Bill · S. 2017· Senate(119-S-2017)
S Corporation Modernization Act of 2025
- Introduced
- 6/10/2025
- Last activity
- 6/10/2025 — Read twice and referred to the Committee on Finance.
- Sponsored by
- Tim Sheehy
- Cosponsors
- None
- Introduced
- In Committee
What this bill would do
The S Corporation Modernization Act of 2025 seeks to amend the Internal Revenue Code of 1986 regarding S corporations. It introduces a new deduction for shareholders of electing S corporations to address built-in gain amounts following a shareholder's death. The bill also increases the passive investment income percentage limit and removes excessive passive income as a termination event. Additionally, it allows nonresident alien individuals to serve as shareholders and introduces a withholding tax for them. The legislation expands eligible shareholders to include certain individual retirement accounts and allows employees of a firm to be treated as a single shareholder. Finally, it repeals rules regarding the inclusion of deferred compensation in gross income under certain nonqualified plans.
Yes· 3 of 9
Would business owners be better off under this?+7
The bill provides significant tax relief and flexibility for S corporation owners.
Does this make it easier to run a small business?+6
The bill modernizes S corporation rules by increasing passive income limits and expanding eligible shareholder types.
Does this cut taxes for small businesses?+5
The bill provides new deductions for built-in gains upon death and increases flexibility for S corporation shareholders.
The opposite
Would immigrants be better off under this?-2
Nonresident alien shareholders are subject to new withholding tax requirements.
Who it would affect, and how
Potential Positive Impacts for People
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Tax Deductions for Inherited Stock: Shareholders of electing S corporations may receive a deduction for amortizable built-in gain amounts over a 15-year period following a shareholder's death (Section 2).
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Increased Passive Income Limits: The limit for passive investment income is increased from 25 percent to 60 percent, which may provide more flexibility for S corporations (Section 3).
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Expanded Shareholder Eligibility: The bill allows individual retirement accounts, including Roth IRAs, to serve as eligible shareholders for S corporations (Section 6).
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Employee Shareholder Flexibility: All employees and their estates of a corporation can be treated as a single shareholder, which may assist with shareholder limit constraints (Section 5).
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Treatment of Suspended Losses: The bill allows for the transfer of suspended losses that are incident to the death of a transferor (Section 7).
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Repeal of Certain Deferred Compensation Rules: The bill repeals the requirement for including certain nonqualified deferred compensation in gross income (Section 8).
Potential Negative Impacts for People
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New Withholding Tax for Nonresident Aliens: Nonresident alien shareholders may be subject to a withholding tax on their pro rata share of effectively connected taxable income (Section 4).
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Withholding on Stock Dispositions: 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 held by a nonresident alien (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.
- Economy And Finance
- Improves Small Business Support+6Reduces Small Business Taxes+5Reduces Estate Tax+4Reduces Capital Gains Tax+3Improves Economic Growth+2
- Demographic And Interest Groups
- Good For Business Owners+7Good For High Net Worth Individuals+4Good For Retirees+4Good For High Income Households+3Good For Immigrants-2
- 6/10/2025
- Read twice and referred to the Committee on Finance.
- Introduced in Senate
One bill Congress.gov lists as related to this one — companions in the other chamber, earlier versions, and bills this one absorbed or was folded into.