I
111th CONGRESS
1st Session
H. R. 3586
IN THE HOUSE OF REPRESENTATIVES
September 16, 2009
Mr. Kind (for himself and Mr. Blumenauer) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and Labor, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to expand the availability of employee stock ownership plans in S corporations, and for other purposes.
Short title
This Act may be cited as the
S Corporation ESOP Promotion and
Expansion Act of 2009
.
Findings
Congress finds that—
since January 1,
1998, employees have been permitted to be owners of subchapter S corporations
through an employee stock ownership plan (hereafter in this section referred to
as an ESOP
) pursuant to Small Business Job Protection Act of
1996 (Public Law 104–188);
with the passage of the Taxpayer Relief Act of 1997 (Public Law 105–34), Congress designed incentives to encourage businesses to become ESOP-owned S corporations;
since that time, several thousand companies have become ESOP-owned S corporations, creating an ownership interest for several million Americans in companies in every State in the country, in industries ranging from heavy manufacturing to technology development to services;
while estimates show that 40 percent of working Americans have no formal retirement account at all, every United States worker who is an employee-owner of an S corporation company through an ESOP has a valuable qualified retirement savings account;
recent studies have shown that employees of ESOP-owned S corporations enjoy greater job stability than employees of comparable companies;
studies also show that employee-owners of S corporation ESOP companies have amassed meaningful retirement savings through their S ESOP accounts that will give them the means to retire with dignity; and
it is the goal of Congress to both preserve and foster employee ownership of S corporations through ESOPs.
Deferral of tax for certain sales of employer stock to employee stock ownership plan sponsored by S corporation
In general
Subparagraph (A) of section 1042(c)(1) of the Internal
Revenue Code of 1986 (defining qualified securities) is amended by striking
domestic C corporation
and inserting domestic
corporation
.
Effective date
The amendment made by subsection (a) shall apply to sales after the date of the enactment of this Act.
Deduction for interest on loan to finance purchase of employer securities by an employee stock ownership plan sponsored by an S corporation
In general
Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 199 the following new section:
Interest on certain loans for the purchase of employer securities by an employee stock ownership plan sponsored by an S corporation
In general
There shall be allowed as a deduction an amount equal to 50 percent of the interest received during the taxable year by a bank (within the meaning of section 581) with respect to a securities acquisition loan.
Securities acquisition loan
In general
For purposes of this section, the term securities acquisition loan means—
any loan to an employee stock ownership plan sponsored by an S corporation to the extent that the proceeds are used to acquire employer securities for the plan, and
any loan to an S corporation that sponsors an employee stock ownership plan to the extent that the proceeds of such loan are loaned to the employee stock ownership plan to acquire employer securities for the plan.
Terms applicable to certain securities acquisition loans
For purposes of paragraph (1)(B), the term securities acquisition loan shall not include any loan to the S corporation unless the loan to the employee stock ownership plan has repayment terms which are substantially similar to the terms of the loan to the S corporation.
Treatment of refinancings
The term securities acquisition loan shall include any loan which is (or is part of a series of loans) used to refinance a loan described in paragraph (1) (after the application of paragraph (2)).
Plan must hold more than 50 percent of stock after acquisition or transfer
In general
A loan shall not be treated as a securities acquisition loan for purposes of this section unless, immediately after an acquisition of employer securities referred to in paragraph (1), the employee stock ownership plan owns more than 50 percent of the outstanding stock of the S corporation.
Failure to retain minimum stock interest
In general
Subsection (a) shall not apply to any interest received with respect to a securities acquisition loan which is allocable to any period during which the employee stock ownership plan does not own stock meeting the requirements of subparagraph (A).
Exception
To the extent provided by the Secretary, clause (i) shall not apply to any period if, within 90 days of the first date on which the failure occurred (or such longer period not in excess of 180 days as the Secretary may prescribe), the plan acquires stock which results in its meeting the requirements of subparagraph (A).
Stock
For purposes of subparagraph (A), the Secretary may provide that warrants, options, contracts to acquire stock, convertible debt interests and other similar interests be treated as stock for 1 or more purposes under subparagraph (A).
Employee stock ownership plan
For purposes of this section, the term employee stock ownership plan has the meaning given to such term by section 4975(e)(7).
.
Clerical amendment
The table of sections for part VI of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 199 the following new item:
Sec. 200. Interest on certain loans for the purchase of employer securities by an employee stock ownership plan sponsored by an S corporation.
.
Effective date
The amendments made by this section shall apply to interest accrued on loans made after the date of the enactment of this Act.
Assumption of estate tax liability with respect to certain transfers of employer securities to an employee stock ownership plan sponsored by an S corporation
In General
Subchapter C of chapter 11 of the Internal Revenue Code of 1986 is amended by inserting after section 2209 the following new section:
Liability for payment of estate tax liability in case of certain transfers of employer securities to an employee stock ownership plan sponsored by an S corporation
In general
If—
employer securities—
are transferred by gift by the decedent to an employee stock ownership plan sponsored by an S corporation,
are transferred to such a plan by reason of the decedent’s death under the decedent’s will or a trust created by the decedent, or
are transferred by gift by the executor of the estate of the decedent to such a plan, and
the executor of the estate of the decedent elects the application of this section and files the agreements described in subsection (e) before the due date (including extensions) for filing the return of tax imposed by section 2001,
Payment of tax by employee stock ownership plan
In general
An employee stock ownership plan—
to which employer securities have been transferred by gift by the decedent,
to which such securities have been transferred by reason of the decedent’s death under the decedent’s will or a trust created by the decedent, or
to which such securities have been transferred by gift by the executor of the estate of the decedent, and
with respect to which an agreement described in subsection (e)(1) is in effect,
Amount of tax to be paid
The portion of the tax imposed by section 2001 with respect to the taxable estate of the decedent described in this paragraph is equal to the lesser of—
the value of the employer securities described in subsection (a)(1) which is included in the gross estate of the decedent, or
the tax imposed by section 2001 with respect to such taxable estate reduced by the sum of the credits allowable against such tax.
Installment payments
In general
If—
the executor of the estate of the decedent (without regard to this section) elects to have the provisions of section 6166 (relating to extensions of time for payment of estate tax where the estate consists largely of interests in a closely held business) apply to payment of that portion of the tax imposed by section 2001 with respect to such estate which is attributable to employer securities, and
the plan administrator provides to the executor the agreement described in subsection (e)(1),
Interest on installments
In determining the 2-percent portion for purposes of section 6601(j)—
the portion of the tax imposed by section 2001 with respect to an estate for which the executor is liable, and
the portion of such tax for which an employee stock ownership plan is liable, shall be aggregated.
Special rules for application of section 6166(g)
In the case of any transfer of employer securities to an employee stock ownership plan to which this section applies—
Transfer does not trigger acceleration
Such transfer shall not be treated as a disposition or withdrawal to which section 6166(g) applies.
Separate Application to estate and plan interests
Section 6166(g) shall be applied separately to the interests held after such transfer by the estate and such plan.
Required distribution not taken into account
In the case of any distribution of such securities (or sale of such securities) by such plan which is described in section 4978(d)(1)—
such distribution shall not be treated as a disposition or withdrawal for purposes of section 6166(g), and
such securities shall not be taken into account in applying section 6166(g) to any subsequent disposition or withdrawal.
Disposition to meet diversification requirements
Any disposition of such securities which is made to meet the requirements of section 401(a)(28)—
shall not treated as a disposition or withdrawal for purposes of section 6166(g), and
such securities shall not be taken into account in applying section 6166(g) to any subsequent disposition or withdrawal.
Guarantee of payments
Any employer—
whose employees are covered by an employee stock ownership plan, and
who has entered into an agreement described in subsection (e)(2) which is in effect,
Agreements
The agreements described in this subsection are as follows:
A written agreement signed by the plan administrator consenting to the application of subsection (b) to such plan.
A written agreement signed by the employer whose employees are covered by the plan described in subsection (b) consenting to the application of subsection (d).
Exemption from tax on prohibited transactions
The assumption under this section by an employee stock ownership plan of any portion of the liability for the tax imposed by section 2001 shall be treated as a loan described in section 4975(d)(3).
Definitions
For purposes of this section—
Employer securities
The term employer securities has the meaning given such term by section 409(l).
Employee stock ownership plan
The term employee stock ownership plan has the meaning given such term by section 4975(e)(7).
Plan administrator
The term plan administrator has the meaning given such term by section 414(g).
Tax imposed by section 2001
The term tax imposed by section 2001 includes any interest, penalty, addition to tax, or additional amount relating to any tax imposed by section 2001.
.
Clerical Amendment
The table of sections for subchapter C of chapter 11 of such Code is amended by inserting after the item relating to section 2209 the following new item:
Sec. 2209A. Liability for payment of estate tax liability in case of certain transfers of employer securities to an employee stock ownership plan sponsored by an S corporation.
.
Effective Date
The amendments made by this section shall apply to transfers of employer securities after the date of the enactment of this Act.
Estate tax deduction for certain sales of employer securities to an employee stock ownership plan sponsored by an S corporation
In general
Part IV of subchapter A of chapter 11 of the Internal Revenue Code of 1986 is amended by inserting after section 2057 the following new section:
Sales of employer securities to an employee stock ownership plan sponsored by an S corporation
General rule
For purposes of the tax imposed by section 2001, in the case of a sale of any qualified employer securities to an employee stock ownership plan sponsored by an S corporation on or before the date on which the return of the tax imposed by section 2001 is required to be filed (determined by taking into account any extension of time for filing), the value of the taxable estate shall be determined by deducting from the value of the gross estate an amount equal to 50 percent of the proceeds of such sale.
Qualified employer securities
In general
The term qualified employer securities means employer securities—
which are includible in the gross estate of the decedent,
which would have been includible in the gross estate of the decedent if the decedent had died at any time during the 5-year period ending on the date of death, and
with respect to which the executor elects the application of this section in the manner prescribed by the Secretary.
Certain assets held by spouse
For purposes of paragraph (1)(B), any employer security which would have been includible in the gross estate of the spouse of a decedent during the period described in paragraph (1)(B) if the spouse had died during such period shall be treated as includible in the gross estate of the decedent during such period.
Other definitions
For purposes of this section—
Employer securities
The term employer securities has the meaning given such term by section 409(1).
Employee stock ownership plan
The term employee stock ownership plan means a plan described in section 4975(e)(7).
.
Clerical amendment
The table of sections for part IV of subchapter A of chapter 11 of such Code is amended by inserting after the item relating to section 2057 the following new item:
Sec. 2057A. Sales of employer securities to an employee stock ownership plan sponsored by an S corporation.
.
Effective date
The amendments made by this section shall apply to sales of employer securities after the date of the enactment of this Act.
Department of Labor technical assistance office
Establishment required
Before the end of the 90-day period beginning on the date of enactment of this Act, the Secretary of Labor shall establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations.
Duties of the office
The S Corporation Employee Ownership Assistance Office shall provide—
education and outreach to inform people about the possibilities and benefits of employee ownership of S corporations; and
technical assistance to assist S corporations to sponsor employee stock ownership plans.