posit 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, 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-
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count only to the extent of the gain there-
from. 
‘‘(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)’’. 
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(4) Section 1362(f)(1)(B) is amended by strik-
ing ‘‘paragraph (2) or (3) of subsection (d)’’ and in-
serting ‘‘subsection (d)(2)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2020. 
SEC. 3. 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— 
(1) by striking subparagraphs (A) and (B) and 
by redesignating subparagraphs (C), (D), (E), and 
(F) as subparagraphs (A), (B), (C), and (D), respec-
tively, and 
(2) by striking ‘‘such bank or company’’ in sub-
paragraph (A) (as so redesignated) and inserting 
‘‘the issuer of such stock’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2021. 
SEC. 4. 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. AMORTIZATION OF 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 S corporation built-in gain amount. The 
amount of such deduction for any taxable year shall be 
determined by amortizing the S corporation built-in gain 
amount over the 15-year period beginning with the month 
which includes the applicable valuation date. 
‘‘(b) S CORPORATION BUILT-IN GAIN AMOUNT.— 
For purposes of this section, the term ‘S corporation built- 
in gain amount’ means the lesser of— 
‘‘(1) the excess (if any) of— 
‘‘(A) the basis of the stock referred to in 
subsection (a) as determined under section 
1014(a), over 
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‘‘(B) the adjusted basis of such stock im-
mediately before the death of the decedent, or 
‘‘(2) the pro rata share (determined as of the 
applicable valuation date) of— 
‘‘(A) the aggregate fair market value of all 
property held by the S corporation which is of 
a character subject to depreciation or amortiza-
tion, over 
‘‘(B) the aggregate adjusted basis of all 
such property held by the S corporation as of 
such date. 
‘‘(c) ELECTING S CORPORATION.—For purposes of 
this section, 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 share-
holder at such time and in such form and manner as the 
Secretary may prescribe. 
‘‘(d) APPLICABLE VALUATION DATE.—For purposes 
of this section, the term ‘applicable valuation date’ 
means— 
‘‘(1) 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 6 months after 
the decedent’s death, and 
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‘‘(2) in the case of any other decedent, the date 
of the decedent’s death. 
‘‘(e) ACCELERATED DEDUCTION IN CASE OF DIS-
POSITION OF S CORPORATION PROPERTY.— 
‘‘(1) IN GENERAL.—If the electing S corpora-
tion disposes of any property which was taken into 
account under subsection (b)(2), then the deduction 
allowed 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 cor-
poration which includes the date of such disposition 
ends, shall (except as otherwise provided in this sec-
tion) not be less than the lesser of— 
‘‘(A) the pro rata share of the gain recog-
nized on such disposition, or 
‘‘(B) the amount determined under sub-
section (b)(2) by only taking into account such 
property. 
‘‘(2) OVERALL ALLOWANCE NOT INCREASED.— 
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 de-
ductions so allowed for all prior taxable years) ex-
ceeds the S corporation built-in gain amount with 
respect to such stock. 
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‘‘(f) 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, or 
‘‘(2) property which was taken into account 
under subsection (b)(2) with respect to such stock, 
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)) 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 de-
ductions 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. 
‘‘(g) TERMINATION OF AMORTIZATION.—No deduc-
tion 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 elec-
tion under section 1362 terminates, or 
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erty to which section 691 applies. For purposes of 
subsection (e)(1)(A), the gain recognized on the dis-
position 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). 
‘‘(j) REPORTING.—Except as otherwise provided by 
the Secretary, for purposes of section 6037, the amounts 
determined under subsections (b)(2), (e)(1), and (f)(2) 
shall be treated as items of the corporation and the pro 
rata share determined under such subsection shall be fur-
nished 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: 
‘‘(F) the amount of the shareholder’s de-
duction allowable under section 1369.’’. 
(2) ADJUSTMENT NOT TAKEN INTO ACCOUNT 
IN DETERMINING TREATMENT OF DISTRIBUTIONS.— 
Section 1368 is amended— 
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(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. Amortization of 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. 
Æ 
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