Read twice and referred to the Committee on Finance.
The S Corporation Modernization Act of 2025 makes several revisions to the Internal Revenue Code affecting S corporations. It adds a new section (sec. 1369) that allows an amortized deduction for an "S corporation built-in gain amount" when S corporation stock receives a step-up in basis at a shareholder’s death and provides rules for acceleration, recapture as ordinary income on later dispositions, elections, and reporting.
Progressives emphasize fiscal cost and potential tax avoidance (concern over revenue loss, repeal of 409A, IRAs/nonresident access); conservatives emphasize deregulatory and pro-small-business benefits.
Relative to its intended legislative type (substantive tax/code change), this bill is highly detailed in statutory drafting and integration with existing law, specifying formulas, definitions, reporting, withholding duties, and effective dates.
The S Corporation Modernization Act of 2025 makes several revisions to the Internal Revenue Code affecting S corporations.
It adds a new section (sec. 1369) that allows an amortized deduction for an "S corporation built-in gain amount" when S corporation stock receives a step-up in basis at a shareholder’s death and provides rules for acceleration, recapture as ordinary income on later dispositions, elections, and reporting.
The bill raises the passive investment income threshold from 25% to 60% and removes excessive passive income as an S-election termination event, changes related definitions, and applies those changes to taxable years beginning after 2024.
Judged solely on content and typical legislative patterns, the bill contains numerous pro-business tax changes that would reduce revenue and require detailed drafting and scoring. Its breadth and fiscal impact make it unlikely to pass quickly on its own without offsets or incorporation into a larger negotiated tax package. Some individual provisions (technical clarifications or narrow deregulatory fixes) might be easier to adopt, but the overall package is ambitious and complex, lowering its standalone odds of enactment.
Relative to its intended legislative type (substantive tax/code change), this bill is highly detailed in statutory drafting and integration with existing law, specifying formulas, definitions, reporting, withholding duties, and effective dates. It includes numerous conforming amendments and anticipates many transactional edge cases. Weaknesses in craftsmanship are a lack of an explicit problem statement and absence of any fiscal/resource acknowledgement; several implementation details are deferred to Treasury rulemaking.
Progressives emphasize fiscal cost and potential tax avoidance (concern over revenue loss, repeal of 409A, IRAs/nonresident access); conservatives emphasize deregulatory and pro-small-business benefits.
These are examples from the analysis, not a ranked list of the most-affected groups.
Progressives emphasize fiscal cost and potential tax avoidance (concern over revenue loss, repeal of 409A, IRAs/nonresident access); conservatives emphasize deregulatory and pro-small-business benefits.
A mainstream liberal/left-leaning observer would view this bill skeptically.
They would note some administrative clarifications and potential benefits for small, family-owned businesses but would be concerned the package opens new avenues for tax deferral and planning that could favor high-income owners and reduce tax revenue (for example, allowing IRAs and nonresident aliens as S shareholders and repealing section 409A).
The change to built-in gain treatment at death may provide unintended tax benefits to wealthy estates unless tightly limited.
A pragmatic centrist would see a mix of modernization and risk.
They would appreciate efforts to clarify technical tax issues (built-in gains at death, counting employees as one shareholder, allowing IRAs) and to reduce certain compliance burdens, and view raising the passive income threshold as helpful to many small businesses.
However, they would be cautious about fiscal impacts, cross-border/treaty complications from permitting nonresident alien shareholders, and the broader repeal of 409A without fully specified replacements.
A mainstream conservative would generally view this bill favorably as pro-business tax modernization and simplification.
Key provisions—raising the passive investment income threshold to 60%, allowing IRAs and nonresident aliens as S shareholders, treating employees collectively as one shareholder, and repealing section 409A—reduce regulatory burdens, expand investor access, and increase flexibility for small and closely held businesses.
They would appreciate the effort to fix perceived technical inequities at death and to loosen strict technical traps that force businesses into less-favorable tax treatment.
Reached or meaningfully advanced
Reached or meaningfully advanced
Still ahead
Still ahead
Still ahead
Judged solely on content and typical legislative patterns, the bill contains numerous pro-business tax changes that would reduce revenue and require detailed drafting and scoring. Its breadth and fiscal impact make it unlikely to pass quickly on its own without offsets or incorporation into a larger negotiated tax package. Some individual provisions (technical clarifications or narrow deregulatory fixes) might be easier to adopt, but the overall package is ambitious and complex, lowering its standalone odds of enactment.
The bill has not accumulated any surfaced votes yet.
Progressives emphasize fiscal cost and potential tax avoidance (concern over revenue loss, repeal of 409A, IRAs/nonresident access); conser…
Judged solely on content and typical legislative patterns, the bill contains numerous pro-business tax changes that would reduce revenue an…
Relative to its intended legislative type (substantive tax/code change), this bill is highly detailed in statutory drafting and integration with existing law, specifying formulas, definitions, reporting, withholding dut…
Go beyond the headline summary with full stakeholder mapping, legislative design analysis, passage barriers, and lens-by-lens tradeoff breakdowns.