Good news for the S corporation community! Senators Blanche Lincoln (D-AR), Orrin Hatch (R-UT), Gordon Smith (R-OR) and Ben Cardin (D-MD) introduced the S Corporation Modernization Act of 2008, S. 3063, last evening.

The introduction of this legislation helps us move forward on our list of priority reforms, including critical relief from the built-in gains and passive investment rules while expanding the list of potential S corporation shareholders to allow for direct investment from foreign sources and retirement vehicles.

As S-Corp readers know, Senator Lincoln has been a long-time champion of our issues. In her statement introducing the bill, she made clear the importance of these reforms:

“Because Congress has not updated many of the rules governing S corporations - such as allowing better access to capita - I am concerned that these privately-held businesses are not in the best position to deal with the current downturn in the economy.  We must modify our outdated rules so that these businesses that are starved for capital have the means to expand and create jobs.”

In a press release sent out by the S Corporation Association, Chairman Richard Roderick praised Senators Lincoln and Hatch for introducing this legislation.

“While the S corporation community has grown, many of the rules governing their operations have remained the same. This legislation makes important and timely improvements to those rules, making it easier to our members to raise capital, plan their estates, and create jobs. Senators Lincoln and Hatch are to be congratulated for their long-term commitment to helping S corporations succeed.”

Finally, a broad coalition of trade associations and S-Corp allies sent the Senate sponsors a letter of support. Signed by the S Corporation Association, the National Federation of Independent Business, the Association of Manufacturing Technology, the Independent Community Bankers of America, the Printing Industries of America, the Associated General Contractors, the National Beer Wholesalers Association, the Plumbing-Heating-Cooling Contractors-National Association, the National Association of Manufacturers, the U.S. Chamber of Commerce, and the American Council of Engineering Companies, the letter states:

“Well into the 21st century, America’s most popular form of small-business corporation deserves rules adapted to the economy we live in today, not fifty years ago. The S Corporation Modernization Act would ensure the continued success of these businesses by increasing access to capital by reducing S corp ownership restrictions, modernizing the rules that apply to firms that have selected S corporation status, and encouraging philanthropy by S corps through small business trusts.”

The introduction of S. 3063 means we now have companion S corporation reform bills in both the House and the Senate with the sponsors sitting on the critical House Ways and Means and Senate Finance committees. With six months of legislative session to go and numerous must-pass tax issues to resolve, we are gearing up to ensure that the priorities of the S corporation community are represented in any tax bill headed to the President for his signature.