Title: To amend the Internal Revenue Code of 1986 to allow all employees of a firm to be counted as a single shareholder toward the shareholder limit of an S corporation.
Policy area: Taxation

Summary:
This bill amends the Internal Revenue Code, with respect to the limit on the number of shareholders of an S corporation, to: (1) allow employees (and their estates) of the S corporation and any wholly owned business entities of the corporation to be treated as one shareholder if the corporation only has employee shareholders; (2) allow nonresident aliens to be shareholders if the nonresident alien is an employee, or the spouse of an employee, of such a corporation; and (3) establish tax withholding requirements for nonresident aliens who are permitted to be shareholders under this bill.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4166 Introduced in House (IH)]

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115th CONGRESS
  1st Session
                                H. R. 4166

To amend the Internal Revenue Code of 1986 to allow all employees of a 
firm to be counted as a single shareholder toward the shareholder limit 
                          of an S corporation.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 27, 2017

Mr. Smith of Nebraska 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 allow all employees of a 
firm to be counted as a single shareholder toward the shareholder limit 
                          of an S corporation.

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

SECTION 1. EMPLOYEES OF A FIRM COUNTED AS A SINGLE SHAREHOLDER TOWARD 
              SHAREHOLDER LIMIT OF S CORPORATION.

    (a) In General.--Subsection (c) of section 1361 of the Internal 
Revenue Code of 1986 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), in the case of a corporation which has only 
                employee shareholders, 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--
                            ``(i) In general.--The term ``employee'' 
                        means any individual (whether a resident alien, 
                        nonresident alien, or citizen) that would be an 
                        employee described under section 3121(d) (1) or 
                        (2).
                            ``(ii) Certain determinations with respect 
                        to spouse disregarded.--In making the 
                        determination whether a corporation has only 
                        employee shareholders, any current ownership in 
                        stock by a spouse of an employee by reason of a 
                        State community property law or other similar 
                        Federal, State, or foreign country law, shall 
                        be disregarded.''.
    (b) Exception to Nonresident Shareholder Prohibition.--Subparagraph 
(C) of section 1361(b)(1) of such Code 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 
of such Code 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 of such Code 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 the date of the enactment of 
this Act.
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