; reference (a) Short Title This Act may be cited as the S Corporation Modernization Act of 2019 . (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. 2. 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