[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 948 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 948

To amend the Internal Revenue Code of 1986 to provide special rules for 
certain gratuitous transfers of employer securities for the benefit of 
                               employees.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                May 13 (legislative day, April 19), 1993

  Mr. Daschle 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 provide special rules for 
certain gratuitous transfers of employer securities for the benefit of 
                               employees.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.

    (a) In General.--Subparagraph (C) of section 664(d)(1) of the 
Internal Revenue Code of 1986 and subparagraph (C) of section 664(d)(2) 
of such Code are each amended by striking the period at the end thereof 
and inserting ``or, to the extent the remainder interest is in 
qualified employer securities (as defined in paragraph (3)(C)), is to 
be transferred to an employee stock ownership plan (as defined in 
section 4975(e)(7)) in a qualified gratuitous transfer (as defined in 
paragraph (3)).''.
    (b) Qualified Gratuitous Transfer Defined.--Subsection (d) of 
section 664 of such Code is amended by redesignating paragraph (3) as 
paragraph (4) and by inserting after paragraph (2) the following new 
paragraph:
            ``(3) Qualified gratuitous transfer of qualified employer 
        securities.--
                    ``(A) In general.--For purposes of this section, 
                the term `qualified gratuitous transfer' means a 
                transfer of qualified employer securities to an 
                employee stock ownership plan (as defined in section 
                4975(e)(7)) but only to the extent that--
                            ``(i) the securities transferred previously 
                        passed from a decedent to a trust described in 
                        paragraph (1) or (2);
                            ``(ii) no deduction under section 404 is 
                        allowable with respect to such transfer;
                            ``(iii) such plan provides that the 
                        securities so transferred are allocated to plan 
                        participants in a manner consistent with 
                        section 401(a)(4);
                            ``(iv) such plan treats such securities as 
                        being attributable to employer contributions 
                        but without regard to the limitations otherwise 
                        applicable to such contributions under section 
                        404;
                            ``(v) such plan provides that such 
                        securities are held in a suspense account under 
                        the plan to be allocated each year, up to the 
                        limitations under section 415(c), after first 
                        allocating all other annual additions for the 
                        limitation year, up to the limitations under 
                        sections 415(c) and (e);
                            ``(vi) such plan provides that no portion 
                        of the assets of the plan attributable to 
                        securities acquired by the plan in such 
                        transfer may at any time accrue for the benefit 
                        of any person who is related to the decedent 
                        (within the meaning of section 267(b)) or any 
                        person who owns (after application of section 
                        318(a)) more than 5 percent of--
                                    ``(I) any class of outstanding 
                                stock of the corporation which issued 
                                such qualified employer securities or 
                                of any corporation which is a member of 
                                the same controlled group of 
                                corporations (within the meaning of 
                                section 409(l)(4)) as such corporation, 
                                or
                                    ``(II) the total value of any class 
                                of outstanding stock of any such 
                                corporation; and
                            ``(vii) the employer whose employees are 
                        covered by the plan described in this 
                        subparagraph files with the Secretary a 
                        verified written statement consenting to the 
                        application of sections 4978 and 4979A with 
                        respect to such employer.
                For purposes of clause (vi), section 318(a) shall be 
                applied without regard to the exception in paragraph 
                (2)(B)(i) thereof.
                    ``(B) 5-percent shareholders.--A person shall be 
                treated as failing to meet the more than 5 percent 
                ownership limitation of subparagraph (A)(vi) if such 
                person fails such limitation--
                            ``(i) at any time during the 1-year period 
                        ending on the date of the acquisition of 
                        qualified employer securities by the plan, or
                            ``(ii) on any date as of which qualified 
                        employer securities are allocated to 
                        participants in the plan.
                    ``(C) Qualified employer securities.--For purposes 
                of this section, the term `qualified employer 
                securities' means employer securities (as defined in 
                section 409(l)) which are issued by a domestic 
                corporation which has no outstanding stock which is 
                readily tradable on an established securities market.
                    ``(D) Failure to meet requirements.--If a plan 
                fails to meet the requirements of subparagraph 
                (A)(vi)--
                            ``(i) the plan shall be treated as having 
                        distributed to the person described in 
                        subparagraph (A)(vi) the amount allocated to 
                        the account of such person in violation of 
                        subparagraph (A)(vi) at the time of such 
                        allocation,
                            ``(ii) the provisions of section 4979A 
                        shall apply, and
                            ``(iii) the statutory period for the 
                        assessment of any tax imposed by section 4979A 
                        shall not expire before the date which is 3 
                        years from the later of--
                                    ``(I) the 1st allocation of 
                                employer securities in connection with 
                                a qualified gratuitous transfer to 
                                which this section applies, or
                                    ``(II) the date on which the 
                                Secretary is notified of such 
                                failure.''.
    (c) Conforming Amendments.--
            (1) Section 415(e) of such Code is amended--
                    (A) by redesignating paragraph (6) as paragraph 
                (7), and
                    (B) by inserting after paragraph (5) the following 
                new paragraph:
            ``(6) Special rule for qualified gratuitous transfers.--Any 
        qualified gratuitous transfer of qualified employer securities 
        (as defined in section 664(d)(3)) shall not be taken into 
        account in calculating, and shall not be subject to, the 
        limitations provided in this subsection.''.
            (2) Section 415(c)(6) of such Code is amended by adding at 
        the end thereof the following new sentence:
        ``The amount of any qualified gratuitous transfer (as defined 
        in section 664(d)(3)(A)) allocated to a participant for any 
        limitation year shall not exceed the limitations imposed by 
        this section, but such amount shall not be taken into account 
        in determining whether any other amount exceeds the limitations 
        imposed by this section.''.
            (3) Section 4979A(b) of such Code is amended by striking 
        ``and'' at the end of paragraph (1), by redesignating paragraph 
        (2) as paragraph (3), and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) any allocation of qualified employer securities 
        acquired by an employee stock ownership plan pursuant to a 
        qualified gratuitous transfer, as described in section 
        664(d)(3), which fails to meet the requirements of section 
        664(d)(3)(A)(vi), and''.
            (4) Section 664(d) of such Code, as amended by subsection 
        (b), is amended by adding at the end thereof the following new 
        paragraph:
            ``(5) Notwithstanding subsections (d)(1)(B) and (d)(2)(B), 
        a qualified gratuitous transfer of qualified employer 
        securities to an employee stock ownership plan shall be 
        permitted.''.
            (5) Section 2055(a) of such Code is amended--
                    (A) by striking ``or'' at the end of paragraph (3),
                    (B) by striking the period at the end of paragraph 
                (4) and inserting ``; or'', and
                    (C) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) to an employee stock ownership plan if such transfer 
        qualifies as a qualified gratuitous transfer of qualified 
        employer securities within the meaning of section 664(d)(3).''.
            (6) Section 4947(b) of such Code is amended by adding at 
        the end the following new paragraph:
            ``(4) Section 507.--The provisions of section 507(a) shall 
        not apply to a trust which is described in subsection (a)(2) by 
        reason of a distribution of qualified employer securities (as 
        defined in section 664(d)(3)(C)) to an employee stock ownership 
        plan (as defined in section 4975(e)(7)) in a qualified 
        gratuitous transfer (as defined in section 664(d)(3)).''.
            (7) Section 404(a)(9) of such Code is amended by adding at 
        the end the following new subparagraph:
                    ``(C) A qualified gratuitous transfer (as defined 
                in section 664(d)(3)(A)) shall have no effect on the 
                amount or amounts otherwise deductible under paragraph 
                (3) or (7) or under this paragraph.''.
            (8) Paragraph (3) of section 644(e) of such Code is amended 
        to read as follows:
            ``(3) acquired by a charitable remainder annuity trust (as 
        defined in section 664(d)(1)) or a charitable remainder 
        unitrust (as defined in sections 664(d)(2) and (4)), or''.
            (9) Paragraph (4) of section 674(b) of such Code is amended 
        to read as follows:
            ``(4) Power to allocate among charitable beneficiaries.--A 
        power to determine the beneficial enjoyment of the corpus or 
        the income therefrom if the corpus or income is irrevocably 
        payable for a purpose specified in section 170(c) (relating to 
        definition of charitable contributions) or to an employee stock 
        ownership plan (as defined in section 4975(e)(7)) in a 
        qualified gratuitous transfer (as defined in section 
        664(d)(3)).''.
            (10) Paragraph (8) of section 2056(b) of such Code is 
        amended to read as follows:
            ``(8) Special rule for charitable remainder trusts.--
                    ``(A) In general.--If the surviving spouse of the 
                decedent is the only noncharitable or nonqualified ESOP 
                beneficiary of a qualified charitable remainder trust, 
                paragraph (1) shall not apply to any interest in such 
                trust which passes or has passed from the decedent to 
                such surviving spouse.
                    ``(B) Definitions.--For purposes of subparagraph 
                (A)--
                            ``(i) Noncharitable beneficiary.--The term 
                        `noncharitable beneficiary' means any 
                        beneficiary of the qualified charitable 
                        remainder trust other than an organization 
                        described in section 170(c).
                            ``(ii) Nonqualified esop beneficiary.--The 
                        term `nonqualified ESOP beneficiary' means any 
                        beneficiary of the qualified charitable 
                        remainder trust other than an employee stock 
                        ownership plan (as defined in section 
                        4975(e)(7)) that holds a remainder interest in 
                        qualified employer securities (as defined in 
                        section 664(d)(3)(C)) to be transferred to such 
                        plan in a qualified gratuitous transfer (as 
                        defined in section 664(d)(3)).
                            ``(iii) Qualified charitable remainder 
                        trust.--The term `qualified charitable 
                        remainder trust' means a charitable remainder 
                        annuity trust or a charitable remainder 
                        unitrust (described in section 664).''.
            (11) Paragraph (7) of section 4975(e) of such Code is 
        amended to read as follows:
            ``(7) Employee stock ownership plan.--The term `employee 
        stock ownership plan' means a defined contribution plan--
                    ``(A) which is a stock bonus plan which is 
                qualified, or a stock bonus and a money purchase plan 
                both of which are qualified under section 401(a) and 
                which are designed to invest primarily in qualifying 
                employer securities; and
                    ``(B) which is otherwise defined in regulations 
                prescribed by the Secretary.
        A plan shall not be treated as an employee stock ownership plan 
        unless it meets the requirements of section 409(h), section 
        409(o), and, if applicable, section 409(n) and section 
        664(d)(3), and, if the employer has a registration-type class 
        of securities (as defined in section 409(e)(4)), it meets the 
        requirements of section 409(e).''.
            (12) Subsection (a) of section 4978 of such Code is amended 
        to read as follows:
    ``(a) Tax on Dispositions of Securities to Which Section 664(d)(3) 
or Section 1042 Applies Before Close of Minimum Holding Period.--If, 
during the 3-year period after the date on which the employee stock 
ownership plan or eligible worker-owned cooperative acquired any 
qualified securities in a sale to which section 1042 applied or in a 
qualified gratuitous transfer to which section 664(d)(3) applied, such 
plan or cooperative disposes of any qualified securities and--
            ``(1) the total number of shares held by such plan or 
        cooperative after such disposition is less than the total 
        number of employer securities held immediately after such sale 
        or such qualified gratuitous transfer, or
            ``(2) except to the extent provided in regulations, the 
        value of qualified securities held by such plan or cooperative 
        after such disposition is less than 30 percent of the total 
        value of all employer securities as of such disposition,
there is hereby imposed a tax on the disposition equal to the amount 
determined under subsection (b).''.
            (13) Paragraph (2) of section 4978(b) of such Code is 
        amended to read as follows:
            ``(2) Limitation.--The amount realized taken into account 
        under paragraph (1) shall not exceed that portion allocable to 
        qualified securities acquired in the sale to which section 1042 
        applied or in the qualified gratuitous transfer to which 
        section 664(d)(3) applied determined as if such securities were 
        disposed of--
                    ``(A) first, from section 133 securities (as 
                defined in section 4978B(e)(2)) acquired during the 3-
                year period ending on the date of such disposition, 
                beginning with the securities first so acquired,
                    ``(B) second, from section 133 securities (as so 
                defined) acquired before such 3-year period unless such 
                securities (or proceeds from the disposition) have been 
                allocated to accounts of participants or beneficiaries,
                    ``(C) third, from qualified securities to which 
                section 1042 applied or to which section 664(d)(3) 
                applied during the 3-year period ending on the date of 
                such disposition, beginning with the securities first 
                so acquired, and
                    ``(D) then, from any other employer securities.
        If subsection (d) or section 4978B(d) applies to a disposition, 
        the disposition shall be treated as made from employer 
        securities in the opposite order of the preceding sentence.''.
            (14) Subsection (c) of section 4978 of such Code is amended 
        to read as follows:
    ``(c) Liability for Payment of Taxes.--The tax imposed by this 
section shall be paid by--
            ``(1) the employer, or
            ``(2) the eligible worker-owned cooperative,
that made the written statement described in section 664(d)(3) or in 
section 1042(b)(3).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers made by trusts to, or for the use of, an employee 
stock ownership plan after the date of the enactment of this Act.

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