[Congressional Record Volume 163, Number 194 (Wednesday, November 29, 2017)]
[Senate]
[Pages S7487-S7489]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SA 1660. Mr. THUNE submitted an amendment intended to be proposed by
him to the bill H.R. 1, to provide for reconciliation pursuant to
titles II and V of the concurrent resolution on the budget for fiscal
year 2018; which was ordered to lie on the table; as follows:
At the end of subpart D of part VI of subtitle C of title
I, add the following:
SEC. 13543. MODIFICATIONS TO S CORPORATION PASSIVE INVESTMENT
INCOME RULES.
(a) Increased Percentage Limit.--Section 1375(a)(2) is
amended by striking ``25 percent'' and inserting ``60
percent''.
(b) Repeal of Excessive Passive Income as a Termination
Event.--Section 1362(d) is amended by striking paragraph (3).
(c) Conforming Amendments.--
(1) Section 1375(b) is amended by striking paragraphs (3)
and (4) and inserting the following new paragraph:
``(3) Passive investment income defined.--
``(A) In general.--Except as otherwise provided in this
paragraph, the term `passive investment income' means gross
receipts derived from royalties, rents, dividends, interest,
and annuities.
``(B) Exception for interest on notes from sales of
inventory.--The term `passive investment income' shall not
include interest on any obligation acquired in the ordinary
course of the corporation's trade or business from its sale
of property described in section 1221(a)(1).
``(C) Treatment of certain lending or finance companies.--
If the S corporation meets the requirements of section
542(c)(6) for the taxable year, the term `passive investment
income' shall not include gross receipts for the taxable year
which are derived directly from the active and regular
conduct of a lending or finance business (as defined in
section 542(d)(1)).
``(D) Treatment of certain dividends.--If an S corporation
holds stock in a C corporation meeting the requirements of
section 1504(a)(2), the term `passive investment income'
shall not include dividends from such C corporation to the
extent such dividends are attributable to the earnings and
profits of such C corporation derived from the active conduct
of a trade or business.
``(E) Exception for banks, etc.--In the case of a bank (as
defined in section 581) or
[[Page S7488]]
a depository institution holding company (as defined in
section 3(w)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1813(w)(1))), the term `passive investment income'
shall not include--
``(i) interest income earned by such bank or company, or
``(ii) dividends on assets required to be held by such bank
or company, including stock in the Federal Reserve Bank, the
Federal Home Loan Bank, or the Federal Agricultural Mortgage
Bank or participation certificates issued by a Federal
Intermediate Credit Bank.
``(F) Gross receipts from the sales of certain assets.--For
purposes of this paragraph--
``(i) Capital assets other than stock and securities.--In
the case of dispositions of capital assets (other than stock
and securities), gross receipts from such dispositions shall
be taken into account only to the extent of capital gain net
income therefrom.
``(ii) Stock and securities.--In the case of sales or
exchanges of stock or securities, gross receipts shall be
taken into account only to the extent of the gain therefrom.
``(G) Coordination with section 1374.--The amount of
passive investment income shall be determined by not taking
into account any recognized built-in gain or loss of the S
corporation for any taxable year in the recognition period.
Terms used in the preceding sentence shall have the same
respective meanings as when used in section 1374.''.
(2)(A) Section 26(b)(2)(J) is amended by striking ``25
percent'' and inserting ``60 percent''.
(B) Section 1375(b)(1)(A)(i) is amended by striking ``25
percent'' and inserting ``60 percent''.
(C) The heading for section 1375 is amended by striking
``25 percent'' and inserting ``60 percent''.
(D) The item relating to section 1375 in the table of
sections for part III of subchapter S of chapter 1 is amended
by striking ``25 percent'' and inserting ``60 percent''.
(3) Section 1042(c)(4)(A)(i) is amended by striking
``section 1362(d)(3)(C)'' and inserting ``section
1375(b)(3)''.
(4) Section 1362(f)(1)(B) is amended by striking
``paragraph (2) or (3) of subsection (d)'' and inserting
``subsection (d)(2)''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2017.
SEC. 13544. EXPANSION OF S CORPORATION ELIGIBLE SHAREHOLDERS
TO INCLUDE IRAS.
(a) In General.--Section 1361(c)(2)(A)(vi) is amended to
read as follows:
``(vi) A trust which constitutes an individual retirement
account under section 408(a), including one designated as a
Roth IRA under section 408A.''.
(b) Sale of Stock in IRA Relating to S Corporation Election
Exempt From Prohibited Transaction Rules.--Section
4975(d)(16) is amended--
(1) by striking subparagraphs (A) and (B) and by
redesignating subparagraphs (C), (D), (E), and (F) as
subparagraphs (A), (B), (C), and (D), respectively, and
(2) by striking ``such bank or company'' in subparagraph
(A) (as so redesignated) and inserting ``the issuer of such
stock''.
(c) Effective Date.--The amendments made by this section
shall take effect on January 1, 2018.
SEC. 13545. AMORTIZATION OF S CORPORATION BUILT-IN GAIN
AMOUNT UPON DEATH OF SHAREHOLDER.
(a) In General.--Part II of subchapter S of chapter 1 is
amended by adding at the end the following:
``SEC. 1369. AMORTIZATION OF BUILT-IN GAIN AMOUNT UPON DEATH
OF SHAREHOLDER.
``(a) In General.--A person holding stock in an electing S
corporation the basis of which is determined under section
1014(a) (hereafter in this section referred to as the
`shareholder') shall be allowed a deduction with respect to
the S corporation built-in gain amount. The amount of such
deduction for any taxable year shall be determined by
amortizing the S corporation built-in gain amount over the
15-year period beginning with the month which includes the
applicable valuation date.
``(b) S Corporation Built-In Gain Amount.--For purposes of
this section, the term `S corporation built-in gain amount'
means the lesser of--
``(1) the excess (if any) of--
``(A) the basis of the stock referred to in subsection (a)
as determined under section 1014(a), over
``(B) the adjusted basis of such stock immediately before
the death of the decedent, or
``(2) the pro rata share (determined as of the applicable
valuation date) of--
``(A) the aggregate fair market value of all property held
by the S corporation which is of a character subject to
depreciation or amortization, over
``(B) the aggregate adjusted basis of all such property
held by the S corporation as of such date.
``(c) Electing S Corporation.--For purposes of this
section, the term `electing S corporation' means, with
respect to any shareholder, any S corporation which elects
the application of this section with respect to such
shareholder at such time and in such form and manner as the
Secretary may prescribe.
``(d) Applicable Valuation Date.--For purposes of this
section, the term `applicable valuation date' means--
``(1) in the case of a decedent with respect to which the
executor of the decedent's estate elects the application of
section 2032, the date 6 months after the decedent's death,
and
``(2) in the case of any other decedent, the date of the
decedent's death.
``(e) Accelerated Deduction in Case of Disposition of S
Corporation Property.--
``(1) In general.--If the electing S corporation disposes
of any property which was taken into account under subsection
(b)(2), then the deduction allowed under subsection (a) with
respect to any stock, for the taxable year of the shareholder
in which or with which the taxable year of the S corporation
which includes the date of such disposition ends, shall
(except as otherwise provided in this section) not be less
than the lesser of--
``(A) the pro rata share of the gain recognized on such
disposition, or
``(B) the amount determined under subsection (b)(2) by only
taking into account such property.
``(2) Overall allowance not increased.--No deduction shall
be allowed under subsection (a) with respect to any stock for
any taxable year to the extent that such deduction (when
added to the deductions so allowed for all prior taxable
years) exceeds the S corporation built-in gain amount with
respect to such stock.
``(f) Recharacterization of Gains as Ordinary Income to
Extent of Deduction.--If--
``(1) stock of an S corporation with respect to which a
deduction was allowed under this section, or
``(2) property which was taken into account under
subsection (b)(2) with respect to such stock,
is disposed of at a gain (determined without regard to
whether or not such gain is recognized and reduced by any
amount of gain which is treated as ordinary income under any
other provision of this subtitle), the amount of such gain
(or the shareholder's pro rata share of such gain in the case
of property described in paragraph (2)) shall be treated as
gain which is ordinary income (and shall be recognized
notwithstanding any other provision of this subtitle) to the
extent of the excess of the aggregate deductions allowable
under this section with respect to such stock for the taxable
year of such disposition and all prior taxable years over the
amounts taken into account under this subsection for all
prior taxable years.
``(g) Termination of Amortization.--No deduction shall be
allowed under subsection (a) with respect to any stock in an
electing S corporation with respect to any period beginning
after the earlier of--
``(1) the date on which the corporation's election under
section 1362 terminates, or
``(2) the date on which the shareholder transfers such
stock to any other person.
``(h) Treatment of Certain Transfers.--
``(1) Distributions from estates or trusts.--
Notwithstanding any other provision of this section, in the
case of a distribution of stock from an estate or trust to a
beneficiary, the beneficiary (and not the estate or trust)
shall be treated as the shareholder to which this section
applies with respect to periods after such distribution.
``(2) Certain transfers involving spouses.--Notwithstanding
any other provision of this section, in the case of a
transfer described in section 1041, the transferee (and not
the transferor) shall be treated as the shareholder to which
this section applies with respect to periods after such
transfer.
``(i) Treatment of Income in Respect of the Decedent.--
``(1) Adjustment to built-in gain of property held by s
corporation.--For purposes of subsection (b)(2), the fair
market value of any property taken into account under
subparagraph (A) thereof shall be decreased by any amount of
income in respect of the decedent with respect to such
property to which section 691 applies. For purposes of
subsection (e)(1)(A), the gain recognized on the disposition
of such property shall be reduced by such amount.
``(2) Adjustment to basis of s corporation stock.--For
adjustment to basis of S corporation stock, see section
1367(b)(4)(B).
``(j) Reporting.--Except as otherwise provided by the
Secretary, for purposes of section 6037, the amounts
determined under subsections (b)(2), (e)(1), and (f)(2) shall
be treated as items of the corporation and the pro rata share
determined under such subsection shall be furnished to the
shareholder under section 6037(b).''.
(b) Adjustment to Basis of Stock.--
(1) In general.--Section 1367(a)(2) is amended by striking
``and'' at the end of subparagraph (D), by striking the
period at the end of subparagraph (E) and inserting ``,
and'', and by inserting after subparagraph (E) the following
new subparagraph:
``(F) the amount of the shareholder's deduction under
section 1369.''.
(2) Adjustment not taken into account in determining
treatment of distributions.--Section 1368 is amended--
(A) in subsection (d)(1), by inserting ``(other than
subsection (a)(2)(F) thereof)'' after ``section 1367'', and
(B) in subsection (e)(1)(A)--
(i) by striking ``this title and the phrase'' and inserting
``this title, the phrase'', and
(ii) by inserting ``, and no adjustment shall be made under
section 1367(a)(2)(F)'' after ``section 1367(a)(2)''.
(c) Clerical Amendment.--The table of sections for part II
of subchapter S of chapter 1 is amended by adding at the end
the following new item:
[[Page S7489]]
``Sec. 1369. Amortization of built-in gain amount upon death of
shareholder.''.
(d) Effective Date.--The amendments made by this section
shall apply to with respect to decedents dying after the date
of the enactment of this Act, in taxable years ending after
such date.
SEC. 13546. EXTENSION OF TIME FOR MAKING S CORPORATION
ELECTIONS.
(a) In General.--Subsection (b) of section 1362 is amended
to read as follows:
``(b) When Made.--
``(1) In general.--An election under subsection (a) may be
made by a small business corporation for any taxable year not
later than the due date for filing the return of the S
corporation for such taxable year (including extensions).
``(2) Certain elections treated as made for next taxable
year.--If--
``(A) an election under subsection (a) is made for any
taxable year within the period described in paragraph (1),
but
``(B) either--
``(i) on 1 or more days in such taxable year and before the
day on which the election was made the corporation did not
meet the requirements of subsection (b) of section 1361, or
``(ii) 1 or more of the persons who held stock in the
corporation during such taxable year and before the election
was made did not consent to the election,
then such election shall be treated as made for the following
taxable year.
``(3) Authority to treat late elections, etc., as timely.--
If--
``(A) an election under subsection (a) is made for any
taxable year after the date prescribed by this subsection for
making such election for such taxable year or no such
election is made for any taxable year, and
``(B) the Secretary determines that there was reasonable
cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for
such taxable year.
``(4) Election on timely filed returns.--Except as
otherwise provided by the Secretary, an election under
subsection (a) for any taxable year may be made on a timely
filed return of the S corporation for such taxable year.
``(5) Secretarial authority.--The Secretary may prescribe
such regulations, rules, or other guidance as may be
necessary or appropriate for purposes of applying this
subsection.''.
(b) Coordination With Certain Other Provisions.--
(1) Qualified subchapter s subsidiaries.--Section
1361(b)(3)(B) is amended by adding at the end the following
flush sentence:
``Rules similar to the rules of section 1362(b) shall apply
with respect to any election under clause (ii).''.
(2) Qualified subchapter s trusts.--Section 1361(d)(2) is
amended by striking subparagraph (D).
(c) Revocations.--Paragraph (1) of section 1362(d) is
amended--
(1) by striking ``subparagraph (D)'' in subparagraph (C)
and inserting ``subparagraphs (D) and (E)'', and
(2) by adding at the end the following new subparagraph:
``(E) Authority to treat late revocations as timely.--If--
``(i) a revocation under subparagraph (A) is made for any
taxable year after the date prescribed by this paragraph for
making such revocation for such taxable year or no such
revocation is made for any taxable year, and
``(ii) the Secretary determines that there was reasonable
cause for the failure to timely make such revocation,
the Secretary may treat such a revocation as timely made for
such taxable year.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply
to elections for taxable years beginning after December 31,
2017.
(2) Revocations.--The amendments made by subsection (c)
shall apply to revocations after December 31, 2017.
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