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Introduced June 10, 2025 by Timothy Patrick Sheehy · Last progress June 10, 2025
Makes multiple changes to S‑corporation and related tax rules: it creates an amortizable deduction for built‑in gains when S‑corp stock is included in a decedent’s estate, raises the passive‑investment income threshold and removes passive‑income termination, permits nonresident alien individuals and certain retirement accounts to be S‑corp shareholders, treats transfers and suspended losses at death, and repeals Code section 409A while revising 457A. Effective dates vary by provision, with most S‑corp rule changes applying to taxable years after December 31, 2024 and deferred compensation changes effective after December 31, 2025.
The bill expands flexibility and clarifies many S‑corporation and deferred‑compensation rules—benefiting small businesses, estates, retirees, and foreign investors—but does so at the cost of new compliance burdens, withholding/cash‑flow frictions, increased risk of tax avoidance, and potential reductions in federal revenue.
Closely held businesses (S corporations) face lower risk of involuntary conversion to C-corporation tax treatment because higher passive‑income thresholds and clarified passive‑income rules let more firms retain pass‑through status.
Heirs and estates of S‑corporation shareholders can smooth and defer tax on built‑in gains (15‑year amortization and prorated acceleration on sales), reducing large one‑year tax hits at death or on asset dispositions.
Beneficiaries and executors can receive and use suspended S‑corporation losses after a shareholder's death, with clearer tax treatment, allowing those losses to offset future taxable income.
Many provisions (amortizing built‑in gains, allowing more firms to keep S status, transferring suspended losses, permitting S‑stock in IRAs) could reduce federal tax receipts over time, increasing deficit pressure or shifting tax burdens to others.
The bill creates substantial new compliance, reporting, election, and tracking obligations (complex passive‑income definitions, deemed‑sale ECI calculations, withholding mechanics, aggregation determinations, IRA recordkeeping), raising accounting and administrative costs for S‑corporations, estates, custodians, and advisors.
S‑corporations may face significant cash‑flow and transaction frictions because firms could be required to withhold large amounts for nonresident shareholders (including a 10% transferee withholding on stock sales), complicating sales and straining small businesses' liquidity.