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. 
Be it enacted by the Senate and House of Representa-
tives 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 other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
shall be considered to be made to a section or other provi-
sion 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.— 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(A) IN GENERAL.—If there is a disposi-
tion of any amortizable S corporation built-in 
gain property, then the deduction allowed under 
subsection (a) with respect to any stock (deter-
mined 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
IN-
CREASED.—Except as provided in paragraph 
(2), no deduction shall be allowed under sub-
section (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. 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(2) ADDITIONAL DEDUCTION IN CASE OF DIS-
POSITION
OF
NONAMORTIZABLE
S
CORPORATION 
BUILT-IN GAIN PROPERTY.— 
‘‘(A) IN GENERAL.—If there is a disposi-
tion 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 share-
holder 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 rec-
ognized 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 in-
crease (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. 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses 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 sec-
tion 1014(a), over 
‘‘(ii) the adjusted basis of such stock 
immediately before the death of the dece-
dent, 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 corpora-
tion 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 corpora-
tion built-in gain property’ means, as of the applica-
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
ble valuation date, the S corporation property that 
is of a character subject to depreciation or amortiza-
tion. 
‘‘(3) AMORTIZABLE S CORPORATION BUILT-IN 
GAIN AMOUNT.—The term ‘amortizable S corpora-
tion 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 cor-
poration built-in gain property. 
‘‘(4) 
NON-AMORTIZABLE
S
CORPORATION 
BUILT-IN GAIN PROPERTY.—The term ‘non-amortiz-
able 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 depre-
ciation or amortization (other than an equity inter-
est in an electing S corporation partnership). 
‘‘(5) 
NON-AMORTIZABLE
S
CORPORATION 
BUILT-IN
GAIN
AMOUNT.—The term ‘non-amortiz-
able 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-am-
ortizable S corporation built-in gain property. 
‘‘(6) SPECIAL RULE FOR PARTNERSHIP INTER-
ESTS.—If an electing S corporation owns, directly or 
indirectly, an equity interest in an electing S cor-
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
poration partnership, including a lower-tier electing 
S corporation partnership, the amortizable S cor-
poration built-in gain property and the non-amortiz-
able S corporation built-in gain property shall in-
clude the electing S corporation’s distributive share 
of such property held by the partnership. Rules simi-
lar 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 prop-
erty held by such partnership for purposes of this 
section. For purposes of subsection (b), a disposition 
of an interest in an electing S corporation partner-
ship 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 ap-
plication of this section with respect to such share-
holder at such time and in such form and manner 
as the Secretary may prescribe. 
‘‘(8) ELECTING
S
CORPORATION
PARTNER-
SHIP.—The term ‘electing S corporation partnership’ 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
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 ac-
count 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 pe-
riod beginning after the earlier of— 
‘‘(1) the date on which the corporation’s elec-
tion under section 1362 terminates, or 
‘‘(2) the date on which the shareholder trans-
fers 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 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00009
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
from an estate or trust to a beneficiary, the bene-
ficiary (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 provi-
sion of this section, in the case of a gift, the donee 
(and not the donor) shall be treated as the share-
holder 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 trans-
feror) 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 PROP-
ERTY HELD BY S CORPORATION.—For purposes of 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00010
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
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 pur-
poses 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 CORPORA-
TION STOCK.—For adjustment to basis of S corpora-
tion 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 deter-
mined 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 subpara-
graph (D), by striking the period at the end of sub-
paragraph (E) and inserting ‘‘, and’’, and by insert-
ing after subparagraph (E) the following new sub-
paragraph: 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00011
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(F) the amount of the shareholder’s de-
duction under section ll.’’. 
(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. 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00012
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
SEC. 3. MODIFICATIONS TO S CORPORATION PASSIVE IN-
VESTMENT INCOME RULES. 
(a) 
INCREASED
PERCENTAGE
LIMIT.—Section 
1375(a)(2) is amended by striking ‘‘25 percent’’ and in-
serting ‘‘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
DE-
FINED.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the term ‘passive 
investment income’ means gross receipts de-
rived 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 in-
terest on any obligation acquired in the ordi-
nary course of the corporation’s trade or busi-
ness from its sale of property described in sec-
tion 1221(a)(1). 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00013
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(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 fi-
nance 
business 
(as 
defined 
in 
section 
542(d)(1)). 
‘‘(D) TREATMENT
OF
CERTAIN
DIVI-
DENDS.—If an S corporation holds stock in a 
C corporation meeting the requirements of sec-
tion 1504(a)(2), the term ‘passive investment 
income’ shall not include dividends from such C 
corporation to the extent such dividends are at-
tributable 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 De-
posit Insurance Act (12 U.S.C. 1813(w)(1))), 
the term ‘passive investment income’ shall not 
include— 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00014
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(i) interest income earned by such 
bank or company, or 
‘‘(ii) dividends on assets required to 
be held by such bank or company, includ-
ing stock in the Federal Reserve Bank, the 
Federal Home Loan Bank, or the Federal 
Agricultural Mortgage Bank or participa-
tion certificates issued by a Federal Inter-
mediate 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 ac-
count only to the extent of capital gain net 
income therefrom. 
‘‘(ii) STOCK AND SECURITIES.—In the 
case of sales or exchanges of stock or secu-
rities, gross receipts shall be taken into ac-
count only to the extent of the gain there-
from. 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00015
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(G) 
COORDINATION
WITH
SECTION 
1374.—The amount of passive investment in-
come shall be determined by not taking into ac-
count any recognized built-in gain or loss of the 
S corporation for any taxable year in the rec-
ognition period. Terms used in the preceding 
sentence shall have the same respective mean-
ings as when used in section 1374.’’. 
(2)(A) Section 26(b)(2)(J) is amended by strik-
ing ‘‘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 PER-
CENT’’. 
(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 ‘‘sec-
tion 1375(b)(3)’’. 
(4) Section 1362(f)(1)(B) is amended by strik-
ing ‘‘paragraph (2) or (3) of subsection (d)’’ and in-
serting ‘‘subsection (d)(2)’’. 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00016
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
(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.—Sec-
tion 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 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00017
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
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 cor-
poration 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 share-
holder’s pro rata share of the amount 
of gain which would have been effec-
tively 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 ex-
change of such stock, or 
‘‘(II) zero if no gain on such 
deemed sale would have been so effec-
tively connected, and 
‘‘(ii) in the case of any loss on the 
sale or exchange of the S corporation 
stock, is— 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00018
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(I) the portion of the share-
holder’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 effec-
tively connected. 
‘‘(C) APPLICATION
OF
CERTAIN
OTHER 
RULES.—Except as otherwise provided by the 
Secretary, rules similar to the rules of subpara-
graphs (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 IN-
COME. 
‘‘(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, 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00019
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
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 effec-
tively connected taxable income of such S corpora-
tion with respect to shareholders who are non-
resident aliens. 
‘‘(c) EFFECTIVELY
CONNECTED
TAXABLE
IN-
COME.—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 busi-
ness 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 re-
gard to sections 613 and 613A. 
‘‘(d) TREATMENT OF NONRESIDENT ALIEN SHARE-
HOLDERS.— 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00020
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
‘‘(1) ALLOWANCE
OF
CREDIT.—Each non-
resident alien who is a shareholder of an S corpora-
tion 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 with-
holding tax paid by the S corporation under this sec-
tion shall be treated as distributed to such share-
holder 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 DIS-
POSITIONS 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 con-
nected with the conduct of a trade or business with-
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00021
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
in 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 sec-
tion 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’’, 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00022
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
(3) The table of sections for subchapter A of 
chapter 3 is amended by adding at the end the fol-
lowing 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 pro-
vided 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 dis-
positions 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
SHARE-
HOLDER.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(1)(A), there shall be treated as one 
shareholder all employees (and their estates) of 
a corporation and any wholly owned business 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00023
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
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, non-
resident alien, or citizen) that would be an em-
ployee 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 share-
holder (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
NON-
RESIDENT 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 (al-
lowed by reason of section 1361(b)(1)(C)). The Secretary 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00024
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS
may prescribe regulations to carry out the purposes of this 
subsection.’’. 
(d) DEFINING ITEMS OF INCOME FOR PURPOSES OF 
WITHHOLDING TAX
ON NONRESIDENT ALIENS.—Sub-
section (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 SHARE-
HOLDERS TO INCLUDE IRAS. 
(a) IN
GENERAL.—Section 1361(c)(2)(A)(vi) is 
amended to read as follows: 
‘‘(vi) A trust which constitutes an in-
dividual 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 COR-
PORATION
ELECTION
EXEMPT
FROM
PROHIBITED 
TRANSACTION RULES.—Section 4975(d)(16) is amend-
ed— 
VerDate Sep 11 2014 
19:41 Jul 19, 2024
Jkt 049200
PO 00000
Frm 00025
Fmt 6652
Sfmt 6201
E:\BILLS\H8619.IH
H8619
ssavage on LAPJG3WLY3PROD with BILLS