Title: Protecting Taxpayer's Return on Investment Act of 2020
Policy area: Finance and Financial Sector

Summary:
Protecting Taxpayer's Return on Investment Act of 2020
This bill sets forth requirements for the purchase or guarantee of a company's assets by the Department of the Treasury in response to the COVID-19 (i.e., coronavirus disease 2019) pandemic. Specifically, as a condition of such a transaction, companies must provide a warrant (i.e., the right to purchase company stock in the future at a specified exercise price) or a senior debt instrument to Treasury. The exercise price for a warrant must be set by Treasury for the primary benefit of taxpayers.
Treasury is generally prohibited from purchasing or guaranteeing assets from an inverted domestic corporation (i.e., a domestic corporation that has been restructured to incorporate in a foreign jurisdiction for tax purposes) in response to COVID-19.
An entity receiving specified assistance in response to COVID-19 may not claim the trade or business expenses tax deduction for the amount an individual employee is compensated above $500,000.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 3526 Introduced in Senate (IS)]

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116th CONGRESS
  2d Session
                                S. 3526

To restrict the authority of the Secretary of the Treasury to purchase 
 or guarantee assets in response to the coronavirus disease (COVID-19) 
                               outbreak.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 18, 2020

   Mr. Reed introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To restrict the authority of the Secretary of the Treasury to purchase 
 or guarantee assets in response to the coronavirus disease (COVID-19) 
                               outbreak.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Protecting Taxpayer's Return on 
Investment Act of 2020''.

SEC. 2. AUTHORITY FOR WARRANTS AND DEBT INSTRUMENTS.

    (a) Definitions.--In this section:
            (1) Asset.--The term ``asset'' means any financial 
        instrument that the Secretary, after consultation with the 
        Chairman of the Board of Governors of the Federal Reserve 
        System, determines the purchase of which or the guarantee of 
        which is necessary to promote economic stability.
            (2) Company.--The term ``company'' means any entity that is 
        not subject to the prohibitions in subsection (e).
            (3) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
    (b) Warrant or Senior Debt Instrument.--The Secretary may not 
purchase, or make any commitment to purchase, or guarantee, or make any 
commitment to guarantee, any asset in response to the coronavirus 
disease (COVID-19) outbreak, unless the Secretary receives from the 
company from which such assets are to be purchased or are to be 
guaranteed--
            (1) in the case of a company, the securities of which are 
        traded on a national securities exchange, a warrant giving the 
        right to the Secretary to receive nonvoting common stock or 
        preferred stock in such company, or voting stock with respect 
        to which, the Secretary agrees not to exercise voting power, as 
        the Secretary determines appropriate; or
            (2) in the case of any company other than one described in 
        paragraph (1), a warrant for common or preferred stock, or a 
        senior debt instrument from such company, as described in 
        subsection (c)(3).
    (c) Terms and Conditions.--The terms and conditions of any warrant 
or senior debt instrument required under subsection (b) shall meet the 
following requirements:
            (1) Purposes.--Such terms and conditions shall, at a 
        minimum, be designed--
                    (A) to provide for reasonable participation by the 
                Secretary, for the benefit of taxpayers, in equity 
                appreciation in the case of a warrant or other equity 
                security, or a reasonable interest rate premium, in the 
                case of a debt instrument; and
                    (B) to provide additional protection for the 
                taxpayer against losses from sale of assets by the 
                Secretary and any associated administrative expenses.
            (2) Authority to sell, exercise, or surrender.--
                    (A) In general.--For the primary benefit of 
                taxpayers, the Secretary may sell, exercise, or 
                surrender a warrant or any senior debt instrument 
                received under this section, based on the conditions 
                established under paragraph (1).
                    (B) Proceeds.--Of any proceeds received through the 
                sale, exercise, or surrender of any warrant or any 
                senior debt instrument--
                            (i) 65 percent shall be transferred or 
                        credited to the Housing Trust Fund established 
                        under section 1338 of the Federal Housing 
                        Enterprises Financial Safety and Soundness Act 
                        of 1992 (12 U.S.C. 4568); and
                            (ii) 35 percent shall be transferred or 
                        credited to the Capital Magnet Fund under 
                        section 1339 of the Federal Housing Enterprises 
                        Financial Safety and Soundness Act of 1992 (12 
                        U.S.C. 4569).
            (3) Conversion.--The warrant shall provide that if, after 
        the warrant is received by the Secretary under this section, 
        the company that issued the warrant is no longer listed or 
        traded on a national securities exchange or securities 
        association, as described in subsection (b)(1), such warrants 
        shall convert to senior debt, or contain appropriate 
        protections for the Secretary to ensure that the Treasury is 
        appropriately compensated for the value of the warrant, in an 
        amount determined by the Secretary for the primary benefit of 
        taxpayers.
            (4) Protections.--Any warrant representing securities to be 
        received by the Secretary under this section shall contain 
        anti-dilution provisions of the type employed in capital market 
        transactions, as determined by the Secretary for the primary 
        benefit of taxpayers. Such provisions shall protect the value 
        of the securities from market transactions such as stock 
        splits, stock distributions, dividends, and other 
        distributions, mergers, and other forms of reorganization or 
        recapitalization.
            (5) Exercise price.--The exercise price for any warrant 
        issued pursuant to this section shall be set by the Secretary, 
        for the primary benefit of taxpayers.
            (6) Sufficiency.--The company shall guarantee to the 
        Secretary that it has authorized shares of nonvoting stock 
        available to fulfill its obligations under this section. Should 
        the company not have sufficient authorized shares, including 
        preferred shares that may carry dividend rights equal to a 
        multiple number of common shares, the Secretary may, to the 
        extent necessary for the primary benefit of taxpayers, accept a 
        senior debt note in an amount, and on such terms as will 
        compensate the Secretary with equivalent value, in the event 
        that a sufficient shareholder vote to authorize the necessary 
        additional shares cannot be obtained.
    (d) Exceptions.--The Secretary may establish an exception to the 
requirements of this section and appropriate alternative requirements 
for any participating company that is legally prohibited from issuing 
securities and debt instruments, so as not to allow circumvention of 
the requirements of this section.
    (e) Prohibitions of Foreign Companies.--
            (1) In general.--The Secretary may not purchase, or make 
        any commitment to purchase, or guarantee, or make any 
        commitment to guarantee, any asset in response to the 
        coronavirus disease (COVID-19) outbreak from--
                    (A) any foreign incorporated entity that the 
                Secretary has determined is an inverted domestic 
                corporation or any subsidiary of such entity; or
                    (B) any joint venture if more than 10 percent of 
                the joint venture (by vote or value) is held by a 
                foreign incorporated entity that the Secretary has 
                determined is an inverted domestic corporation or any 
                subsidiary of such entity.
            (2) Inverted domestic corporation.--
                    (A) In general.--For purposes of this subsection, a 
                foreign incorporated entity shall be treated as an 
                inverted domestic corporation if, pursuant to a plan 
                (or a series of related transactions)--
                            (i) the entity completes on or after May 8, 
                        2014, the direct or indirect acquisition of--
                                    (I) substantially all of the 
                                properties held directly or indirectly 
                                by a domestic corporation; or
                                    (II) substantially all of the 
                                assets of, or substantially all of the 
                                properties constituting a trade or 
                                business of, a domestic partnership; 
                                and
                            (ii) after the acquisition, either--
                                    (I) more than 50 percent of the 
                                stock (by vote or value) of the entity 
                                is held--
                                            (aa) in the case of an 
                                        acquisition with respect to a 
                                        domestic corporation, by former 
                                        shareholders of the domestic 
                                        corporation by reason of 
                                        holding stock in the domestic 
                                        corporation; or
                                            (bb) in the case of an 
                                        acquisition with respect to a 
                                        domestic partnership, by former 
                                        partners of the domestic 
                                        partnership by reason of 
                                        holding a capital or profits 
                                        interest in the domestic 
                                        partnership; or
                                    (II) the management and control of 
                                the expanded affiliated group which 
                                includes the entity occurs, directly or 
                                indirectly, primarily within the United 
                                States, as determined pursuant to 
                                regulations prescribed by the 
                                Secretary, and such expanded affiliated 
                                group has significant domestic business 
                                activities.
                    (B) Exception for corporations with substantial 
                business activities in foreign country of 
                organization.--
                            (i) In general.--A foreign incorporated 
                        entity described in subparagraph (A) shall not 
                        be treated as an inverted domestic corporation 
                        if after the acquisition the expanded 
                        affiliated group which includes the entity has 
                        substantial business activities in the foreign 
                        country in which or under the law of which the 
                        entity is created or organized when compared to 
                        the total business activities of such expanded 
                        affiliated group.
                            (ii) Substantial business activities.--The 
                        Secretary shall establish regulations for 
                        determining whether an affiliated group has 
                        substantial business activities for purposes of 
                        clause (i), except that such regulations may 
                        not treat any group as having substantial 
                        business activities if such group would not be 
                        considered to have substantial business 
                        activities under the regulations prescribed 
                        under section 7874 of the Internal Revenue Code 
                        of 1986, as in effect on January 18, 2017.
                    (C) Significant domestic business activities.--
                            (i) In general.--For purposes of 
                        subparagraph (A)(ii)(II), an expanded 
                        affiliated group has significant domestic 
                        business activities if at least 25 percent of--
                                    (I) the employees of the group are 
                                based in the United States;
                                    (II) the employee compensation 
                                incurred by the group is incurred with 
                                respect to employees based in the 
                                United States;
                                    (III) the assets of the group are 
                                located in the United States; or
                                    (IV) the income of the group is 
                                derived in the United States.
                            (ii) Determination.--Determinations 
                        pursuant to clause (i) shall be made in the 
                        same manner as such determinations are made for 
                        purposes of determining substantial business 
                        activities under regulations referred to in 
                        subparagraph (B) as in effect on January 18, 
                        2017, but applied by treating all references in 
                        such regulations to ``foreign country'' and 
                        ``relevant foreign country'' as references to 
                        ``the United States''. The Secretary may issue 
                        regulations decreasing the threshold percent in 
                        any of the tests under such regulations for 
                        determining if business activities constitute 
                        significant domestic business activities for 
                        purposes of this subparagraph.
            (3) Waiver.--
                    (A) In general.--The Secretary may waive paragraph 
                (1) if the Secretary determines that the waiver is--
                            (i) required in the interest of national 
                        security; or
                            (ii) necessary for the efficient or 
                        effective administration of Federal or 
                        federally funded--
                                    (I) programs that provide health 
                                benefits to individuals; or
                                    (II) public health programs.
                    (B) Report to congress.--The Secretary shall, not 
                later than 14 days after issuing such waiver, submit a 
                written notification of the waiver to the relevant 
                authorizing committees of Congress and the Committees 
                on Appropriations of the Senate and the House of 
                Representatives.
            (4) Definitions and special rules.--
                    (A) Definitions.--In this subsection, the terms 
                ``expanded affiliated group'', ``foreign incorporated 
                entity'', ``domestic'', and ``foreign'' have the 
                meaning given those terms in section 835(c) of the 
                Homeland Security Act of 2002 (6 U.S.C. 395(c)).
                    (B) Special rules.--In applying paragraph (2) of 
                this subsection for purposes of paragraph (1) of this 
                subsection, the rules described under 835(c)(1) of the 
                Homeland Security Act of 2002 (6 U.S.C. 395(c)(1)) 
                shall apply.
            (5) Regulations regarding management and control.--
                    (A) In general.--The Secretary shall, for purposes 
                of this subsection, prescribe regulations for purposes 
                of determining cases in which the management and 
                control of an expanded affiliated group is to be 
                treated as occurring, directly or indirectly, primarily 
                within the United States. The regulations prescribed 
                under the preceding sentence shall apply to periods 
                after May 8, 2014.
                    (B) Executive officers and senior management.--The 
                regulations prescribed under subparagraph (A) shall 
                provide that the management and control of an expanded 
                affiliated group shall be treated as occurring, 
                directly or indirectly, primarily within the United 
                States if substantially all of the executive officers 
                and senior management of the expanded affiliated group 
                who exercise day-to-day responsibility for making 
                decisions involving strategic, financial, and 
                operational policies of the expanded affiliated group 
                are based or primarily located within the United 
                States. Individuals who in fact exercise such day-to-
                day responsibilities shall be treated as executive 
                officers and senior management regardless of their 
                title.

SEC. 3. SPECIAL RULES FOR TAX TREATMENT OF EXECUTIVE COMPENSATION FOR 
              EMPLOYERS PARTICIPATING IN CERTAIN CORONAVIRUS RELIEF 
              PROGRAMS.

    (a) In General.--Section 162(m) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new paragraph:
            ``(7) Special rule for application to employers 
        participating in certain coronavirus relief programs.--
                    ``(A) In general.--In the case of an applicable 
                employer, no deduction shall be allowed under this 
                chapter--
                            ``(i) in the case of applicable 
                        remuneration for any applicable taxable year 
                        which is attributable to services performed by 
                        a covered individual during such applicable 
                        taxable year, to the extent that the amount of 
                        such remuneration exceeds $500,000, or
                            ``(ii) in the case of deferred deduction 
                        remuneration for any taxable year for services 
                        performed during any applicable taxable year by 
                        a covered individual, to the extent that the 
                        amount of such remuneration exceeds $500,000 
                        reduced (but not below zero) by the sum of--
                                    ``(I) the applicable remuneration 
                                for such applicable taxable year, plus
                                    ``(II) the portion of the deferred 
                                deduction remuneration for such 
                                services which was taken into account 
                                under this clause in a preceding 
                                taxable year.
                    ``(B) Applicable employer.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `applicable 
                        employer' means any employer from whom one or 
                        more assets are purchased or guaranteed in 
                        accordance with section 2 of the Protecting 
                        Taxpayer's Return on Investment Act of 2020.
                            ``(ii) Aggregation rules.--Two or more 
                        persons who are treated as a single employer 
                        under subsection (b) or (c) of section 414 
                        shall be treated as a single employer, except 
                        that in applying section 1563(a) for purposes 
                        of either such subsection, paragraphs (2) and 
                        (3) thereof shall be disregarded.
                    ``(C) Applicable taxable year.--For purposes of 
                this paragraph, the term `applicable taxable year' 
                means, with respect to any employer--
                            ``(i) the first taxable year of the 
                        employer in which the Secretary has purchased 
                        or guaranteed an asset of the employer in 
                        accordance with section 2 of the Protecting 
                        Taxpayer's Return on Investment Act of 2020, 
                        and
                            ``(ii) any subsequent taxable year ending 
                        before the date on which the Secretary sells 
                        the assets associated with the employer or no 
                        longer guarantees the assets associated with 
                        the employer, as the case may be.
                    ``(D) Covered individual.--For purposes of this 
                paragraph, the term `covered individual' means any 
                individual who has performed services (directly or 
                indirectly) for the applicable employer (or any 
                predecessor).
                    ``(E) Applicable remuneration.--For purposes of 
                this paragraph, the term `applicable remuneration' 
                means the applicable employee remuneration of the 
                covered individual, as determined under paragraph (4) 
                without regard to subparagraph (B) thereof. Such term 
                shall not include any deferred deduction remuneration 
                with respect to services performed in a prior 
                applicable taxable year.
                    ``(F) Deferred deduction remuneration.--For 
                purposes of this paragraph, the term `deferred 
                deduction remuneration' means remuneration which would 
                be applicable remuneration for services performed in an 
                applicable taxable year but for the fact that the 
                deduction under this chapter (determined without regard 
                to this paragraph) for such remuneration is allowable 
                in a subsequent taxable year.
                    ``(G) Coordination.--Rules similar to the rules of 
                subparagraphs (D), (E), and (F) of paragraph (4) shall 
                apply for purposes of this paragraph.
                    ``(H) Regulatory authority.--The Secretary may 
                prescribe such guidance, rules, or regulations as are 
                necessary to carry out the purposes of this paragraph, 
                including the extent to which this paragraph applies in 
                the case of any acquisition, merger, or reorganization 
                of an applicable employer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2019.
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