Recent Press Releases


U.S. Sens. John Thune (R-S.D.) and Ben Cardin (D-Md.), members of the tax-writing Senate Finance Committee, today reintroduced the S Corporation Modernization Act (S. 2156), legislation that would make several pro-growth reforms to help S corporations operate more easily, which would improve their ability to raise capital.

“While I believe we’ve made a great deal of progress toward strengthening the tax code for families and businesses, I think there is always more that Congress can and should do to help further modernize it, the boundaries of which are constantly being tested by innovation and entrepreneurship,” said Thune. “S corporations are located in nearly every single city and town across America, particularly in those throughout rural America, which is why it’s important for our tax code to keep up with these businesses and the communities in which they operate.”   

“S Corporations, which employ more than 600,000 Maryland workers, are critical to the well-being of the Maryland economy and support thousands of middle class families,” said Cardin. “I’m pleased to work with Senator Thune on this bipartisan legislation that will spur investment in S Corporations so they can better attract capital, innovate, invest in their communities and create jobs.”

S corporations were created in 1958, must be domestically owned, and are limited to 100 shareholders. This type of business has grown in popularity, particularly among small businesses, because of its simplicity and flexibility. S corporations are the most common form of business structure in America, with more than 4 million in existence today. Despite their popularity, relatively few reforms have been made to S corporations since their creation, which is why the Thune-Cardin bill would help modernize this part of the tax code.

Sen. Pat Roberts (R-Kan.) is an original cosponsor of S Corporation Modernization Act.

Highlights of the S Corporation Modernization Act:

  • Modifications to Passive Income Rules

o   The tax code includes an additional tax on S corporations that have previously converted from C corporations if more than 25 percent of the S corporation’s income is passive in nature (such as rents, royalties, and interest). The provision implements a 2001 recommendation by the Joint Committee on Taxation (JCT) that this threshold be increased to 60 percent and that the rules be altered so that an S corporation paying this tax does not lose its S corporation status.

  • S Corporation IRA Shareholders

o   This provision permits any S corporation bank to have IRA shareholders. Current law limits IRA ownership of S corporation banks to only those S corporation banks with stock held by an IRA as of October 22, 2004. As under current law, the IRA would be required to pay Unrelated Business Income Tax on its share of S corporation income. A significant percentage of banks are currently organized as S corporations.

  • Basis Parity for S Corporation Assets

o   This provision would provide a basis adjustment for S corporation assets, but do so in a way that would not require tracking the basis of individual assets, which would be complex and time consuming. Instead, upon the death of a shareholder, the S corporation would get a 15-year amortization deduction attributable to the percentage of S corporation assets owned by the deceased owner.