This week, Rep. Brad Wenstrup (R-OH) introduced the S-Corporation Modernization Act of 2024 (H.R. 8614). The legislation, which has been introduced in previous Congresses, seeks to make improvements to the S-Corporation tax model which over 5 million small businesses across the country currently utilize. In short, the bill authorizes reforms to help S corporations operate more easily, which would improve their ability to raise capital.

One of its key provisions modifies the passive income rules. The tax code currently imposes an additional tax on S corporations that previously converted from being a C corporation (typically utilized by larger companies) if more than 25 percent of the S corporation’s income is passive in nature (such as rents, royalties, dividends, interest and annuities). This provision would implement a 2001 recommendation by the Joint Committee on Taxation (JCT) that this threshold be increased to 60 percent and that the rules be changed so that an S corporation paying this tax does not lose its S corporation status.

Another provision addresses S corporation individual retirement account (IRA) shareholders. Specifically, language in the bill would permit individuals to own shares in an S corporation through an IRA. Current law allows for IRA ownership of S corporation stock, but only if the S corporation is a bank and the stock was held by the IRA as of October 22, 2004. As under current law, the IRA would be required to pay Unrelated Business Income Tax on its share of the S corporation’s income. A significant percentage of banks are currently organized as S corporations.

There are a number of other provisions in the legislation, text for which is not yet available as it was just introduced on Wednesday. Rep. Wenstrup sits on the House Ways & Means Committee, which is the panel with sole jurisdiction over tax policy in the lower chamber. We expect this bill to be in the mix next year when tax policy deliberations intensify in advance of the tax policy “cliff” that looms at the end of 2025.

Federal Forest Management

Last week, Senators Cynthia Lummis (R-WY), John Barrasso (R-WY), John Thune (R-SD) and Mike Rounds (R-SD) sent a letter to U.S. Forest Service Chief Randy Moore criticizing the Service for reductions in the federal timber sale program.

The Senators point out that, without a dependable supply of logs, sawmills in proximity to national forests are closing across the country. The letter correctly notes that there is more standing timber on the Black Hills National Forest than there was in the 1970s and 80s and that reduction in forest management only results in wildfire outbreaks and disease and insect infestation in overstocked stands. The letter closes with the following questions to Chief Moore with a June 28 deadline for the Service to respond:

• What is the Forest Service doing to increase timber harvest levels on the Black Hills National Forest?
• What are the main drivers of the timber target shortfalls since 2018?
• What resources does the agency need to increase timber harvest levels on the Black Hills National Forest? If the agency needs additional funding, please provide a specific amount and breakdown of how it will be used to increase timber harvest levels above 63,000 CCF.
• How many years will it take for the agency to ramp up to harvest levels to meet the collaboratively identified 120,000 CCF target?
• Will the agency commit to preventing further economic harm to the forest products industry by providing a consistent supply of timber?