I 

118TH CONGRESS 

2D SESSION H. R. 8619 

To amend the Internal Revenue Code of 1986 to provide for S corporation 

reform, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 4, 2024 

Mr. WENSTRUP introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for S corporation reform, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; REFERENCE. 

4 (a) SHORT TITLE.—This Act may be cited as the ‘‘S 

5 Corporation Modernization Act of 2024’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 


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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 SEC. 2. TREATMENT OF S CORPORATION BUILT-IN GAIN 

4 AMOUNT UPON DEATH OF SHAREHOLDER. 

5 (a) IN GENERAL.—Part II of subchapter S of chapter 

6 1 is amended by adding at the end the following: 

7 ‘‘SEC. 1369. TREATMENT OF S CORPORATION BUILT-IN GAIN 

8 AMOUNT UPON DEATH OF SHAREHOLDER. 

9 ‘‘(a) IN GENERAL.—A person holding stock in an 

10 electing S corporation the basis of which is determined 

11 under section 1014(a) (hereafter in this section referred 

12 to as the ‘shareholder’) shall be allowed a deduction with 

13 respect to the amortizable S corporation built-in gain 

14 amount. Except as provided under subsection (b), the 

15 amount of such deduction for any taxable year shall be 

16 determined by amortizing the amortizable S corporation 

17 built-in gain amount over the 15-year period beginning 

18 with the month which includes the applicable valuation 

19 date. 

20 ‘‘(b) DEDUCTION IN CASE OF DISPOSITION OF S 

21 CORPORATION PROPERTY.— 

22 ‘‘(1) ACCELERATED DEDUCTION IN CASE OF

23 DISPOSITION OF AMORTIZABLE S CORPORATION

24 BUILT-IN GAIN PROPERTY.— 


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1 ‘‘(A) IN GENERAL.—If there is a disposi2 tion of any amortizable S corporation built-in 

3 gain property, then the deduction allowed under 

4 subsection (a) with respect to any stock (deter5 mined without regard to paragraph (2)) for the 

6 taxable year of the shareholder in which or with 

7 which the taxable year of the S corporation 

8 which includes the date of such disposition 

9 ends, shall (except as otherwise provided in this 

10 section) not be less than the lesser of— 

11 ‘‘(i) the pro rata share of the gain 

12 recognized on such disposition, or 

13 ‘‘(ii) the amount determined under 

14 subsection (c)(1)(B) by only taking into 

15 account such property. 

16 ‘‘(B) OVERALL ALLOWANCE NOT IN17 CREASED.—Except as provided in paragraph 

18 (2), no deduction shall be allowed under sub19 section (a) with respect to any stock for any 

20 taxable year to the extent that such deduction 

21 (when added to the deductions attributable to 

22 amortizable S corporation built-in gain property 

23 so allowed for all prior taxable years) exceeds 

24 the amortizable S corporation built-in gain 

25 amount with respect to such stock. 


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1 ‘‘(2) ADDITIONAL DEDUCTION IN CASE OF DIS2 POSITION OF NONAMORTIZABLE S CORPORATION

3 BUILT-IN GAIN PROPERTY.— 

4 ‘‘(A) IN GENERAL.—If there is a disposi5 tion of any nonamortizable S corporation built6 in gain property, then the amount allowable as 

7 deduction under subsection (a) with respect to 

8 any stock for the taxable year of the share9 holder in which or with which the taxable year 

10 of the S corporation which includes the date of 

11 disposition ends, shall be increased by the lesser 

12 of— 

13 ‘‘(i) the pro-rata share of the gain rec14 ognized on such disposition, or 

15 ‘‘(ii) the amount determined under 

16 subsection (c)(1)(B) by only taking into 

17 account such property. 

18 ‘‘(B) LIMITATION.—Subparagraph (A) 

19 shall not apply with respect to any stock for 

20 any taxable year to the extent that such in21 crease (when added to the increased deductions 

22 so allowed under subparagraph (A) for all prior 

23 taxable years) exceeds the non-amortizable S 

24 corporation built-in gain amount with respect to 

25 such stock. 


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1 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section— 

3 ‘‘(1) S CORPORATION BUILT-IN GAIN

4 AMOUNT.—The term ‘S corporation built-in gain 

5 amount’ means the lesser of— 

6 ‘‘(A) the excess (if any) of— 

7 ‘‘(i) the basis of the stock referred to 

8 in subsection (a) as determined under sec9 tion 1014(a), over 

10 ‘‘(ii) the adjusted basis of such stock 

11 immediately before the death of the dece12 dent, or 

13 ‘‘(B) the pro rata share (determined as of 

14 the applicable valuation date) of— 

15 ‘‘(i) the aggregate fair market value 

16 of all property held by the S corporation 

17 which is amortizable S corporation built-in 

18 gain property or nonamortizable S corpora19 tion built-in gain property, over 

20 ‘‘(ii) the aggregate adjusted basis of 

21 all such property held by the S corporation 

22 as of such date. 

23 ‘‘(2) AMORTIZABLE S CORPORATION BUILT-IN

24 GAIN PROPERTY.—The term ‘amortizable S corpora25 tion built-in gain property’ means, as of the applicaVerDate Sep 11 2014 19:41 Jul 19, 2024 Jkt 049200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H8619.IH H8619

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1 ble valuation date, the S corporation property that 

2 is of a character subject to depreciation or amortiza3 tion. 

4 ‘‘(3) AMORTIZABLE S CORPORATION BUILT-IN

5 GAIN AMOUNT.—The term ‘amortizable S corpora6 tion built-in gain amount’ means the pro rata share 

7 of the portion of the S corporation built-in gain 

8 amount that is attributable to amortizable S cor9 poration built-in gain property. 

10 ‘‘(4) NON-AMORTIZABLE S CORPORATION

11 BUILT-IN GAIN PROPERTY.—The term ‘non-amortiz12 able S corporation built-in gain property’ means, as 

13 of the applicable valuation date, the S corporation 

14 property that is not of a character subject to depre15 ciation or amortization (other than an equity inter16 est in an electing S corporation partnership). 

17 ‘‘(5) NON-AMORTIZABLE S CORPORATION

18 BUILT-IN GAIN AMOUNT.—The term ‘non-amortiz19 able S corporation built-in gain amount’ means the 

20 pro rata share of the portion of the S corporation 

21 built-in gain amount that is attributable to non-am22 ortizable S corporation built-in gain property. 

23 ‘‘(6) SPECIAL RULE FOR PARTNERSHIP INTER24 ESTS.—If an electing S corporation owns, directly or 

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1 poration partnership, including a lower-tier electing 

2 S corporation partnership, the amortizable S cor3 poration built-in gain property and the non-amortiz4 able S corporation built-in gain property shall in5 clude the electing S corporation’s distributive share 

6 of such property held by the partnership. Rules simi7 lar to the rules under paragraphs (1), (2), (3), (4), 

8 and (5) of this subsection shall apply to determine 

9 the electing S corporation’s distributive share of the 

10 amortizable S corporation built-in gain property and 

11 the non-amortizable S corporation built-in gain prop12 erty held by such partnership for purposes of this 

13 section. For purposes of subsection (b), a disposition 

14 of an interest in an electing S corporation partner15 ship shall be treated as a disposition of the electing 

16 S corporation’s distributive share of the property 

17 held by such partnership. 

18 ‘‘(7) ELECTING S CORPORATION.—The term 

19 ‘electing S corporation’ means, with respect to any 

20 shareholder, any S corporation which elects the ap21 plication of this section with respect to such share22 holder at such time and in such form and manner 

23 as the Secretary may prescribe. 

24 ‘‘(8) ELECTING S CORPORATION PARTNER25 SHIP.—The term ‘electing S corporation partnership’ 


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1 means, with respect to any shareholder, any equity 

2 interest in a partnership owned directly or indirectly 

3 by the electing S corporation, including a lower-tier 

4 partnership, for which the S corporation elects the 

5 application of this section with respect to such 

6 shareholder at such time and in such form and man7 ner as the Secretary may prescribe. 

8 ‘‘(9) APPLICABLE VALUATION DATE.—The term 

9 ‘applicable valuation date’ means— 

10 ‘‘(A) in the case of a decedent with respect 

11 to which the executor of the decedent’s estate 

12 elects the application of section 2032, the date 

13 months after the decedent’s death, and 

14 ‘‘(B) in the case of any other decedent, the 

15 date of the decedent’s death. 

16 ‘‘(d) RECHARACTERIZATION OF GAINS AS ORDINARY

17 INCOME TO EXTENT OF DEDUCTION.—If— 

18 ‘‘(1) stock of an S corporation with respect to 

19 which a deduction was allowed under this section, 

20 ‘‘(2) amortizable S corporation built-in gain 

21 property with respect to which a deduction was al22 lowed under subsection (b)(1), or 

23 ‘‘(3) nonamortizable S corporation built-in gain 

24 property with respect to which a deduction was al25 lowed under subsection (b)(2), 


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1 is disposed of at a gain (determined without regard to 

2 whether or not such gain is recognized and reduced by 

3 any amount of gain which is treated as ordinary income 

4 under any other provision of this subtitle), the amount of 

5 such gain (or the shareholder’s pro rata share of such gain 

6 in the case of property described in paragraph (2) or (3)) 

7 shall be treated as gain which is ordinary income (and 

8 shall be recognized notwithstanding any other provision of 

9 this subtitle) to the extent of the excess of the aggregate 

10 deductions allowable under this section with respect to 

11 such stock for the taxable year of such disposition and 

12 all prior taxable years over the amounts taken into ac13 count under this subsection for all prior taxable years. 

14 ‘‘(e) TERMINATION OF DEDUCTION.—No deduction 

15 shall be allowed under subsection (a) with respect to any 

16 stock in an electing S corporation with respect to any pe17 riod beginning after the earlier of— 

18 ‘‘(1) the date on which the corporation’s elec19 tion under section 1362 terminates, or 

20 ‘‘(2) the date on which the shareholder trans21 fers such stock to any other person. 

22 ‘‘(f) TREATMENT OF CERTAIN TRANSFERS.— 

23 ‘‘(1) DISTRIBUTIONS FROM ESTATES OR

24 TRUSTS.—Notwithstanding any other provision of 

25 this section, in the case of a distribution of stock 


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1 from an estate or trust to a beneficiary, the bene2 ficiary (and not the estate or trust) shall be treated 

3 as the shareholder to which this section applies with 

4 respect to periods after such distribution. 

5 ‘‘(2) CERTAIN TRANSFERS INVOLVING

6 SPOUSES.—Notwithstanding any other provision of 

7 this section, in the case of a transfer described in 

8 section , the transferee (and not the transferor) shall 

9 be treated as the shareholder to which this section 

10 applies with respect to periods after such transfer. 

11 ‘‘(3) GIFTS.—Notwithstanding any other provi12 sion of this section, in the case of a gift, the donee 

13 (and not the donor) shall be treated as the share14 holder to which this section applies with respect to 

15 periods after such gift. 

16 ‘‘(4) TRANSFERS TO TRUSTS.—Notwithstanding 

17 any other provision of this section, in the case of a 

18 transfer to a trust, the trust (and not the trans19 feror) shall be treated as the shareholder to which 

20 this section applies with respect to periods after such 

21 transfer. 

22 ‘‘(g) TREATMENT OF INCOME IN RESPECT OF THE

23 DECEDENT.— 

24 ‘‘(1) ADJUSTMENT TO BUILT-IN GAIN OF PROP25 ERTY HELD BY S CORPORATION.—For purposes of 


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1 subsection (c)(1)(B), the fair market value of any 

2 property taken into account under subparagraph 

3 (B)(i) thereof shall be decreased by any amount of 

4 income in respect of the decedent with respect to 

5 such property to which section 691 applies. For pur6 poses of subsections (b)(1)(A) and (b)(2)(A), the 

7 gain recognized on the disposition of such property 

8 shall be reduced by such amount. 

9 ‘‘(2) ADJUSTMENT TO BASIS OF S CORPORA10 TION STOCK.—For adjustment to basis of S corpora11 tion stock, see section 1367(b)(4)(B). 

12 ‘‘(h) REPORTING.—Except as otherwise provided by 

13 the Secretary, for purposes of section 6037, the amounts 

14 determined under subsections (b)(1), (b)(2), (c)(1)(B), 

15 (c)(3), (c)(5), (c)(6), (d)(2), and (d)(3) shall be treated 

16 as items of the corporation and the pro rata share deter17 mined under such subsection shall be furnished to the 

18 shareholder under section 6037(b).’’. 

19 (b) ADJUSTMENT TO BASIS OF STOCK.— 

20 (1) IN GENERAL.—Section 1367(a)(2) is 

21 amended by striking ‘‘and’’ at the end of subpara22 graph (D), by striking the period at the end of sub23 paragraph (E) and inserting ‘‘, and’’, and by insert24 ing after subparagraph (E) the following new sub25 paragraph: 


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1 ‘‘(F) the amount of the shareholder’s de2 duction under section ll.’’. 

3 (2) ADJUSTMENT NOT TAKEN INTO ACCOUNT

4 IN DETERMINING TREATMENT OF DISTRIBUTIONS.— 

5 Section 1368 is amended— 

6 (A) in subsection (d)(1), by inserting 

7 ‘‘(other than subsection (a)(2)(F) thereof)’’ 

8 after ‘‘section 1367’’, and 

9 (B) in subsection (e)(1)(A)— 

10 (i) by striking ‘‘this title and the 

11 phrase’’ and inserting ‘‘this title, the 

12 phrase’’, and 

13 (ii) by inserting ‘‘, and no adjustment 

14 shall be made under section 

15 1367(a)(2)(F)’’ after ‘‘section 1367(a)(2)’’. 

16 (c) CLERICAL AMENDMENT.—The table of sections 

17 for part II of subchapter S of chapter 1 is amended by 

18 adding at the end the following new item: 

‘‘Sec. 1369. Treatment of S corporation built-in gain amount upon death of 

shareholder.’’. 

19 (d) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply with respect to decedents dying 

21 after the date of the enactment of this Act, in taxable 

22 years ending after such date. 


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1 SEC. 3. MODIFICATIONS TO S CORPORATION PASSIVE IN2 VESTMENT INCOME RULES. 

3 (a) INCREASED PERCENTAGE LIMIT.—Section 

4 1375(a)(2) is amended by striking ‘‘25 percent’’ and in5 serting ‘‘60 percent’’. 

6 (b) REPEAL OF EXCESSIVE PASSIVE INCOME AS A

7 TERMINATION EVENT.—Section 1362(d) is amended by 

8 striking paragraph (3). 

9 (c) CONFORMING AMENDMENTS.— 

10 (1) Section 1375(b) is amended by striking 

11 paragraphs (3) and (4) and inserting the following 

12 new paragraph: 

13 ‘‘(3) PASSIVE INVESTMENT INCOME DE14 FINED.— 

15 ‘‘(A) IN GENERAL.—Except as otherwise 

16 provided in this paragraph, the term ‘passive 

17 investment income’ means gross receipts de18 rived from royalties, rents, dividends, interest, 

19 and annuities. 

20 ‘‘(B) EXCEPTION FOR INTEREST ON

21 NOTES FROM SALES OF INVENTORY.—The term 

22 ‘passive investment income’ shall not include in23 terest on any obligation acquired in the ordi24 nary course of the corporation’s trade or busi25 ness from its sale of property described in sec26 tion 1221(a)(1). 


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1 ‘‘(C) TREATMENT OF CERTAIN LENDING

2 OR FINANCE COMPANIES.—If the S corporation 

3 meets the requirements of section 542(c)(6) for 

4 the taxable year, the term ‘passive investment 

5 income’ shall not include gross receipts for the 

6 taxable year which are derived directly from the 

7 active and regular conduct of a lending or fi8 nance business (as defined in section 

9 542(d)(1)). 

10 ‘‘(D) TREATMENT OF CERTAIN DIVI11 DENDS.—If an S corporation holds stock in a 

12 C corporation meeting the requirements of sec13 tion 1504(a)(2), the term ‘passive investment 

14 income’ shall not include dividends from such C 

15 corporation to the extent such dividends are at16 tributable to the earnings and profits of such C 

17 corporation derived from the active conduct of 

18 a trade or business. 

19 ‘‘(E) EXCEPTION FOR BANKS, ETC.—In 

20 the case of a bank (as defined in section 581) 

21 or a depository institution holding company (as 

22 defined in section 3(w)(1) of the Federal De23 posit Insurance Act (12 U.S.C. 1813(w)(1))), 

24 the term ‘passive investment income’ shall not 

25 include— 


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1 ‘‘(i) interest income earned by such 

2 bank or company, or 

3 ‘‘(ii) dividends on assets required to 

4 be held by such bank or company, includ5 ing stock in the Federal Reserve Bank, the 

6 Federal Home Loan Bank, or the Federal 

7 Agricultural Mortgage Bank or participa8 tion certificates issued by a Federal Inter9 mediate Credit Bank. 

10 ‘‘(F) GROSS RECEIPTS FROM THE SALES

11 OF CERTAIN ASSETS.—For purposes of this 

12 paragraph— 

13 ‘‘(i) CAPITAL ASSETS OTHER THAN

14 STOCK AND SECURITIES.—In the case of 

15 dispositions of capital assets (other than 

16 stock and securities), gross receipts from 

17 such dispositions shall be taken into ac18 count only to the extent of capital gain net 

19 income therefrom. 

20 ‘‘(ii) STOCK AND SECURITIES.—In the 

21 case of sales or exchanges of stock or secu22 rities, gross receipts shall be taken into ac23 count only to the extent of the gain there24 from. 


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1 ‘‘(G) COORDINATION WITH SECTION

2 1374.—The amount of passive investment in3 come shall be determined by not taking into ac4 count any recognized built-in gain or loss of the 

5 S corporation for any taxable year in the rec6 ognition period. Terms used in the preceding 

7 sentence shall have the same respective mean8 ings as when used in section 1374.’’. 

9 (2)(A) Section 26(b)(2)(J) is amended by strik10 ing ‘‘25 percent’’ and inserting ‘‘60 percent’’. 

11 (B) Section 1375(b)(1)(A)(i) is amended by 

12 striking ‘‘25 percent’’ and inserting ‘‘60 percent’’. 

13 (C) The heading for section 1375 is amended 

14 by striking ‘‘25 PERCENT’’ and inserting ‘‘60 PER15 CENT’’. 

16 (D) The item relating to section 1375 in the 

17 table of sections for part III of subchapter S of 

18 chapter 1 is amended by striking ‘‘25 percent’’ and 

19 inserting ‘‘60 percent’’. 

20 (3) Section 1042(c)(4)(A)(i) is amended by 

21 striking ‘‘section 1362(d)(3)(C)’’ and inserting ‘‘sec22 tion 1375(b)(3)’’. 

23 (4) Section 1362(f)(1)(B) is amended by strik24 ing ‘‘paragraph (2) or (3) of subsection (d)’’ and in25 serting ‘‘subsection (d)(2)’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2023. 

4 SEC. 4. NONRESIDENT ALIEN INDIVIDUALS PERMITTED AS 

5 S CORPORATION SHAREHOLDERS. 

6 (a) IN GENERAL.—Section 1361(b)(1) is amended by 

7 adding ‘‘and’’ at the end of subparagraph (B), by striking 

8 subparagraph (C), and by redesignating subparagraph (D) 

9 as subparagraph (C). 

10 (b) GAIN OR LOSS OF NONRESIDENT ALIENS FROM

11 SALE OR EXCHANGE OF S CORPORATION STOCK.—Sec12 tion 864(c) is amended by adding at the end the following 

13 new paragraph: 

14 ‘‘(9) GAIN OR LOSS OF NONRESIDENT ALIENS

15 FROM SALE OR EXCHANGE OF S CORPORATION

16 STOCK.— 

17 ‘‘(A) IN GENERAL.—Notwithstanding any 

18 other provision of this subtitle, if a nonresident 

19 alien individual owns, directly or indirectly, 

20 stock of an S corporation which is engaged in 

21 any trade or business within the United States, 

22 gain or loss on the sale or exchange of all (or 

23 any portion of) such stock shall be treated as 

24 effectively connected with the conduct of such 

25 trade or business to the extent such gain or loss 


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1 does not exceed the amount determined under 

2 subparagraph (B). 

3 ‘‘(B) AMOUNT TREATED AS EFFECTIVELY

4 CONNECTED.—The amount determined under 

5 this subparagraph with respect to any S cor6 poration stock sold or exchanged— 

7 ‘‘(i) in the case of any gain on the 

8 sale or exchange of the S corporation 

9 stock, is— 

10 ‘‘(I) the portion of the share11 holder’s pro rata share of the amount 

12 of gain which would have been effec13 tively connected with the conduct of a 

14 trade or business within the United 

15 States if the S corporation had sold 

16 all of its assets at their fair market 

17 value as of the date of the sale or ex18 change of such stock, or 

19 ‘‘(II) zero if no gain on such 

20 deemed sale would have been so effec21 tively connected, and 

22 ‘‘(ii) in the case of any loss on the 

23 sale or exchange of the S corporation 

24 stock, is— 


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1 ‘‘(I) the portion of the share2 holder’s pro rata share of the amount 

3 of loss on the deemed sale described 

4 in clause (i)(I) which would have been 

5 so effectively connected, or 

6 ‘‘(II) zero if no loss on such 

7 deemed sale would have been so effec8 tively connected. 

9 ‘‘(C) APPLICATION OF CERTAIN OTHER

10 RULES.—Except as otherwise provided by the 

11 Secretary, rules similar to the rules of subpara12 graphs (C), (D), and (E) of paragraph (8) shall 

13 apply for purposes of this paragraph.’’. 

14 (c) WITHHOLDING TAX.—Subchapter A of chapter 3 

15 is amended by adding at the end the following new section: 

16 ‘‘SEC. 1447. WITHHOLDING TAX ON NONRESIDENT ALIEN S 

17 CORPORATION SHAREHOLDER’S PRO RATA 

18 SHARE OF EFFECTIVELY CONNECTED IN19 COME. 

20 ‘‘(a) IN GENERAL.—If— 

21 ‘‘(1) an S corporation has effectively connected 

22 taxable income for any taxable year, and 

23 ‘‘(2) any shareholder of such S corporation is a 

24 nonresident alien, 


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1 such S corporation shall pay a withholding tax under this 

2 section at such time and in such manner as the Secretary 

3 may provide. 

4 ‘‘(b) AMOUNT OF WITHHOLDING TAX.—The amount 

5 of the withholding tax payable by any S corporation under 

6 subsection (a) shall be equal to the product of— 

7 ‘‘(1) the highest rate of tax specified in section 

8 1, multiplied by 

9 ‘‘(2) the aggregate pro rata shares of the effec10 tively connected taxable income of such S corpora11 tion with respect to shareholders who are non12 resident aliens. 

13 ‘‘(c) EFFECTIVELY CONNECTED TAXABLE IN14 COME.—For purposes of this section, the term ‘effectively 

15 connected taxable income’ means the taxable income of the 

16 S corporation which is effectively connected (or treated as 

17 effectively connected) with the conduct to a trade or busi18 ness in the United States. For purposes of the preceding 

19 sentence, the S corporation shall be allowed a deduction 

20 for depletion with respect to oil and gas wells but the 

21 amount of such deduction shall be determined without re22 gard to sections 613 and 613A. 

23 ‘‘(d) TREATMENT OF NONRESIDENT ALIEN SHARE24 HOLDERS.— 


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1 ‘‘(1) ALLOWANCE OF CREDIT.—Each non2 resident alien who is a shareholder of an S corpora3 tion shall be allowed a credit under section 33 for 

4 such shareholder’s share of the withholding tax paid 

5 by the S corporation under this section. Such credit 

6 shall be allowed for the shareholder’s taxable year in 

7 which (or with which) the S corporation taxable year 

8 (for which such tax was paid) ends. 

9 ‘‘(2) CREDIT TREATED AS DISTRIBUTED TO

10 SHAREHOLDER.—Except as provided in regulations, 

11 a nonresident alien shareholder’s share of any with12 holding tax paid by the S corporation under this sec13 tion shall be treated as distributed to such share14 holder by such S corporation on the earlier of— 

15 ‘‘(A) the day on which such tax was paid 

16 by the S corporation, or 

17 ‘‘(B) the last day of the S corporation’s 

18 taxable year for which such tax was paid. 

19 ‘‘(e) SPECIAL RULES FOR WITHHOLDING ON DIS20 POSITIONS OF S CORPORATION STOCK.— 

21 ‘‘(1) IN GENERAL.—Except as provided in this 

22 subsection, if any portion of the gain (if any) on any 

23 disposition of stock in an S corporation would be 

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1 in the United States, the transferee shall be required 

2 to deduct and withhold a tax equal to 10 percent of 

3 the amount realized on the disposition. 

4 ‘‘(2) EXCEPTION IF NONFOREIGN AFFIDAVIT

5 FURNISHED; OTHER SPECIAL RULES.—Except as 

6 otherwise provided by the Secretary, rules similar to 

7 the rules of paragraphs (2) through (6) of section 

8 1446(f) shall apply for purposes of this subsection. 

9 ‘‘(f) REGULATIONS.—The Secretary shall prescribed 

10 such regulations or other guidance as may be necessary 

11 or appropriate to carry out the purposes of this section, 

12 including regulations or other guidance providing— 

13 ‘‘(1) that for purposes of section 6655, the 

14 withholding tax imposed under this section shall be 

15 treated as a tax imposed by section 11 and any S 

16 corporation required to pay such tax shall be treated 

17 as a corporation to which such section applies, and 

18 ‘‘(2) appropriate adjustments in applying sec19 tion 6655 with respect to such withholding tax.’’. 

20 (d) CONFORMING AMENDMENTS.— 

21 (1) Section 1361(c)(2)(B)(v) is amended by 

22 striking the last sentence. 

23 (2) Section 6401(b)(2) is amended by inserting 

24 ‘‘or 1447’’ after ‘‘section 1446’’, 


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1 (3) The table of sections for subchapter A of 

2 chapter 3 is amended by adding at the end the fol3 lowing new item: 

‘‘Sec. 1447. Withholding tax on nonresident alien S corporation shareholder’s 

pro rata share of effectively connected income.’’. 

4 (e) EFFECTIVE DATES.— 

5 (1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, the amendments made by 

7 this section shall apply to taxable years beginning 

8 after December 31, 2023. 

9 (2) GAIN OR LOSS; WITHHOLDING.—The 

10 amendments made by subsections (b), (c), (d)(2), 

11 and (d)(3) shall apply to sales, exchanges, and dis12 positions after December 31, 2023. 

13 SEC. 5. EMPLOYEES OF A FIRM COUNTED AS A SINGLE 

14 SHAREHOLDER TOWARD SHAREHOLDER 

15 LIMIT OF S CORPORATION. 

16 (a) IN GENERAL.—Subsection (c) of section 1361 is 

17 amended by adding at the end the following: 

18 ‘‘(7) EMPLOYEES TREATED AS ONE SHARE19 HOLDER.— 

20 ‘‘(A) IN GENERAL.—For purposes of sub21 section (b)(1)(A), there shall be treated as one 

22 shareholder all employees (and their estates) of 

23 a corporation and any wholly owned business 


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1 entities (as determined by the Secretary) of 

2 such corporation. 

3 ‘‘(B) EMPLOYEE DEFINED.—For purposes 

4 of this paragraph, the term ‘‘employee’’ means 

5 any individual (whether a resident alien, non6 resident alien, or citizen) that would be an em7 ployee described under paragraph (1) or (2) of 

8 section 3121(d).’’. 

9 (b) EXCEPTION TO NONRESIDENT SHAREHOLDER

10 PROHIBITION.—Subparagraph (C) of section 1361(b)(1) 

11 is amended to read as follows: 

12 ‘‘(C) have a nonresident alien as a share13 holder (except for a nonresident alien that is a 

14 shareholder by reason of subsection (c)(7) or a 

15 nonresident alien spouse of an employee which 

16 is a shareholder in a corporation described in 

17 subsection (c)(7)), and’’. 

18 (c) WITHHOLDING WITH RESPECT TO NONRESIDENT

19 ALIENS.—Section 1373 is amended by adding at the end 

20 the following: 

21 ‘‘(c) WITHHOLDING WITH RESPECT TO NON22 RESIDENT ALIENS.—The principles of sections 1441 and 

23 1446 shall apply to income allocable to, and distributions 

24 to, a nonresident alien shareholder of an S corporation (al25 lowed by reason of section 1361(b)(1)(C)). The Secretary 


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1 may prescribe regulations to carry out the purposes of this 

2 subsection.’’. 

3 (d) DEFINING ITEMS OF INCOME FOR PURPOSES OF

4 WITHHOLDING TAX ON NONRESIDENT ALIENS.—Sub5 section (b) of section 1441 is amended by inserting before 

6 the period at the end of the first sentence the following: 

7 ‘‘, and any items of income described in section 1366(a) 

8 allocable to a nonresident alien that is an S Corporation 

9 shareholder by reason of section 1361(c)(7)’’. 

10 (e) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2023. 

13 SEC. 6. EXPANSION OF S CORPORATION ELIGIBLE SHARE14 HOLDERS TO INCLUDE IRAS. 

15 (a) IN GENERAL.—Section 1361(c)(2)(A)(vi) is 

16 amended to read as follows: 

17 ‘‘(vi) A trust which constitutes an in18 dividual retirement account under section 

19 408(a), including one designated as a Roth 

20 IRA under section 408A.’’. 

21 (b) SALE OF STOCK IN IRA RELATING TO S COR22 PORATION ELECTION EXEMPT FROM PROHIBITED

23 TRANSACTION RULES.—Section 4975(d)(16) is amend24 ed— 


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1 (1) by striking subparagraphs (A) and (B) and 

2 by redesignating subparagraphs (C), (D), (E), and 

3 (F) as subparagraphs (A), (B), (C), and (D), respec4 tively, and 

5 (2) by striking ‘‘such bank or company’’ in sub6 paragraph (A) (as so redesignated) and inserting 

7 ‘‘the issuer of such stock’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall take effect on January 1, 2024. 

10 SEC. 7. TRANSFER OF SUSPENDED LOSSES INCIDENT TO 

11 DEATH. 

12 (a) IN GENERAL.—Section 1366(d)(2)(B) is amend13 ed by inserting ‘‘, or any transfer incident to the death 

14 of the transferor,’’ after ‘‘any transfer described in section 

15 1041(a)’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to transfers incident to deaths oc18 curring after the date of the enactment of this Act. 

19 SEC. 8. REPEAL OF INCLUSION IN GROSS INCOME OF DE20 FERRED COMPENSATION UNDER NON21 QUALIFIED DEFERRED COMPENSATION 

22 PLANS. 

23 (a) IN GENERAL.—Subpart A of part I of subchapter 

24 D of chapter 1 is amended by striking section 409A (and 


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1 by striking the item relating to such section from the table 

2 of sections for such subpart). 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Section 26(b)(2) is amended by striking 

5 subparagraph (V) and by redesignating subpara6 graphs (W) through (Z) as subparagraphs (V) 

7 through (Y), respectively. 

8 (2) Section 430(c)(7)(D)(iv)(I) is amended by 

9 inserting ‘‘as in effect before its repeal’’ after ‘‘sec10 tion 409A’’. 

11 (3)(A) Section 457A is amended by redesig12 nating subsections (d) and (e) as subsections (e) and 

13 (f) and by inserting after subsection (c) the fol14 lowing new subsection: 

15 ‘‘(d) NONQUALIFIED DEFERRED COMPENSATION

16 PLAN.—For purposes of this section— 

17 ‘‘(1) IN GENERAL.—The term ‘nonqualified de18 ferred compensation’ plan means— 

19 ‘‘(A) any plan that provides for the defer20 ral of compensation, other than— 

21 ‘‘(i) a qualified employer plan, and 

22 ‘‘(ii) any bona fide vacation leave, sick 

23 leave, compensatory time, disability pay, or 

24 death benefit plan, and 


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1 ‘‘(B) any plan that provides a right to 

2 compensation based on the appreciation in 

3 value of a specified number of equity units of 

4 the service recipient. 

5 ‘‘(2) QUALIFIED EMPLOYER PLAN.—The term 

6 ‘qualified employer plan’ means— 

7 ‘‘(A) any plan, contract, pension, account, 

8 or trust described in subparagraph (A) or (B) 

9 of section 219(g)(5) (without regard to sub10 paragraph (A)(iii)), 

11 ‘‘(B) any eligible deferred compensation 

12 plan (within the meaning of section 457(b)), 

13 and 

14 ‘‘(C) any plan described in section 415(m). 

15 ‘‘(3) PLAN INCLUDES ARRANGEMENTS, ETC.— 

16 The term ‘plan’ includes any agreement or arrange17 ment, including an agreement or arrangement that 

18 includes one person. 

19 ‘‘(4) TREATMENT OF EARNINGS.—References to 

20 deferred compensation shall be treated as including 

21 references to income (whether actual or notional) at22 tributable to such compensation or such income. 

23 ‘‘(5) AGGREGATION RULES.— Except as pro24 vided by the Secretary, rules similar to the rules of 

25 subsections (b) and (c) of section 414 shall apply. 


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1 ‘‘(6) TREATMENT OF QUALIFIED STOCK.—An 

2 arrangement under which an employee may receive 

3 qualified stock (as defined in section 83(i)(2)) shall 

4 not be treated as a nonqualified deferred compensa5 tion plan with respect to such employee solely be6 cause of such employee’s election, or ability to make 

7 an election, to defer recognition of income under sec8 tion 83(i).’’. 

9 (B) Section 457A(e)(3), as redesignated by sub10 paragraph (A), is amended to read as follows: 

11 ‘‘(3) 12-MONTH EXCEPTION.—Compensation 

12 shall not be treated as deferred for purposes of this 

13 section if the service provider receives payment of 

14 such compensation not later than 12 months after 

15 the end of the taxable year of the service recipient 

16 during which the right to the payment of such com17 pensation is no longer subject to a substantial risk 

18 of forfeiture.’’. 

19 (C) Section 457A(e), as redesignated by sub20 paragraph (A), is amended by striking paragraph 

21 (5). 

22 (4) Section 877A(g)(6) is amended by striking 

23 ‘‘409A(a)(1)(B),’’. 

24 (5) Section 3401(a) is amended by striking the 

25 last sentence. 


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1 (6) Section 6041 is amended by striking sub2 section (g). 

3 (7) Section 6051(a) is amended— 

4 (A) by striking paragraph (13) and 

5 redesginating paragraphs (14) through (17) as 

6 paragraphs (13) through (16), respectively, and 

7 (B) by striking the last sentence. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2023. 

Æ 


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