S. 2017: S Corporation Modernization Act of 2025

The S Corporation Modernization Act of 2025 proposes several significant changes to the taxation and operational structure of S corporations under the Internal Revenue Code. Here are the main features of the bill:

Key Provisions

• Built-in Gains at Shareholder Death: The bill seeks to revise the current treatment of built-in gains for S corporation assets at the time of a shareholder's death. This change would potentially help in reducing the tax burden on the estate of a deceased shareholder.
• Eligible Shareholders: The legislation aims to expand the eligibility criteria for shareholders of S corporations. Specifically, it will allow Individual Retirement Accounts (IRAs) to hold shares in S corporations, increasing the potential investor base.
• Passive Investment Income Rules: The bill proposes modifications to the rules governing passive investment income for S corporations. These adjustments would enable S corporations to have higher limits for passive income and reduce the frequency of termination events related to passive income thresholds.
• Deferred Compensation Plans: The act will repeal the requirement that deferred compensation, specifically for nonqualified deferred compensation plans, be included in gross income. This provision will amend various sections of the tax code and is set to take effect for taxable years beginning after December 31, 2025.

Overall, the S Corporation Modernization Act of 2025 aims to modernize the framework governing S corporations, facilitating easier transitions for shareholders, potentially enhancing investment opportunities, and providing tax relief related to deferred compensation for certain plans.

Relevant Companies

• None found