[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2298 Introduced in Senate (IS)]
108th CONGRESS
2d Session
S. 2298
To amend the Internal Revenue Code of 1986 to improve the operation of
employee stock ownership plans, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 7, 2004
Mr. Breaux introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to improve the operation of
employee stock ownership plans, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Employee Stock Ownership Plan
Promotion and Improvement Act of 2004''.
SEC. 2. DISTRIBUTIONS BY AN S CORPORATION TO AN EMPLOYEE STOCK
OWNERSHIP PLAN.
(a) In General.--Section 1368 of the Internal Revenue Code of 1986
(relating to distributions) is amended by adding at the end the
following new subsection:
``(f) Distributions by an S Corporation to an Employee Stock
Ownership Plan.--Any distribution described in subsection (a) to an
employee stock ownership plan (as defined in section 4975(e)(7)) shall
be treated as a dividend under section 404(k)(2)(A).''.
(b) Technical Amendment.--Section 404(a)(9)(C) of the Internal
Revenue Code of 1986 (relating to S corporations) is amended to read as
follows:
``(C) S corporations.--The deduction provided in
this paragraph shall not apply to an S corporation.''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions received after December 31, 1998.
(d) Waiver of Limitations.--If refund or credit of any overpayment
of tax resulting from the application of the amendments made by this
section is prevented at any time before the close of the 1-year period
beginning on the date of the enactment of this Act by the operation of
any law or rule of law (including res judicata), such refund or credit
may nevertheless be made or allowed if claim therefor is filed before
the close of such period.
SEC. 3. ESOP DIVIDEND EXCEPTION TO ADJUSTMENTS BASED ON ADJUSTED
CURRENT EARNINGS.
(a) In General.--Section 56(g)(4)(C) of the Internal Revenue Code
of 1986 (relating to disallowance of items not deductible in computing
earnings and profits) is amended by adding at the end the following new
clause:
``(v) Treatment of esop dividends.--Clause
(i) shall not apply to any deduction allowable
under section 404(k) if the deduction is
allowed for dividends paid on employer
securities held by an employee stock ownership
plan established or authorized to be
established before March 15, 1991.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1989.
(c) Waiver of limitations.--If refund or credit of any overpayment
of tax resulting from the application of the amendment made by this
section is prevented at any time before the close of the 1-year period
beginning on the date of the enactment of this Act by the operation of
any law or rule of law (including res judicata), such refund or credit
may nevertheless be made or allowed if claim therefor is filed before
the close of such period.
SEC. 4. AMENDMENTS RELATED TO SECTION 1042.
(a) Deferral of Tax for Certain Sales to Employee Stock Ownership
Plan Sponsored by S Corporation.--
(1) In general.--Section 1042(c)(1)(A) of the Internal
Revenue Code of 1986 (defining qualified securities) is amended
by striking ``C''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to sales after the date of the enactment of this
Act.
(b) Reinvestment in Certain Mutual Funds Permitted.--
(1) In general.--Clause (ii) of section 1042(c)(4)(B) of
the Internal Revenue Code of 1986 (defining operating
corporation) is amended to read as follows:
``(ii) Financial institutions, insurance
companies, and mutual funds.--The term
`operating corporation' shall include--
``(I) any financial institution
described in section 581,
``(II) any insurance company
subject to tax under subchapter L, and
``(III) any regulated investment
company if substantially all of the
securities held by such company are
securities issued by operating
corporations (determined without regard
to this subclause).''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to sales of qualified
securities after the date of the enactment of this Act.
(c) Modification to 25-Percent Shareholder Rule.--
(1) In general.--Subparagraph (B) of section 409(n)(1) of
the Internal Revenue Code of 1986 (relating to securities
received in certain transactions) is amended to read as
follows:
``(B) for the benefit of any other person who owns
(after the application of section 318(a)) more than 25
percent of--
``(i) the total combined voting power of
all classes of stock of the corporation which
issued such employer securities or of any
corporation which is a member of the same
controlled group of corporations (within the
meaning of subsection (l)(4)) as such
corporation, or
``(ii) the total value of all classes of
stock of any such corporation.''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect on the date of the enactment of this Act.
SEC. 5. EARLY DISTRIBUTIONS FROM EMPLOYEE STOCK OWNERSHIP PLANS FOR
HIGHER EDUCATION EXPENSES AND FIRST-TIME HOMEBUYER
PURCHASES.
(a) In General.--Paragraph (2) of section 72(t) of the Internal
Revenue Code of 1986 (relating to 10-percent additional tax on early
distributions from qualified retirement plans) is amended by adding at
the end the following new subparagraph:
``(G) Distributions from employee stock ownership
plans for higher education expenses and first-time
homebuyer purchases.--
``(i) In general.--Distributions made to
the employee from an employee stock ownership
plan (within the meaning of section
4975(e)(7)), the amount of which does not
exceed the sum of--
``(I) qualified higher education
expenses (as defined by paragraph (7))
reduced by the amount of such expenses
taken into account under subparagraph
(E), and
``(II) qualified first-time
homebuyer distributions (as defined by
paragraph (8)) reduced by the amount of
such distributions taken into account
under subparagraph (F).
``(ii) Limitation.--A distribution may only
be taken into account under clause (i) if--
``(I) such distribution is in the
form of either employer securities
(within the meaning of section 409(l))
or cash proceeds resulting from the
sale of such securities made not more
than 180 days before the date of such
distribution for the purposes of such
distribution,
``(II) such securities so
distributed or sold were held by such
plan for at least 5 years before the
date of such distribution or, if
applicable, sale, and
``(III) the number of shares in
each class of such securities so
distributed or sold, when added to all
previous distributions and sales of
each such class of such securities for
such purposes on behalf of such
employee, does not exceed 10 percent of
the aggregate number of shares of each
class of such securities allocated to
the account of such employee under such
plan.
``(iii) Valuation of distributed
securities.--For purposes of clause (ii), the
value of a security shall be the value of such
security on the date of distribution.''.
(b) Conforming Amendments.--
(1) Paragraph (7) of section 72(t) of such Code is amended
by striking ``paragraph (2)(E)'' and inserting ``subparagraphs
(E) and (G) of paragraph (2)''.
(2) Paragraph (8) of section 72(t) of such Code is amended
by striking ``paragraph (2)(F)'' and inserting ``subparagraphs
(F) and (G) of paragraph (2)''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions made after the date of the enactment of this
Act.
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