
‘‘(g) TREATMENT OF EXCHANGES AND PAYMENTS 
WITH RESPECT TO DERIVATIVES.—For purposes of this 
section— 
‘‘(1) TREATMENT OF EXCHANGES.— 
‘‘(A) IN GENERAL.—An exchange shall be 
treated as the sale of the property transferred 
and a purchase of the property received by each 
party to the exchange. 
‘‘(B) CERTAIN DEEMED EXCHANGES.—In 
the case of a distribution treated as an ex-
change for stock under section 302 or 331, the 
corporation making such distribution shall be 
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treated as having purchased such stock for pur-
poses of this section. 
‘‘(2) PAYMENTS
WITH
RESPECT
TO
DERIVA-
TIVES TREATED AS SEPARATE TRANSACTIONS.—Ex-
cept as otherwise provided by the Secretary, any 
payment with respect to any derivative shall be 
treated as a separate transaction for purposes of 
this section. 
‘‘(h) APPLICATION
TO
TRANSACTIONS
BY
CON-
TROLLED FOREIGN CORPORATIONS.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, a controlled foreign corporation shall be treated 
as a United States person. 
‘‘(2) SPECIAL RULES FOR PAYMENT OF TAX ON 
DIRECT, ETC., TRANSACTIONS.—In the case of any 
transaction which is a covered transaction solely by 
reason of paragraph (1) and which is not described 
in subsection (f)(1)— 
‘‘(A) PAYMENT BY UNITED STATES SHARE-
HOLDERS.—Any tax which would (but for this 
paragraph) be payable under subsection (f)(2) 
by the controlled foreign corporation shall, in 
lieu thereof, be paid by the United States 
shareholders of such controlled foreign corpora-
tion as provided in subparagraph (B). 
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‘‘(B) PRO
RATA
SHARES.—Each such 
United States shareholder shall pay the same 
proportion of such tax as— 
‘‘(i) the stock which such United 
States shareholder owns (within the mean-
ing of section 958(a)) in such controlled 
foreign corporation, bears to 
‘‘(ii) the stock so owned by all United 
States shareholders in such controlled for-
eign corporation. 
‘‘(C) DEFINITIONS.—For purposes of this 
subsection, the terms ‘United States share-
holder’ and ‘controlled foreign corporation’ have 
the meanings given such terms in sections 
951(b) and 957(a), respectively. 
‘‘(i) ADMINISTRATION.—The Secretary shall carry 
out this section in consultation with the Securities and Ex-
change Commission and the Commodity Futures Trading 
Commission. 
‘‘(j) GUIDANCE; REGULATIONS.—The Secretary 
shall— 
‘‘(1) provide guidance regarding such informa-
tion reporting concerning covered transactions as the 
Secretary deems appropriate, and 
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‘‘(2) prescribe such regulations as are necessary 
or appropriate to prevent avoidance of the purposes 
of this section, including the use of non-United 
States persons in such transactions. 
‘‘SEC. 4476. DERIVATIVE DEFINED. 
‘‘(a) IN GENERAL.—For purposes of this subchapter, 
except as otherwise provided in this section, the term ‘de-
rivative’ means any contract (including any option, for-
ward contract, futures contract, short position, swap, or 
similar contract) the value of which, or any payment or 
other transfer with respect to which, is (directly or indi-
rectly) determined by reference to one or more of the fol-
lowing: 
‘‘(1) Any share of stock in a corporation. 
‘‘(2) Any partnership or beneficial ownership 
interest in a partnership or trust. 
‘‘(3) Any evidence of indebtedness. 
‘‘(4) Except as provided in subsection (b)(1), 
any real property. 
‘‘(5) Any commodity which is actively traded 
(within the meaning of section 1092(d)(1)). 
‘‘(6) Any currency. 
‘‘(7) Any rate, price, amount, index, formula, or 
algorithm. 
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‘‘(8) Any other item as the Secretary may pre-
scribe. 
Except as provided in regulations prescribed by the Sec-
retary to prevent the avoidance of the purposes of this 
subchapter, such term shall not include any item described 
in paragraphs (1) through (8). 
‘‘(b) EXCEPTIONS.— 
‘‘(1) CERTAIN REAL PROPERTY.— 
‘‘(A) IN GENERAL.—For purposes of this 
subchapter, the term ‘derivative’ shall not in-
clude any contract with respect to interests in 
real 
property 
(as 
defined 
in 
section 
856(c)(5)(C)) if such contract requires physical 
delivery of such real property. 
‘‘(B) OPTIONS TO SETTLE IN CASH.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), a contract which pro-
vides for an option of cash settlement shall 
not be treated as requiring physical deliv-
ery of real property unless the option is— 
‘‘(I) not exercisable uncondition-
ally, and 
‘‘(II) exercisable only in unusual 
and exceptional circumstances. 
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‘‘(ii) 
OPTION
OF
CASH
SETTLE-
MENT.—For purposes of clause (i), a con-
tract provides an option of cash settlement 
if the contract settles in (or could be set-
tled in) cash or property other than the 
underlying real property. 
‘‘(2) SECURITIES LENDING, SALE-REPURCHASE, 
AND
SIMILAR
FINANCING
TRANSACTIONS.—To the 
extent provided by the Secretary, for purposes of 
this subchapter, the term ‘derivative’ shall not in-
clude the right to the return of the same or substan-
tially identical securities transferred in a securities 
lending transaction, sale-repurchase transaction, or 
similar financing transaction. 
‘‘(3) OPTIONS RECEIVED IN CONNECTION WITH 
THE PERFORMANCE OF SERVICES.—For purposes of 
this subchapter, the term ‘derivative’ shall not in-
clude any option described in section 83(e)(3) re-
ceived in connection with the performance of serv-
ices. 
‘‘(4) INSURANCE CONTRACTS, ANNUITIES, AND 
ENDOWMENTS.—For purposes of this subchapter, 
the term ‘derivative’ shall not include any insurance, 
annuity, or endowment contract issued by an insur-
ance company to which subchapter L applies (or 
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issued by any foreign corporation to which such sub-
chapter would apply if such foreign corporation were 
a domestic corporation). 
‘‘(5) DERIVATIVES WITH RESPECT TO STOCK 
OF
MEMBERS
OF
SAME
WORLDWIDE
AFFILIATED 
GROUP.—For purposes of this subchapter, the term 
‘derivative’ shall not include any derivative (deter-
mined without regard to this paragraph) with re-
spect to stock issued by any member of the same 
worldwide affiliated group (as defined in section 
864(f)) in which the taxpayer is a member. 
‘‘(6) COMMODITIES USED IN NORMAL COURSE 
OF TRADE OR BUSINESS.—For purposes of this sub-
chapter, the term ‘derivative’ shall not include any 
contract with respect to any commodity if— 
‘‘(A) such contract requires physical deliv-
ery with the option of cash settlement only in 
unusual and exceptional circumstances, and 
‘‘(B) such commodity is used (and is used 
in quantities with respect to which such deriva-
tive relates) in the normal course of the tax-
payer’s trade or business (or, in the case of an 
individual, for personal consumption). 
‘‘(c) CONTRACTS WITH EMBEDDED DERIVATIVE 
COMPONENTS.— 
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‘‘(1) IN GENERAL.—If a contract has derivative 
and nonderivative components, then each derivative 
component shall be treated as a derivative for pur-
poses of this subchapter. If the derivative component 
cannot be separately valued, then the entire contract 
shall be treated as a derivative for purposes of this 
subchapter. 
‘‘(2) EXCEPTION FOR CERTAIN EMBEDDED DE-
RIVATIVE COMPONENTS OF DEBT INSTRUMENTS.—A 
debt instrument shall not be treated as having a de-
rivative component merely because— 
‘‘(A) such debt instrument is denominated 
in a nonfunctional currency (as defined in sec-
tion 988(c)(1)(C)(ii)), or 
‘‘(B) payments with respect to such debt 
instrument are determined by reference to the 
value of a nonfunctional currency (as so de-
fined). 
‘‘(d) TREATMENT OF AMERICAN DEPOSITORY RE-
CEIPTS AND SIMILAR INSTRUMENTS.—Except as other-
wise provided by the Secretary, for purposes of this sub-
chapter, American depository receipts (and similar instru-
ments) with respect to shares of stock in foreign corpora-
tions shall be treated as shares of stock in such foreign 
corporations.’’. 
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(b) INFORMATION REPORTING WITH RESPECT TO 
CONTROLLED
FOREIGN
CORPORATIONS.—Section 
6038(a)(1)(B) of such Code is amended by inserting ‘‘and 
transactions which are covered transactions for purposes 
of section 4475 by reason of the application of section 
4475(h)(1) to such corporation’’ before the semicolon at 
the end. 
(c) CONFORMING AMENDMENT.—The table of sub-
chapters for chapter 36 of such Code is amended by in-
serting after the item relating to subchapter B the fol-
lowing new item: 
‘‘SUBCHAPTER C. TAX ON TRADING TRANSACTIONS’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after December 31, 
2025. 
Æ 
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