Bill > HR2788

This bill, the S Corporation Modernization Act of 2015, aims to update tax rules for S corporations, which are businesses that pass income, losses, deductions, and credits through to their shareholders for federal tax purposes. Key provisions include permanently reducing the "recognition period" for built-in gains (profits from assets held before becoming an S corporation) from 10 to 5 years, meaning these gains will be taxed for a shorter duration. It also repeals the rule that automatically terminates an S corporation's tax status if it has too much passive investment income (income from investments rather than active business operations), and instead allows S corporations to have up to 60% of their income from passive sources, a significant increase from the previous 25% limit, without incurring additional taxes. Furthermore, the bill expands eligibility for beneficiaries of Electing Small Business Trusts (ESBTs), a type of trust that can hold S corporation stock, to include nonresident aliens, and allows Individual Retirement Accounts (IRAs) to be S corporation shareholders, with specific rules for sales of stock from IRAs. Finally, it permits ESBTs to claim expanded charitable tax deductions and makes permanent the rule that requires S corporations to adjust the basis of their stock when they make charitable contributions of property.