I 

114TH CONGRESS 

1ST SESSION H. R. 2788 

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

reform, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 16, 2015 

Mr. REICHERT (for himself and Mr. KIND) 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 2015’’. 

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. REDUCED RECOGNITION PERIOD FOR BUILT-IN 

4 GAINS MADE PERMANENT. 

5 (a) IN GENERAL.—Section 1374(d)(7) is amended to 

6 read as follows: 

7 ‘‘(7) RECOGNITION PERIOD.—The term ‘rec8 ognition period’ means the 5-year period beginning 

9 with the 1st day of the 1st taxable year for which 

10 the corporation was an S corporation. For purposes 

11 of applying this section to any amount includible in 

12 income by reason of distributions to shareholders 

13 pursuant to section 593(e), the preceding sentence 

14 shall be applied without regard to the duration of 

15 the recognition period in effect on the date of such 

16 distribution.’’. 

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

18 this section— 

19 (1) shall apply for purposes of determining the 

20 recognition period with respect to 1st days referred 

21 to in section 1374(d)(7) of the Internal Revenue 

22 Code of 1986 occurring before, on, or after January 

23 1, 2015, but 


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1 (2) shall not apply for purposes of determining 

2 the tax imposed by section 1374 of such Code for 

3 taxable years ending before such date. 

4 SEC. 3. REPEAL OF EXCESSIVE PASSIVE INVESTMENT IN5 COME AS A TERMINATION EVENT. 

6 Section 1362(d)(3) is amended by adding at the end 

7 the following new subparagraph: 

8 ‘‘(D) TERMINATION.—This paragraph 

9 shall not apply to taxable years beginning after 

10 December 31, 2014.’’. 

11 SEC. 4. MODIFICATIONS TO PASSIVE INCOME RULES. 

12 (a) INCREASED LIMIT.— 

13 (1) IN GENERAL.—Section 1375(a)(2) is 

14 amended by striking ‘‘25 percent’’ and inserting ‘‘60 

15 percent’’. 

16 (2) CONFORMING AMENDMENTS.— 

17 (A) Section 26(b)(2)(J) is amended by 

18 striking ‘‘25 percent’’ and inserting ‘‘60 per19 cent’’. 

20 (B) Section 1375(b)(1)(A)(i) is amended 

21 by striking ‘‘25 percent’’ and inserting ‘‘60 per22 cent’’. 

23 (C) The heading for section 1375 is 

24 amended by striking ‘‘25 PERCENT’’ and in25 serting ‘‘60 PERCENT’’. 


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1 (D) The table of sections for part III of 

2 subchapter S of chapter 1 is amended by strik3 ing ‘‘25 percent’’ in the item relating to section 

4 1375 and inserting ‘‘60 percent’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2014. 

8 SEC. 5. EXPANSION OF QUALIFYING BENEFICIARIES OF AN 

9 ELECTING SMALL BUSINESS TRUST. 

10 (a) NO LOOK THROUGH FOR ELIGIBILITY PUR11 POSES.—Section 1361(c)(2)(B)(v) is amended by adding 

12 at the end the following new sentence: ‘‘This clause shall 

13 not apply for purposes of subsection (b)(1)(C).’’. 

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

15 this section shall take effect on January 1, 2015. 

16 SEC. 6. EXPANSION OF S CORPORATION ELIGIBLE SHARE17 HOLDERS TO INCLUDE IRAS. 

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

19 amended to read as follows: 

20 ‘‘(vi) A trust which constitutes an in21 dividual retirement account under section 

22 408(a), including one designated as a Roth 

23 IRA under section 408A.’’. 

24 (b) SALE OF STOCK IN IRA RELATING TO S COR25 PORATION ELECTION EXEMPT FROM PROHIBITED


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1 TRANSACTION RULES.—Section 4975(d)(16) is amended 

2 to read as follows: 

3 ‘‘(16) a sale of stock held by a trust which con4 stitutes an individual retirement account under sec5 tion 408(a) to the individual for whose benefit such 

6 account is established if— 

7 ‘‘(A) such sale is pursuant to an election 

8 under section 1362(a) by the issuer of such 

9 stock, 

10 ‘‘(B) such sale is for fair market value at 

11 the time of sale (as established by an inde12 pendent appraiser) and the terms of the sale 

13 are otherwise at least as favorable to such trust 

14 as the terms that would apply on a sale to an 

15 unrelated party, 

16 ‘‘(C) such trust does not pay any commis17 sions, costs, or other expenses in connection 

18 with the sale, and 

19 ‘‘(D) the stock is sold in a single trans20 action for cash not later than 120 days after 

21 the S corporation election is made.’’. 

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

23 this section shall take effect on January 1, 2015. 


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1 SEC. 7. ALLOWANCE OF DEDUCTION FOR CHARITABLE 

2 CONTRIBUTIONS FOR ELECTING SMALL BUSI3 NESS TRUSTS. 

4 (a) IN GENERAL.—Section 641(c)(2)(C) is amended 

5 by adding at the end the following new sentence: ‘‘The 

6 deduction for charitable contributions allowed under 

7 clause (i) shall be determined without regard to section 

8 642(c), and the limitations imposed by section 170(b)(1) 

9 on the amount of the deduction shall be applied to the 

10 electing small business trust as if it were an individual.’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 SEC. 8. PERMANENT RULE REGARDING BASIS ADJUST15 MENT TO STOCK OF S CORPORATIONS MAK16 ING CHARITABLE CONTRIBUTIONS OF PROP17 ERTY. 

18 (a) IN GENERAL.—Section 1367(a)(2) is amended by 

19 striking the last sentence. 

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

21 this section shall apply to contributions made in taxable 

22 years beginning after December 31, 2014. 

Æ 


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