Pay Your TAB Act of 2026

[Congressional Bills 119th Congress] [From the U.S. Government Publishing Office] [H.R. 10846 Introduced in House (IH)]

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119th CONGRESS 2d Session H. R. 10846

To amend the Internal Revenue Code of 1986 to impose an excise tax on certain indebtedness, and for other purposes.

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IN THE HOUSE OF REPRESENTATIVES

October 19, 2026

Ms. Friedman introduced the following bill; which was referred to the Committee on Ways and Means

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A BILL

To amend the Internal Revenue Code of 1986 to impose an excise tax on certain indebtedness, and for other purposes.

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 ``Pay Your Taxes Avoided by Borrowing Act of 2026'' or the ``Pay Your TAB Act of 2026''.

SEC. 2. IMPOSITION OF EXCISE TAX ON CERTAIN INDEBTEDNESS.

(a) In General.--Chapter 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

``Subchapter E--Certain Indebtedness

``Sec. 4491. Imposition of tax.

``SEC. 4491. IMPOSITION OF TAX.

``(a) In General.--There is hereby imposed on the issuance, after December 31, 2026, of any covered loan a tax equal to 23.8 percent of the amount of such loan. The tax imposed under the preceding sentence shall be paid by the borrower. ``(b) Application to Covered Loans Outstanding on July 1, 2027.-- ``(1) In general.--In the case of any covered loan issued before January 1, 2027, and outstanding as of the close of June 30, 2027, \1/3\ of the outstanding amount of such covered loan shall be treated for purposes of subsection (a) as a covered loan issued in such amount on July 1 of each of 2027, 2028, and 2029. ``(2) Repayments.--The amount of any portion of a covered loan described in paragraph (1) that would (but for this paragraph) be included in the amount treated as a covered loan issued on July 1 of 2028 or 2029 shall not be included for purposes of paragraph (1) in-- ``(A) the amount treated as a covered loan issued on July 1, 2028, if such portion is repaid before July 1, 2028, and ``(B) the amount treated as a covered loan issued on July 1, 2029, if such portion is repaid before July 1, 2029. For purposes of the preceding sentence, repayments shall be allocated first with respect to the amount described in subparagraph (A), and then with respect to the amount described in subparagraph (B). ``(c) Limitation.--A covered loan shall be taken into account under subsections (a) and (b) only to the extent that the aggregate amount of covered loans held by the taxpayer (determined after taking into account such loan) exceeds $1,000,000. For purposes of the preceding sentence, persons related to each other (within the meaning of sections 267(b) and 707(b)) shall be treated as one person, and the limitation imposed under the preceding sentence shall be allocated among such persons in such manner as the Secretary may provide. ``(d) Recognition of Offsetting Capital Loss Upon Disposition.-- ``(1) In general.--If the taxpayer (before death) disposes of any capital asset used to secure a covered loan with respect to which tax was imposed on the taxpayer under subsection (a) or (b), such taxpayer shall recognize, for purposes of subtitle A, a long-term capital loss equal to the amount of the covered loan with respect to which such tax was imposed. ``(2) Partial dispositions.--If the disposition referred to in paragraph (1) does not constitute the disposition of all of the capital assets which secured the covered loan, the long- term capital loss recognized by the taxpayer under such paragraph shall bear the same ratio to the amount of such loss (determined without regard to this paragraph) as the assets so disposed of bear to all such assets. ``(e) Definitions.--For purposes of this section-- ``(1) Covered loan.-- ``(A) In general.--Except as provided in subparagraph (B), the term `covered loan' means-- ``(i) any indebtedness, and ``(ii) any line of credit. ``(B) Exceptions.-- ``(i) In general.--The term `covered loan' shall not include-- ``(I) home acquisition indebtedness, ``(II) home equity indebtedness, ``(III) vehicle acquisition indebtedness, ``(IV) a qualified education loan (as defined in section 221(d)), ``(V) a qualified margin loan, or ``(VI) indebtedness incurred for the purpose of carrying on a trade or business (other than indebtedness incurred for the purpose of making a distribution). ``(ii) Home acquisition indebtedness.--The term `home acquisition indebtedness' means any indebtedness that-- ``(I) is incurred in acquiring, constructing, or substantially improving the taxpayer's principal residence (as such term is used in section 121), and ``(II) is secured by such residence. ``(iii) Home equity indebtedness.--The term `home equity indebtedness' means any indebtedness (other than home acquisition indebtedness) that is secured by the taxpayer's principal residence (as such term is used in section 121) to the extent that the aggregate amount of such indebtedness does not exceed $3,000,000. ``(iv) Vehicle acquisition indebtedness.-- The term `vehicle acquisition indebtedness' means any indebtedness, to the extent that the aggregate amount of such indebtedness does not exceed $100,000, that-- ``(I) is incurred in acquiring an applicable passenger vehicle (as defined in section 163(h)(4)(D) (without regard to clause (i) and the material following clause (vi) thereof)) of the taxpayer, and ``(II) is secured by such applicable passenger vehicle. ``(v) Qualified margin loan.-- ``(I) In general.--The term `qualified margin loan' means any indebtedness extended by a broker (as defined in section 6045(c)) to the taxpayer with respect to an account of the taxpayer-- ``(aa) that is governed by an agreement between the taxpayer and such broker prohibiting any withdrawal, transfer, or use of funds by the taxpayer for any purpose other than trading securities, or ``(bb) from which the taxpayer makes withdrawals of funds during the taxable year that--

``(AA) are less than 10 percent of the average aggregate balance of all indebtedness extended by such broker to such taxpayer with respect to such account during the taxable year, and

``(BB) are used for the purpose of trading securities.

``(II) Certain loans not qualified.--If the aggregate indebtedness described in subclause (I) exceeds 50 percent of the balance of the account referred to in subclause (I) for a period in excess of 90 days during the taxable year, such indebtedness shall not be treated as a qualified margin loan. ``(C) Special rules.-- ``(i) Increases in indebtedness.--Any increase in an amount of indebtedness (or line of credit) shall be treated as a separate covered loan issued on the date of such increase. ``(ii) Lines of credit.--The amount of any line of credit is the maximum amount of indebtedness which may be incurred under such line of credit (and any such indebtedness shall not separately be taken into account under this section). ``(2) Capital asset.--The term `capital asset' has the meaning given such term in section 1221(a). ``(f) Inflation Adjustment.--In the case of a taxable year beginning after December 31, 2027, the dollar amounts in subsections (c) and (e)(1)(B)(iii) shall each be increased by an amount equal to-- ``(1) such dollar amount, multiplied by ``(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `2026' for `2016' in subparagraph (A)(ii) thereof. ``(g) Regulations.--The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to prevent evasion and avoidance of liability under this section.''. (b) Reporting.-- (1) In general.--Subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new section:

``SEC. 6050BB. RETURNS RELATING TO CERTAIN INDEBTEDNESS.

``(a) In General.--Any person who issues a covered loan (as defined in section 4491(e)) after December 31, 2026, shall make the return described in subsection (b) with respect to each borrower to whom the aggregate amount of covered loans issued by such person (determined after taking into account such loan) exceeds the dollar amount in effect under section 4491(c). ``(b) Form and Manner of Returns.--A return is described in this subsection if such return-- ``(1) is in such form as the Secretary may prescribe, and ``(2) contains-- ``(A) the name and address of the borrower referred to in subsection (a), ``(B) the aggregate amount of covered loans issued to such borrower by the person making such return during the calendar year, and ``(C) such other information as the Secretary may prescribe. ``(c) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required.--Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing-- ``(1) the name, address, and phone number of the information contact of the person required to make such return, and ``(2) the information described in subsection (b)(2)(B) with respect to such individual (and such information described in subsection (b)(2)(C) with respect to such individual as the Secretary may provide for purposes of this subsection). The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. ``(d) Regulations.--The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to prevent the duplicate reporting of information under this section.''. (2) Penalties.--Section 6724(d) of such Code is amended-- (A) in paragraph (1)(B), by striking ``or'' at the end of clause (xxviii), by adding ``or'' at the end of clause (xxix), and by adding at the end the following new clause: ``(xxx) section 6050BB(a) (relating to returns relating to certain indebtedness),'', and (B) in paragraph (2), by striking ``or'' at the end of subparagraph (NN), by striking the period at the end of subparagraph (OO) and inserting ``, or'', and by inserting after subparagraph (OO) the following new subparagraph: ``(PP) section 6050BB(c) (relating to statements relating to certain indebtedness).''. (c) Clerical Amendments.-- (1) The table of subchapters for chapter 36 of such Code is amended by adding at the end the following new item:

``subchapter e--certain indebtedness''.

(2) The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new item:

``Sec. 6050BB. Returns relating to certain indebtedness.''. (d) Severability.--If any provision of this section (or any portion of any amendment made by this section) or the application of such provision or portion to any person or circumstance is held to be unconstitutional, the remainder of this section (and amendments made by this section), and the application of such section and amendments to any other person or circumstance, shall not be affected. (e) Effective Date.--The amendments made by this section shall apply to taxable years ending after December 31, 2026. <all>