S Corporation Modernization Act Introduced

U.S. Reps. Dave Reichert (R-Wash.) and Ron Kind (D-Wisc.) recently introduced legislation that would amend the Internal Revenue Code to ease the tax burden on firms that convert from taxable corporate status to small-business status.

Known as the S Corp Modernization Act of 2015, H.R. 2788 makes permanent the shortening of the built-in gains tax-holding period for S corporations from 10 years to five years.

The measure also:

  • eliminates the mandatory termination of S corporation elections for excessive passive investment income;
  • increases the threshold for when an S Corp will be subject to tax on passive investments to 60 percent of gross receipts, up from 25 percent;  
  • allows individual retirement accounts (IRAs) to be S corporation shareholders;
  • makes it easier for businesses to deduct charitable contributions.

The measure has been referred to the House Committee on Ways and Means. 


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