II 116th CONGRESS 2d Session S. 3526 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.

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