Bill · H.R. 9840· House(119-HR-9840)
S Corporation Modernization Act of 2026
- Introduced
- 7/22/2026
- Last activity
- 7/22/2026 — Referred to the House Committee on Ways and Means.
- Sponsored by
- Mike Carey
- Cosponsors
- None
- Introduced
- In Committee
What this bill would do
This bill, known as the "S Corporation Modernization Act of 2026," aims to amend the Internal Revenue Code of 1986 to reform S corporations. It introduces new rules regarding the treatment of built-in gain amounts when a shareholder dies. The legislation also modifies passive investment income limits and allows nonresident alien individuals to serve as shareholders. Additionally, it changes how employees are counted toward shareholder limits and expands eligible shareholders to include IRAs. Finally, it increases the maximum number of allowed shareholders and repeals certain rules regarding deferred compensation.
Yes· 3 of 10
Would business owners be better off under this?+7
The bill removes several operational barriers and increases the capacity for S corporations to grow.
Does this make it easier to run a small business?+6
The bill significantly eases restrictions on S corporations, including increasing the maximum number of shareholders and passive income limits.
Does this cut taxes for small businesses?+5
The bill eases S corporation constraints by increasing passive income limits and shareholder capacity.
The opposite
No question was scored the opposite.
Who it would affect, and how
Potential Positive Impacts for People
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Tax Deductions Upon Death: Shareholders of electing S corporations may be allowed a deduction for amortizable built-in gain amounts over a 15-year period following the death of the shareholder (Section 2).
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Increased Passive Income Limits: The limit for passive investment income is increased from 25 percent to 60 percent, and the removal of excessive passive income as a termination event (Section 3).
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Expanded Shareholder Eligibility: Nonresident alien individuals are permitted to be S corporation shareholders (Section 4). Additionally, Individual Retirement Accounts (IRAs), including Roth IRAs, are now eligible shareholders (Section 6).
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Simplified Shareholder Counting: All employees and their estates of a corporation, along with wholly owned business entities, are treated as a single shareholder for the purpose of shareholder limits (Section 5).
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Higher Shareholder Capacity: The maximum number of shareholders allowed for an S corporation is increased from 100 to 250 (Section 9).
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Loss Transfers: Suspended losses can now be transferred in instances incident to the death of a transferor (Section 7).
Potential Negative Impacts for People
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Withholding Tax Obligations: Nonresident alien shareholders may be subject to a withholding tax on their pro rata share of effectively connected income, calculated at the highest rate of tax specified in section 1 (Section 4).
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Withholding on Stock Sales: Transferees may be required to deduct and withhold a tax equal to 10 percent of the amount realized on the sale of certain S corporation stock (Section 4).
Groups and Interests Ranking
Every group the model scored this bill for, from -10 to +10. Hover a score for the reason it gave.
- Demographic And Interest Groups
- Good For Business Owners+7Good For High Income Households+4Good For Retirees+4Good For Seniors+4Good For Immigrants+3
- Economy And Finance
- Improves Small Business Support+6Reduces Small Business Taxes+5Improves Economic Growth+3Reduces Middle Class Taxes+3Increases Job Creation+2
- 7/22/2026
- Referred to the House Committee on Ways and Means.
- Introduced in House
2 bills Congress.gov lists as related to this one — companions in the other chamber, earlier versions, and bills this one absorbed or was folded into.