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. 
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 2015’’. 
(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 
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shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
SEC. 2. REDUCED RECOGNITION PERIOD FOR BUILT-IN 
GAINS MADE PERMANENT. 
(a) IN GENERAL.—Section 1374(d)(7) is amended to 
read as follows: 
‘‘(7) RECOGNITION
PERIOD.—The term ‘rec-
ognition period’ means the 5-year period beginning 
with the 1st day of the 1st taxable year for which 
the corporation was an S corporation. For purposes 
of applying this section to any amount includible in 
income by reason of distributions to shareholders 
pursuant to section 593(e), the preceding sentence 
shall be applied without regard to the duration of 
the recognition period in effect on the date of such 
distribution.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section— 
(1) shall apply for purposes of determining the 
recognition period with respect to 1st days referred 
to in section 1374(d)(7) of the Internal Revenue 
Code of 1986 occurring before, on, or after January 
1, 2015, but 
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(2) shall not apply for purposes of determining 
the tax imposed by section 1374 of such Code for 
taxable years ending before such date. 
SEC. 3. REPEAL OF EXCESSIVE PASSIVE INVESTMENT IN-
COME AS A TERMINATION EVENT. 
Section 1362(d)(3) is amended by adding at the end 
the following new subparagraph: 
‘‘(D) 
TERMINATION.—This 
paragraph 
shall not apply to taxable years beginning after 
December 31, 2014.’’. 
SEC. 4. MODIFICATIONS TO PASSIVE INCOME RULES. 
(a) INCREASED LIMIT.— 
(1) 
IN
GENERAL.—Section 
1375(a)(2) 
is 
amended by striking ‘‘25 percent’’ and inserting ‘‘60 
percent’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 26(b)(2)(J) is amended by 
striking ‘‘25 percent’’ and inserting ‘‘60 per-
cent’’. 
(B) Section 1375(b)(1)(A)(i) is amended 
by striking ‘‘25 percent’’ and inserting ‘‘60 per-
cent’’. 
(C) The heading for section 1375 is 
amended by striking ‘‘25 PERCENT’’ and in-
serting ‘‘60 PERCENT’’. 
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(D) The table of sections for part III of 
subchapter S of chapter 1 is amended by strik-
ing ‘‘25 percent’’ in the item relating to section 
1375 and inserting ‘‘60 percent’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5. EXPANSION OF QUALIFYING BENEFICIARIES OF AN 
ELECTING SMALL BUSINESS TRUST. 
(a) NO LOOK THROUGH
FOR ELIGIBILITY PUR-
POSES.—Section 1361(c)(2)(B)(v) is amended by adding 
at the end the following new sentence: ‘‘This clause shall 
not apply for purposes of subsection (b)(1)(C).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on January 1, 2015. 
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 
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SEC. 7. ALLOWANCE OF DEDUCTION FOR CHARITABLE 
CONTRIBUTIONS FOR ELECTING SMALL BUSI-
NESS TRUSTS. 
(a) IN GENERAL.—Section 641(c)(2)(C) is amended 
by adding at the end the following new sentence: ‘‘The 
deduction for charitable contributions allowed under 
clause (i) shall be determined without regard to section 
642(c), and the limitations imposed by section 170(b)(1) 
on the amount of the deduction shall be applied to the 
electing small business trust as if it were an individual.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 8. PERMANENT RULE REGARDING BASIS ADJUST-
MENT TO STOCK OF S CORPORATIONS MAK-
ING CHARITABLE CONTRIBUTIONS OF PROP-
ERTY. 
(a) IN GENERAL.—Section 1367(a)(2) is amended by 
striking the last sentence. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in taxable 
years beginning after December 31, 2014. 
Æ 
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