Sponsors
The bill makes S‑corporation and related tax rules more flexible and administratively clearer—benefiting many small businesses, heirs, and some investors—while shifting tax liabilities and creating new compliance, withholding, and revenue risks that could increase administrative costs and reduce federal tax receipts.
All taxpayers, tax preparers, employers, and the IRS: the bill consolidates and clarifies multiple tax rules and cross-references (including default IRC references and consolidation of §409A into §457A), reducing statutory ambiguity and lowering the risk of legal disputes and inconsistent administration.
Small-business S corporations and their owners: a higher and clearer passive-income threshold plus refined passive-income definitions reduce the chance of triggering the section 1375 tax, lowering unexpected tax liabilities for many S corporations.
Heirs and transferees of decedents who owned S‑corporation stock: the bill allows built‑in gains arising from a step‑up at death to be amortized/deducted over 15 years and limits recapture mechanics, spreading tax liability and reducing near‑term taxable income.
All taxpayers and the federal budget: multiple provisions (amortizable built‑in gains, broader S‑status retention via aggregation and passive‑income thresholds, and estate loss rules) are likely to reduce corporate or individual tax receipts and could increase the federal deficit or shift tax burdens elsewhere.
Small-business owners, taxpayers, and tax professionals: the bill introduces many new elections, valuation rules, special‑case definitions, withholding regimes, and reporting requirements that increase compliance complexity and raise administrative and advisory costs.
Nonresident shareholders and buyers/transferees of S‑corp stock: new deemed‑sale withholding and a 10% transferee withholding rule can create immediate cash‑flow burdens, risk of over‑withholding, and complications that may chill secondary transfers or investment.
Based on analysis of 8 sections of legislative text.
Changes S‑corporation eligibility and tax rules: 15‑year amortization for inherited built‑in gains, raises passive‑income limit, allows nonresident and IRA shareholders, and revises deferred‑compensation rules.
Introduced June 10, 2025 by Timothy Patrick Sheehy · Last progress June 10, 2025
Allows heirs who inherit S‑corporation stock with a stepped‑up basis to amortize built‑in gains over 15 years, raises the S‑corp passive investment income threshold from 25% to 60%, and removes excessive passive income as an automatic S‑status termination. Permits nonresident alien individuals and certain IRAs (including Roth IRAs) to be S‑corp shareholders, creates new withholding and effectively‑connected income rules for nonresident shareholders, and treats all employees of a parent and its wholly owned subsidiaries as a single shareholder for the 100‑shareholder limit. The measure also adds rules on transferring suspended S‑corp losses at death and repeals section 409A while creating a new 457A regime for nonqualified deferred compensation, with staggered effective dates for different provisions.