Sponsors
Introduced June 10, 2025 by Timothy Patrick Sheehy · Last progress June 10, 2025
The bill expands flexibility for S‑corporation ownership (including nonresident and retirement accounts), preserves S status for many businesses, and clarifies estate and deferred‑compensation rules — at the cost of greater complexity, new withholding and cash‑flow burdens, potential revenue loss, and transitional administrative and fairness risks.
S corporations with substantial passive or financial receipts (including banks/finance firms) are far more likely to keep S status because the passive‑income threshold rises (25% → 60%) and certain financial receipts and net capital gains are excluded from passive‑income calculations, reducing risk of involuntary termination and related tax disruption for owners.
Heirs, beneficiaries, and estates of S‑corporation owners get clearer and more favorable estate/tax treatment — including the ability to amortize built‑in gain over 15 years and clarified rules for transferring suspended S‑corp losses at death — which reduces uncertainty and spreads tax liability after a decedent's death.
Individuals (including nonresident aliens) and buyers can hold or receive S‑corp stock more easily because the bill permits nonresident‑alien shareholders with withholding/credit mechanics and allows IRAs (including Roth IRAs) to hold S‑corp stock, expanding access to pass‑through ownership and enabling use of tax‑advantaged retirement accounts for business equity.
The bill adds widespread complexity and new recordkeeping, valuation, election, allocation, withholding, and reporting rules across S‑corp, estate, deferred‑compensation, and IRA contexts, increasing compliance costs for taxpayers, small businesses, tax preparers, and the IRS.
Several provisions (the amortizable deduction for built‑in gain, higher passive‑income threshold, expanded eligible shareholders including IRAs) reduce near‑term federal tax receipts and could increase deficits or pressure offsets on other taxpayers or services.
New withholding rules — including corporate withholding at the top individual rate for nonresident shareholders and a 10% transferee withholding on stock sales — impose cash‑flow burdens and transaction frictions on small businesses, buyers, and sellers until refunds/regulatory guidance are settled.
Based on analysis of 8 sections of legislative text.
Broadly revises S‑corporation tax rules: new amortization for inherited built‑in gains, higher passive‑income threshold, allows nonresident/IRA shareholders, and repeals section 409A in favor of redesigned 457A rules.
Creates wide-ranging changes to S corporation tax rules and related parts of the tax code. It lets S corporation shareholders amortize certain built-in gains inherited at death over 15 years, raises the passive‑income safe-harbor threshold, allows nonresident aliens and certain IRAs to be S shareholders, treats groups of employees as a single shareholder for the S‑shareholder limit, and changes come-within-death and suspended-loss rules. It also repeals the current Code section that taxes nonqualified deferred compensation (409A) and moves related rules into a redesigned section 457A. These changes add new reporting and withholding duties for S corporations (including withholding for nonresident shareholders), redefine taxable-treatment rules for sales of S‑corp stock, and include staggered effective dates (primarily taxable years beginning after Dec. 31, 2024, with some provisions effective later or on enactment).