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[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8619 Introduced in House (IH)]

<DOC>

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.

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

SECTION 1. SHORT TITLE; REFERENCE.

    (a) Short Title.--This Act may be cited as the ``S Corporation 
Modernization Act of 2024''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. TREATMENT OF S CORPORATION BUILT-IN GAIN AMOUNT UPON DEATH OF 
              SHAREHOLDER.

    (a) In General.--Part II of subchapter S of chapter 1 is amended by 
adding at the end the following:

``SEC. 1369. TREATMENT OF S CORPORATION BUILT-IN GAIN AMOUNT UPON DEATH 
              OF SHAREHOLDER.

    ``(a) In General.--A person holding stock in an electing S 
corporation the basis of which is determined under section 1014(a) 
(hereafter in this section referred to as the `shareholder') shall be 
allowed a deduction with respect to the amortizable S corporation 
built-in gain amount. Except as provided under subsection (b), the 
amount of such deduction for any taxable year shall be determined by 
amortizing the amortizable S corporation built-in gain amount over the 
15-year period beginning with the month which includes the applicable 
valuation date.
    ``(b) Deduction in Case of Disposition of S Corporation Property.--
            ``(1) Accelerated deduction in case of disposition of 
        amortizable s corporation built-in gain property.--
                    ``(A) In general.--If there is a disposition of any 
                amortizable S corporation built-in gain property, then 
                the deduction allowed under subsection (a) with respect 
                to any stock (determined without regard to paragraph 
                (2)) for the taxable year of the shareholder in which 
                or with which the taxable year of the S corporation 
                which includes the date of such disposition ends, shall 
                (except as otherwise provided in this section) not be 
                less than the lesser of--
                            ``(i) the pro rata share of the gain 
                        recognized on such disposition, or
                            ``(ii) the amount determined under 
                        subsection (c)(1)(B) by only taking into 
                        account such property.
                    ``(B) Overall allowance not increased.--Except as 
                provided in paragraph (2), no deduction shall be 
                allowed under subsection (a) with respect to any stock 
                for any taxable year to the extent that such deduction 
                (when added to the deductions attributable to 
                amortizable S corporation built-in gain property so 
                allowed for all prior taxable years) exceeds the 
                amortizable S corporation built-in gain amount with 
                respect to such stock.
            ``(2) Additional deduction in case of disposition of 
        nonamortizable s corporation built-in gain property.--
                    ``(A) In general.--If there is a disposition of any 
                nonamortizable S corporation built-in gain property, 
                then the amount allowable as deduction under subsection 
                (a) with respect to any stock for the taxable year of 
                the shareholder in which or with which the taxable year 
                of the S corporation which includes the date of 
                disposition ends, shall be increased by the lesser of--
                            ``(i) the pro-rata share of the gain 
                        recognized on such disposition, or
                            ``(ii) the amount determined under 
                        subsection (c)(1)(B) by only taking into 
                        account such property.
                    ``(B) Limitation.--Subparagraph (A) shall not apply 
                with respect to any stock for any taxable year to the 
                extent that such increase (when added to the increased 
                deductions so allowed under subparagraph (A) for all 
                prior taxable years) exceeds the non-amortizable S 
                corporation built-in gain amount with respect to such 
                stock.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) S corporation built-in gain amount.--The term `S 
        corporation built-in gain amount' means the lesser of--
                    ``(A) the excess (if any) of--
                            ``(i) the basis of the stock referred to in 
                        subsection (a) as determined under section 
                        1014(a), over
                            ``(ii) the adjusted basis of such stock 
                        immediately before the death of the decedent, 
                        or
                    ``(B) the pro rata share (determined as of the 
                applicable valuation date) of--
                            ``(i) the aggregate fair market value of 
                        all property held by the S corporation which is 
                        amortizable S corporation built-in gain 
                        property or nonamortizable S corporation built-
                        in gain property, over
                            ``(ii) the aggregate adjusted basis of all 
                        such property held by the S corporation as of 
                        such date.
            ``(2) Amortizable s corporation built-in gain property.--
        The term `amortizable S corporation built-in gain property' 
        means, as of the applicable valuation date, the S corporation 
        property that is of a character subject to depreciation or 
        amortization.
            ``(3) Amortizable s corporation built-in gain amount.--The 
        term `amortizable S corporation built-in gain amount' means the 
        pro rata share of the portion of the S corporation built-in 
        gain amount that is attributable to amortizable S corporation 
        built-in gain property.
            ``(4) Non-amortizable s corporation built-in gain 
        property.--The term `non-amortizable S corporation built-in 
        gain property' means, as of the applicable valuation date, the 
        S corporation property that is not of a character subject to 
        depreciation or amortization (other than an equity interest in 
        an electing S corporation partnership).
            ``(5) Non-amortizable s corporation built-in gain amount.--
        The term `non-amortizable S corporation built-in gain amount' 
        means the pro rata share of the portion of the S corporation 
        built-in gain amount that is attributable to non-amortizable S 
        corporation built-in gain property.
            ``(6) Special rule for partnership interests.--If an 
        electing S corporation owns, directly or indirectly, an equity 
        interest in an electing S corporation partnership, including a 
        lower-tier electing S corporation partnership, the amortizable 
        S corporation built-in gain property and the non-amortizable S 
        corporation built-in gain property shall include the electing S 
        corporation's distributive share of such property held by the 
        partnership. Rules similar to the rules under paragraphs (1), 
        (2), (3), (4), and (5) of this subsection shall apply to 
        determine the electing S corporation's distributive share of 
        the amortizable S corporation built-in gain property and the 
        non-amortizable S corporation built-in gain property held by 
        such partnership for purposes of this section. For purposes of 
        subsection (b), a disposition of an interest in an electing S 
        corporation partnership shall be treated as a disposition of 
        the electing S corporation's distributive share of the property 
        held by such partnership.
            ``(7) Electing s corporation.--The term `electing S 
        corporation' means, with respect to any shareholder, any S 
        corporation which elects the application of this section with 
        respect to such shareholder at such time and in such form and 
        manner as the Secretary may prescribe.
            ``(8) Electing s corporation partnership.--The term 
        `electing S corporation partnership' means, with respect to any 
        shareholder, any equity interest in a partnership owned 
        directly or indirectly by the electing S corporation, including 
        a lower-tier partnership, for which the S corporation elects 
        the application of this section with respect to such 
        shareholder at such time and in such form and manner as the 
        Secretary may prescribe.
            ``(9) Applicable valuation date.--The term `applicable 
        valuation date' means--
                    ``(A) in the case of a decedent with respect to 
                which the executor of the decedent's estate elects the 
                application of section 2032, the date months after the 
                decedent's death, and
                    ``(B) in the case of any other decedent, the date 
                of the decedent's death.
    ``(d) Recharacterization of Gains as Ordinary Income to Extent of 
Deduction.--If--
            ``(1) stock of an S corporation with respect to which a 
        deduction was allowed under this section,
            ``(2) amortizable S corporation built-in gain property with 
        respect to which a deduction was allowed under subsection 
        (b)(1), or
            ``(3) nonamortizable S corporation built-in gain property 
        with respect to which a deduction was allowed under subsection 
        (b)(2),
is disposed of at a gain (determined without regard to whether or not 
such gain is recognized and reduced by any amount of gain which is 
treated as ordinary income under any other provision of this subtitle), 
the amount of such gain (or the shareholder's pro rata share of such 
gain in the case of property described in paragraph (2) or (3)) shall 
be treated as gain which is ordinary income (and shall be recognized 
notwithstanding any other provision of this subtitle) to the extent of 
the excess of the aggregate deductions allowable under this section 
with respect to such stock for the taxable year of such disposition and 
all prior taxable years over the amounts taken into account under this 
subsection for all prior taxable years.
    ``(e) Termination of Deduction.--No deduction shall be allowed 
under subsection (a) with respect to any stock in an electing S 
corporation with respect to any period beginning after the earlier of--
            ``(1) the date on which the corporation's election under 
        section 1362 terminates, or
            ``(2) the date on which the shareholder transfers such 
        stock to any other person.
    ``(f) Treatment of Certain Transfers.--
            ``(1) Distributions from estates or trusts.--
        Notwithstanding any other provision of this section, in the 
        case of a distribution of stock from an estate or trust to a 
        beneficiary, the beneficiary (and not the estate or trust) 
        shall be treated as the shareholder to which this section 
        applies with respect to periods after such distribution.
            ``(2) Certain transfers involving spouses.--Notwithstanding 
        any other provision of this section, in the case of a transfer 
        described in section , the transferee (and not the transferor) 
        shall be treated as the shareholder to which this section 
        applies with respect to periods after such transfer.
            ``(3) Gifts.--Notwithstanding any other provision of this 
        section, in the case of a gift, the donee (and not the donor) 
        shall be treated as the shareholder to which this section 
        applies with respect to periods after such gift.
            ``(4) Transfers to trusts.--Notwithstanding any other 
        provision of this section, in the case of a transfer to a 
        trust, the trust (and not the transferor) shall be treated as 
        the shareholder to which this section applies with respect to 
        periods after such transfer.
    ``(g) Treatment of Income in Respect of the Decedent.--
            ``(1) Adjustment to built-in gain of property held by s 
        corporation.--For purposes of subsection (c)(1)(B), the fair 
        market value of any property taken into account under 
        subparagraph (B)(i) thereof shall be decreased by any amount of 
        income in respect of the decedent with respect to such property 
        to which section 691 applies. For purposes of subsections 
        (b)(1)(A) and (b)(2)(A), the gain recognized on the disposition 
        of such property shall be reduced by such amount.
            ``(2) Adjustment to basis of s corporation stock.--For 
        adjustment to basis of S corporation stock, see section 
        1367(b)(4)(B).
    ``(h) Reporting.--Except as otherwise provided by the Secretary, 
for purposes of section 6037, the amounts determined under subsections 
(b)(1), (b)(2), (c)(1)(B), (c)(3), (c)(5), (c)(6), (d)(2), and (d)(3) 
shall be treated as items of the corporation and the pro rata share 
determined under such subsection shall be furnished to the shareholder 
under section 6037(b).''.
    (b) Adjustment to Basis of Stock.--
            (1) In general.--Section 1367(a)(2) is amended by striking 
        ``and'' at the end of subparagraph (D), by striking the period 
        at the end of subparagraph (E) and inserting ``, and'', and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) the amount of the shareholder's deduction 
                under section __.''.
            (2) Adjustment not taken into account in determining 
        treatment of distributions.--Section 1368 is amended--
                    (A) in subsection (d)(1), by inserting ``(other 
                than subsection (a)(2)(F) thereof)'' after ``section 
                1367'', and
                    (B) in subsection (e)(1)(A)--
                            (i) by striking ``this title and the 
                        phrase'' and inserting ``this title, the 
                        phrase'', and
                            (ii) by inserting ``, and no adjustment 
                        shall be made under section 1367(a)(2)(F)'' 
                        after ``section 1367(a)(2)''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter S of chapter 1 is amended by adding at the end the following 
new item:

``Sec. 1369. Treatment of S corporation built-in gain amount upon death 
                            of shareholder.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to decedents dying after the date of the enactment 
of this Act, in taxable years ending after such date.

SEC. 3. MODIFICATIONS TO S CORPORATION PASSIVE INVESTMENT INCOME RULES.

    (a) Increased Percentage Limit.--Section 1375(a)(2) is amended by 
striking ``25 percent'' and inserting ``60 percent''.
    (b) Repeal of Excessive Passive Income as a Termination Event.--
Section 1362(d) is amended by striking paragraph (3).
    (c) Conforming Amendments.--
            (1) Section 1375(b) is amended by striking paragraphs (3) 
        and (4) and inserting the following new paragraph:
            ``(3) Passive investment income defined.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `passive investment income' 
                means gross receipts derived from royalties, rents, 
                dividends, interest, and annuities.
                    ``(B) Exception for interest on notes from sales of 
                inventory.--The term `passive investment income' shall 
                not include interest on any obligation acquired in the 
                ordinary course of the corporation's trade or business 
                from its sale of property described in section 
                1221(a)(1).
                    ``(C) Treatment of certain lending or finance 
                companies.--If the S corporation meets the requirements 
                of section 542(c)(6) for the taxable year, the term 
                `passive investment income' shall not include gross 
                receipts for the taxable year which are derived 
                directly from the active and regular conduct of a 
                lending or finance business (as defined in section 
                542(d)(1)).
                    ``(D) Treatment of certain dividends.--If an S 
                corporation holds stock in a C corporation meeting the 
                requirements of section 1504(a)(2), the term `passive 
                investment income' shall not include dividends from 
                such C corporation to the extent such dividends are 
                attributable to the earnings and profits of such C 
                corporation derived from the active conduct of a trade 
                or business.
                    ``(E) Exception for banks, etc.--In the case of a 
                bank (as defined in section 581) or a depository 
                institution holding company (as defined in section 
                3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
                1813(w)(1))), the term `passive investment income' 
                shall not include--
                            ``(i) interest income earned by such bank 
                        or company, or
                            ``(ii) dividends on assets required to be 
                        held by such bank or company, including stock 
                        in the Federal Reserve Bank, the Federal Home 
                        Loan Bank, or the Federal Agricultural Mortgage 
                        Bank or participation certificates issued by a 
                        Federal Intermediate Credit Bank.
                    ``(F) Gross receipts from the sales of certain 
                assets.--For purposes of this paragraph--
                            ``(i) Capital assets other than stock and 
                        securities.--In the case of dispositions of 
                        capital assets (other than stock and 
                        securities), gross receipts from such 
                        dispositions shall be taken into account only 
                        to the extent of capital gain net income 
                        therefrom.
                            ``(ii) Stock and securities.--In the case 
                        of sales or exchanges of stock or securities, 
                        gross receipts shall be taken into account only 
                        to the extent of the gain therefrom.
                    ``(G) Coordination with section 1374.--The amount 
                of passive investment income shall be determined by not 
                taking into account any recognized built-in gain or 
                loss of the S corporation for any taxable year in the 
                recognition period. Terms used in the preceding 
                sentence shall have the same respective meanings as 
                when used in section 1374.''.
            (2)(A) Section 26(b)(2)(J) is amended by striking ``25 
        percent'' and inserting ``60 percent''.
            (B) Section 1375(b)(1)(A)(i) is amended by striking ``25 
        percent'' and inserting ``60 percent''.
            (C) The heading for section 1375 is amended by striking 
        ``25 percent'' and inserting ``60 percent''.
            (D) The item relating to section 1375 in the table of 
        sections for part III of subchapter S of chapter 1 is amended 
        by striking ``25 percent'' and inserting ``60 percent''.
            (3) Section 1042(c)(4)(A)(i) is amended by striking 
        ``section 1362(d)(3)(C)'' and inserting ``section 1375(b)(3)''.
            (4) Section 1362(f)(1)(B) is amended by striking 
        ``paragraph (2) or (3) of subsection (d)'' and inserting 
        ``subsection (d)(2)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2023.

SEC. 4. NONRESIDENT ALIEN INDIVIDUALS PERMITTED AS S CORPORATION 
              SHAREHOLDERS.

    (a) In General.--Section 1361(b)(1) is amended by adding ``and'' at 
the end of subparagraph (B), by striking subparagraph (C), and by 
redesignating subparagraph (D) as subparagraph (C).
    (b) Gain or Loss of Nonresident Aliens From Sale or Exchange of S 
Corporation Stock.--Section 864(c) is amended by adding at the end the 
following new paragraph:
            ``(9) Gain or loss of nonresident aliens from sale or 
        exchange of s corporation stock.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this subtitle, if a nonresident alien 
                individual owns, directly or indirectly, stock of an S 
                corporation which is engaged in any trade or business 
                within the United States, gain or loss on the sale or 
                exchange of all (or any portion of) such stock shall be 
                treated as effectively connected with the conduct of 
                such trade or business to the extent such gain or loss 
                does not exceed the amount determined under 
                subparagraph (B).
                    ``(B) Amount treated as effectively connected.--The 
                amount determined under this subparagraph with respect 
                to any S corporation stock sold or exchanged--
                            ``(i) in the case of any gain on the sale 
                        or exchange of the S corporation stock, is--
                                    ``(I) the portion of the 
                                shareholder's pro rata share of the 
                                amount of gain which would have been 
                                effectively connected with the conduct 
                                of a trade or business within the 
                                United States if the S corporation had 
                                sold all of its assets at their fair 
                                market value as of the date of the sale 
                                or exchange of such stock, or
                                    ``(II) zero if no gain on such 
                                deemed sale would have been so 
                                effectively connected, and
                            ``(ii) in the case of any loss on the sale 
                        or exchange of the S corporation stock, is--
                                    ``(I) the portion of the 
                                shareholder's pro rata share of the 
                                amount of loss on the deemed sale 
                                described in clause (i)(I) which would 
                                have been so effectively connected, or
                                    ``(II) zero if no loss on such 
                                deemed sale would have been so 
                                effectively connected.
                    ``(C) Application of certain other rules.--Except 
                as otherwise provided by the Secretary, rules similar 
                to the rules of subparagraphs (C), (D), and (E) of 
                paragraph (8) shall apply for purposes of this 
                paragraph.''.
    (c) Withholding Tax.--Subchapter A of chapter 3 is amended by 
adding at the end the following new section:

``SEC. 1447. WITHHOLDING TAX ON NONRESIDENT ALIEN S CORPORATION 
              SHAREHOLDER'S PRO RATA SHARE OF EFFECTIVELY CONNECTED 
              INCOME.

    ``(a) In General.--If--
            ``(1) an S corporation has effectively connected taxable 
        income for any taxable year, and
            ``(2) any shareholder of such S corporation is a 
        nonresident alien,
such S corporation shall pay a withholding tax under this section at 
such time and in such manner as the Secretary may provide.
    ``(b) Amount of Withholding Tax.--The amount of the withholding tax 
payable by any S corporation under subsection (a) shall be equal to the 
product of--
            ``(1) the highest rate of tax specified in section 1, 
        multiplied by
            ``(2) the aggregate pro rata shares of the effectively 
        connected taxable income of such S corporation with respect to 
        shareholders who are nonresident aliens.
    ``(c) Effectively Connected Taxable Income.--For purposes of this 
section, the term `effectively connected taxable income' means the 
taxable income of the S corporation which is effectively connected (or 
treated as effectively connected) with the conduct to a trade or 
business in the United States. For purposes of the preceding sentence, 
the S corporation shall be allowed a deduction for depletion with 
respect to oil and gas wells but the amount of such deduction shall be 
determined without regard to sections 613 and 613A.
    ``(d) Treatment of Nonresident Alien Shareholders.--
            ``(1) Allowance of credit.--Each nonresident alien who is a 
        shareholder of an S corporation shall be allowed a credit under 
        section 33 for such shareholder's share of the withholding tax 
        paid by the S corporation under this section. Such credit shall 
        be allowed for the shareholder's taxable year in which (or with 
        which) the S corporation taxable year (for which such tax was 
        paid) ends.
            ``(2) Credit treated as distributed to shareholder.--Except 
        as provided in regulations, a nonresident alien shareholder's 
        share of any withholding tax paid by the S corporation under 
        this section shall be treated as distributed to such 
        shareholder by such S corporation on the earlier of--
                    ``(A) the day on which such tax was paid by the S 
                corporation, or
                    ``(B) the last day of the S corporation's taxable 
                year for which such tax was paid.
    ``(e) Special Rules for Withholding on Dispositions of S 
Corporation Stock.--
            ``(1) In general.--Except as provided in this subsection, 
        if any portion of the gain (if any) on any disposition of stock 
        in an S corporation would be treated under section 864(c)(9) as 
        effectively connected with the conduct of a trade or business 
        within the United States, the transferee shall be required to 
        deduct and withhold a tax equal to 10 percent of the amount 
        realized on the disposition.
            ``(2) Exception if nonforeign affidavit furnished; other 
        special rules.--Except as otherwise provided by the Secretary, 
        rules similar to the rules of paragraphs (2) through (6) of 
        section 1446(f) shall apply for purposes of this subsection.
    ``(f) Regulations.--The Secretary shall prescribed such regulations 
or other guidance as may be necessary or appropriate to carry out the 
purposes of this section, including regulations or other guidance 
providing--
            ``(1) that for purposes of section 6655, the withholding 
        tax imposed under this section shall be treated as a tax 
        imposed by section 11 and any S corporation required to pay 
        such tax shall be treated as a corporation to which such 
        section applies, and
            ``(2) appropriate adjustments in applying section 6655 with 
        respect to such withholding tax.''.
    (d) Conforming Amendments.--
            (1) Section 1361(c)(2)(B)(v) is amended by striking the 
        last sentence.
            (2) Section 6401(b)(2) is amended by inserting ``or 1447'' 
        after ``section 1446'',
            (3) The table of sections for subchapter A of chapter 3 is 
        amended by adding at the end the following new item:

``Sec. 1447. Withholding tax on nonresident alien S corporation 
                            shareholder's pro rata share of effectively 
                            connected income.''.
    (e) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2023.
            (2) Gain or loss; withholding.--The amendments made by 
        subsections (b), (c), (d)(2), and (d)(3) shall apply to sales, 
        exchanges, and dispositions after December 31, 2023.

SEC. 5. EMPLOYEES OF A FIRM COUNTED AS A SINGLE SHAREHOLDER TOWARD 
              SHAREHOLDER LIMIT OF S CORPORATION.

    (a) In General.--Subsection (c) of section 1361 is amended by 
adding at the end the following:
            ``(7) Employees treated as one shareholder.--
                    ``(A) In general.--For purposes of subsection 
                (b)(1)(A), there shall be treated as one shareholder 
                all employees (and their estates) of a corporation and 
                any wholly owned business entities (as determined by 
                the Secretary) of such corporation.
                    ``(B) Employee defined.--For purposes of this 
                paragraph, the term ``employee'' means any individual 
                (whether a resident alien, nonresident alien, or 
                citizen) that would be an employee described under 
                paragraph (1) or (2) of section 3121(d).''.
    (b) Exception to Nonresident Shareholder Prohibition.--Subparagraph 
(C) of section 1361(b)(1) is amended to read as follows:
                    ``(C) have a nonresident alien as a shareholder 
                (except for a nonresident alien that is a shareholder 
                by reason of subsection (c)(7) or a nonresident alien 
                spouse of an employee which is a shareholder in a 
                corporation described in subsection (c)(7)), and''.
    (c) Withholding With Respect to Nonresident Aliens.--Section 1373 
is amended by adding at the end the following:
    ``(c) Withholding With Respect to Nonresident Aliens.--The 
principles of sections 1441 and 1446 shall apply to income allocable 
to, and distributions to, a nonresident alien shareholder of an S 
corporation (allowed by reason of section 1361(b)(1)(C)). The Secretary 
may prescribe regulations to carry out the purposes of this 
subsection.''.
    (d) Defining Items of Income for Purposes of Withholding Tax on 
Nonresident Aliens.--Subsection (b) of section 1441 is amended by 
inserting before the period at the end of the first sentence the 
following: ``, and any items of income described in section 1366(a) 
allocable to a nonresident alien that is an S Corporation shareholder 
by reason of section 1361(c)(7)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2023.

SEC. 6. EXPANSION OF S CORPORATION ELIGIBLE SHAREHOLDERS TO INCLUDE 
              IRAS.

    (a) In General.--Section 1361(c)(2)(A)(vi) is amended to read as 
follows:
                            ``(vi) A trust which constitutes an 
                        individual retirement account under section 
                        408(a), including one designated as a Roth IRA 
                        under section 408A.''.
    (b) Sale of Stock in IRA Relating to S Corporation Election Exempt 
From Prohibited Transaction Rules.--Section 4975(d)(16) is amended--
            (1) by striking subparagraphs (A) and (B) and by 
        redesignating subparagraphs (C), (D), (E), and (F) as 
        subparagraphs (A), (B), (C), and (D), respectively, and
            (2) by striking ``such bank or company'' in subparagraph 
        (A) (as so redesignated) and inserting ``the issuer of such 
        stock''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2024.

SEC. 7. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DEATH.

    (a) In General.--Section 1366(d)(2)(B) is amended by inserting ``, 
or any transfer incident to the death of the transferor,'' after ``any 
transfer described in section 1041(a)''.
    (b) Effective Date.--The amendment made by this section shall apply 
to transfers incident to deaths occurring after the date of the 
enactment of this Act.

SEC. 8. REPEAL OF INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION 
              UNDER NONQUALIFIED DEFERRED COMPENSATION PLANS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
is amended by striking section 409A (and by striking the item relating 
to such section from the table of sections for such subpart).
    (b) Conforming Amendments.--
            (1) Section 26(b)(2) is amended by striking subparagraph 
        (V) and by redesignating subparagraphs (W) through (Z) as 
        subparagraphs (V) through (Y), respectively.
            (2) Section 430(c)(7)(D)(iv)(I) is amended by inserting 
        ``as in effect before its repeal'' after ``section 409A''.
            (3)(A) Section 457A is amended by redesignating subsections 
        (d) and (e) as subsections (e) and (f) and by inserting after 
        subsection (c) the following new subsection:
    ``(d) Nonqualified Deferred Compensation Plan.--For purposes of 
this section--
            ``(1) In general.--The term `nonqualified deferred 
        compensation' plan means--
                    ``(A) any plan that provides for the deferral of 
                compensation, other than--
                            ``(i) a qualified employer plan, and
                            ``(ii) any bona fide vacation leave, sick 
                        leave, compensatory time, disability pay, or 
                        death benefit plan, and
                    ``(B) any plan that provides a right to 
                compensation based on the appreciation in value of a 
                specified number of equity units of the service 
                recipient.
            ``(2) Qualified employer plan.--The term `qualified 
        employer plan' means--
                    ``(A) any plan, contract, pension, account, or 
                trust described in subparagraph (A) or (B) of section 
                219(g)(5) (without regard to subparagraph (A)(iii)),
                    ``(B) any eligible deferred compensation plan 
                (within the meaning of section 457(b)), and
                    ``(C) any plan described in section 415(m).
            ``(3) Plan includes arrangements, etc.--The term `plan' 
        includes any agreement or arrangement, including an agreement 
        or arrangement that includes one person.
            ``(4) Treatment of earnings.--References to deferred 
        compensation shall be treated as including references to income 
        (whether actual or notional) attributable to such compensation 
        or such income.
            ``(5) Aggregation rules.-- Except as provided by the 
        Secretary, rules similar to the rules of subsections (b) and 
        (c) of section 414 shall apply.
            ``(6) Treatment of qualified stock.--An arrangement under 
        which an employee may receive qualified stock (as defined in 
        section 83(i)(2)) shall not be treated as a nonqualified 
        deferred compensation plan with respect to such employee solely 
        because of such employee's election, or ability to make an 
        election, to defer recognition of income under section 
        83(i).''.
            (B) Section 457A(e)(3), as redesignated by subparagraph 
        (A), is amended to read as follows:
            ``(3) 12-month exception.--Compensation shall not be 
        treated as deferred for purposes of this section if the service 
        provider receives payment of such compensation not later than 
        12 months after the end of the taxable year of the service 
        recipient during which the right to the payment of such 
        compensation is no longer subject to a substantial risk of 
        forfeiture.''.
            (C) Section 457A(e), as redesignated by subparagraph (A), 
        is amended by striking paragraph (5).
            (4) Section 877A(g)(6) is amended by striking 
        ``409A(a)(1)(B),''.
            (5) Section 3401(a) is amended by striking the last 
        sentence.
            (6) Section 6041 is amended by striking subsection (g).
            (7) Section 6051(a) is amended--
                    (A) by striking paragraph (13) and redesginating 
                paragraphs (14) through (17) as paragraphs (13) through 
                (16), respectively, and
                    (B) by striking the last sentence.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2023.
                                 <all>
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