# 119-hr-9840: S Corporation Modernization Act of 2026

119-hr-9840, S Corporation Modernization Act of 2026, is a 119th Congress bill sponsored by Rep. Carey, Mike [R-OH-15] (R-OH); status introduced; PRIA reads it as touching household money (as of 2026-08-09).

- Canonical: https://policyrisk.com/legislation/119-hr-9840
- As of: 2026-08-09
- Plain-text twin of the page above; the HTML and this file carry the same facts.

## Facts
- Bill: 119-hr-9840
- Congress: 119
- Title: S Corporation Modernization Act of 2026
- Status: introduced
- Introduced: 2026-07-22
- Sponsor: Rep. Carey, Mike [R-OH-15] (R-OH)
- Cosponsors: 0
- Policy area: Taxation
- Touches household money: yes
- Last recorded action: 2026-08-09

## Summary

**This bill modernizes S corporation tax rules** by changing how built‑in gains at a shareholder's death are handled, raising the passive income cap, and letting nonresident aliens be S shareholders.

## Provisions PRIA read

- Tax relief for inherited S shares: benefit, high. This bill would let estates, trusts, and other transferees of S-corp stock claim a new deduction for built-in gain that arises when the stock gets a step-up in basis at death. The amortizable portion would be written off over 15 years starting in the month of the valuation date. Special rules would…
- More people can be S shareholders: benefit, medium. The bill would raise the S-corporation shareholder cap from 100 to 250 starting for tax years after December 31, 2026. It would also treat all employees (and their estates) of a firm and its wholly owned units as one shareholder for tax years after December 31, 2025. In addition, individual retirem…
- Higher passive income limit for S corporations: benefit, medium. The bill would raise the passive-investment-income threshold used for S corporations from 25 percent to 60 percent of gross receipts for tax years starting after December 31, 2025. It would also narrow what counts as passive income, exclude some bank and lending items and certain dividends, and sto…
- Changes to deferred compensation tax rules: mixed, medium. If enacted, the bill would repeal section 409A and replace it with revised rules in section 457A that define nonqualified deferred compensation plans, set plan-aggregation and earnings rules, and add a 12-month exception for payments within 12 months after the end of the service recipient's tax yea…
- Withholding rules for nonresident shareholders: mixed, medium. The bill would treat gains on S-corp stock sales by nonresident individuals as U.S.-connected income to the extent of a pro rata deemed U.S. gain. S corporations with nonresident shareholders would have to withhold an amount equal to the top individual tax rate times the nonresident shareholders' s…

## Related bills

- 119-hr-3151: SHIPS for America Act of 2025
- 119-hr-4669: FEMA Act of 2025
- 119-hr-137: TCJA Permanency Act
- 119-hr-2725: Affordable Housing Credit Improvement Act of 2025
- 119-hr-7352: PASTEUR Act of 2026
- 119-hr-1163: Prove It Act

## Sources
- [119-hr-9840 on Congress.gov](https://www.congress.gov/bill/119th-congress/house-bill/9840)

## Related
- [119-hr-3151: SHIPS for America Act of 2025](https://policyrisk.com/legislation/119-hr-3151)
- [119-hr-4669: FEMA Act of 2025](https://policyrisk.com/legislation/119-hr-4669)
- [119-hr-137: TCJA Permanency Act](https://policyrisk.com/legislation/119-hr-137)
- [119-hr-2725: Affordable Housing Credit Improvement Act of 2025](https://policyrisk.com/legislation/119-hr-2725)
- [119-hr-7352: PASTEUR Act of 2026](https://policyrisk.com/legislation/119-hr-7352)
- [119-hr-1163: Prove It Act](https://policyrisk.com/legislation/119-hr-1163)
- [All bills in Congress](https://policyrisk.com/legislation)

Source: PRIA, https://policyrisk.com/legislation/119-hr-9840 (as of 2026-08-09).