S Corporation Modernization Act of 2026
The source supplies the latest action, but no lifecycle stage.
Latest action (22 Jul 2026): Referred to the House Committee on Ways and Means.
What this bill does
H.R. 9840, the S Corporation Modernization Act of 2026, would update several federal tax rules governing S corporations. It would let a shareholder who inherits S corporation stock deduct, over 15 years, an amount tied to the built-in gain in the corporation's assets that results from the stepped-up basis at death, with special rules for how that deduction is calculated, accelerated, or reversed if the underlying property or stock is later sold. It would also raise the threshold for passive investment income that can trigger tax or termination of S corporation status, from 25 percent to 60 percent of gross receipts, and repeal the rule that automatically ends S corporation status when passive income is excessive. Finally, it would allow nonresident aliens to be S corporation shareholders, with new rules for taxing and withholding on their share of U.S. business income and stock sale gains.
The changes would primarily affect S corporations and their shareholders, including estates, heirs, and family members who inherit or receive S corporation stock, businesses with significant passive income such as rents or dividends, and foreign individuals seeking to invest in U.S. S corporations. The IRS would also be affected, as it would need to issue new withholding and reporting guidance.
The bill was introduced in the House on July 22, 2026, by Rep. Mike Carey and referred to the Committee on Ways and Means. It has not yet been considered by the committee or voted on, and would need to pass the House and Senate and be signed by the President before becoming law.
Plain-English summary generated by Bill100 AI from the official record. Always verify against the source below.
Timeline
22 Jul 2026
Referred to the House Committee on Ways and Means.
Common questions
- What does H.R. 9840 do?
- H.R. 9840, the S Corporation Modernization Act of 2026, would update several federal tax rules governing S corporations. It would let a shareholder who inherits S corporation stock deduct, over 15 years, an amount tied to the built-in gain in the corporation's assets that results from the stepped-up basis at death, with special rules for how that deduction is calculated, accelerated, or reversed if the underlying property or stock is later sold. It would also raise the threshold for passive investment income that can trigger tax or termination of S corporation status, from 25 percent to 60 percent of gross receipts, and repeal the rule that automatically ends S corporation status when passive income is excessive. Finally, it would allow nonresident aliens to be S corporation shareholders, with new rules for taxing and withholding on their share of U.S. business income and stock sale gains. The changes would primarily affect S corporations and their shareholders, including estates, heirs, and family members who inherit or receive S corporation stock, businesses with significant passive income such as rents or dividends, and foreign individuals seeking to invest in U.S. S corporations. The IRS would also be affected, as it would need to issue new withholding and reporting guidance. The bill was introduced in the House on July 22, 2026, by Rep. Mike Carey and referred to the Committee on Ways and Means. It has not yet been considered by the committee or voted on, and would need to pass the House and Senate and be signed by the President before becoming law.
- Has H.R. 9840 become law?
- The source does not supply a confirmed lifecycle stage for H.R. 9840. Check the latest action and official source below.
- Who sponsored H.R. 9840?
- H.R. 9840 was sponsored by Rep. Carey, Mike [R-OH-15] (R-OH), with 0 cosponsors.
- What's the latest action on H.R. 9840?
- Referred to the House Committee on Ways and Means. (22 Jul 2026).
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More bills from Rep. Carey, Mike [R-OH-15]
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