S Corporation Modernization Act of 2026

The S Corporation Modernization Act of 2026 introduces several changes to U.S. tax law to update rules for S corporations. It allows shareholders who inherit S corporation stock to deduct built-in gains over 15 years, while also adjusting how gains are treated if specific assets are sold. The bill expands the maximum number of allowed shareholders from 100 to 250 and permits individual retirement accounts to own S corporation stock. Additionally, it raises the passive investment income limit from 25 percent to 60 percent and creates a new withholding tax system for nonresident alien shareholders. The legislation also repeals the tax on nonqualified deferred compensation plans and allows employees of a firm to be counted as a single shareholder for eligibility purposes.