S Corporation Modernization Act of 2026
Latest action (22 Jul 2026): Introduced
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.
Official summary
This bill is in the first stage of the legislative process. It was introduced into Congress on July 22, 2026. It will typically be considered by committee next before it is possibly sent on to the House or Senate as a whole.
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?
- Not yet. As of 22 Jul 2026, H.R. 9840 is introduced.
- Who sponsored H.R. 9840?
- H.R. 9840 was sponsored by Rep. Mike Carey [R-OH15] (Republican-OH), with 0 cosponsors.
- What's the latest action on H.R. 9840?
- Introduced (22 Jul 2026).
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