S Corporation Reform Act of 2005 - Amends the Internal Revenue Code to revise the tax treatment of S corporations, including by: (1) reducing from 10 to 7 years the the period during which S corporation built-in gains are subject to tax; (2) allowing S corporations to issue preferred stock and convertible debt instruments; (3) repealing restrictions on S corporation passive income deemed excessive; (4) allowing S corporations to increase passive investment income from 25% to 60% without incurring additional tax; (5) providing a rule for the adjustment of the basis of S corporation stock for certain charitable contributions; (6) allowing nonresident aliens and individual retirement accounts to hold stock in S corporations; and (7) revising rules for the waiver of inadvertent invalid elections or terminations of S corporation status.
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