[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1962 Introduced in House (IH)]

  1st Session
                                H. R. 1962

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 HOUSE OF REPRESENTATIVES

                             June 29, 1995

   Mr. Sam Johnson of Texas introduced the following bill; which was 
              referred to the Committee on Ways and Means

_______________________________________________________________________

                                 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 by 
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); and
                            ``(vi) 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.
                    ``(B) 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.
                    ``(C) Treatment of securities allocated by employee 
                stock ownership plan to persons related to decedent or 
                5-percent shareholders.--
                            ``(i) In general.--If any portion of the 
                        assets of the plan attributable to securities 
                        acquired by the plan in a qualified gratuitous 
                        transfer are allocated to the account of--
                                    ``(I) any person who is related to 
                                the decedent (within the meaning of 
                                section 267(b)), or
                                    ``(II) any person who, at the time 
                                of such allocation or at any time 
                                during the 1-year period ending on the 
                                date of the acquisition of qualified 
                                employer securities by the plan, is a 
                                5-percent shareholder of the employer 
                                maintaining the plan,
                        the plan shall be treated as having distributed 
                        (at the time of such allocation) to such person 
                        or shareholder the amount so allocated.
                            ``(ii) 5-percent shareholder.--For purposes 
                        of clause (i), the term `5-percent shareholder' 
                        means any person who owns (directly or through 
                        the 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
                        For purposes of the preceding sentence, section 
                        318(a) shall be applied without regard to the 
                        exception in paragraph (2)(B)(i) thereof.
                            ``(iii) Cross reference.--

                                ``For excise tax on allocations 
described in clause (i), see section 4979A.''
    (c) Conforming Amendments.--
            (1) Section 401(a)(1) of such Code is amended by inserting 
        ``or by a charitable remainder trust pursuant to a qualified 
        gratuitous transfer (as defined in section 664(d)(3)(A)),'' 
        after ``stock bonus plans),''.
            (2) Section 404(a)(9) of such Code is amended by inserting 
        after subparagraph (B) 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.''
            (3) 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.''
            (4) 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 by section 664(d)(3)) shall not be taken into 
        account in calculating, and shall not be subject to, the 
        limitations provided in this subsection.''
            (5) 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''.
            (6) Subparagraph (B) of section 664(d)(1) of such Code and 
        subparagraph (B) of section 664(d)(2) of such Code are each 
        amended by inserting ``and other than qualified gratuitous 
        transfers described in subparagraph (C)'' after ``subparagraph 
        (A)''.
            (7) Paragraph (4) of section 674(b) of such Code is amended 
        by inserting before the period ``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))''.
            (8)(A) Section 2055(a) of such Code is amended--
                    (i) by striking ``or'' at the end of paragraph (3),
                    (ii) by striking the period at the end of paragraph 
                (4) and inserting ``; or'', and
                    (iii) 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).''
            (B) Clause (ii) of section 2055(e)(3)(C) of such Code is 
        amended by striking ``section 664(d)(3)'' and inserting 
        ``section 664(d)(4)''.
            (9) 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 beneficiary of a qualified 
                charitable remainder trust who is not a charitable 
                beneficiary nor an ESOP beneficiary, 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) Charitable beneficiary.--The term 
                        `charitable beneficiary' means any beneficiary 
                        which is an organization described in section 
                        170(c).
                            ``(ii) Esop beneficiary.--The term `ESOP 
                        beneficiary' means any beneficiary which is 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)) 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).''
            (10) Section 4947(b) of such Code is amended by inserting 
        after paragraph (3) 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)) to an employee stock ownership 
        plan (as defined in section 4975(e)(7)) in a qualified 
        gratuitous transfer (as defined by section 664(d)(3)).''
            (11) The last sentence of section 4975(e)(7) of such Code 
        is amended by inserting ``and section 664(d)(3)'' after 
        ``section 409(n)''
            (12) Subsection (a) of section 4978 of such Code is amended 
        by inserting ``or acquired any qualified employer securities in 
        a qualified gratuitous transfer to which section 664(d)(3) 
        applied'' after ``section 1042 applied''.
            (13) Paragraph (2) of section 4978(b) of such Code is 
        amended--
                    (A) by inserting ``or acquired in the qualified 
                gratuitous transfer to which section 664(d)(3) 
                applied'' after ``section 1042 applied'', and
                    (B) by inserting ``or to which section 664(d)(3) 
                applied'' after ``section 1042 applied'' in 
                subparagraph (C) thereof.
            (14) Subsection (c) of section 4978 of such Code is amended 
        by striking ``written statement'' and all that follows and 
        inserting ``written statement described in section 
        664(d)(3)(A)(vi) or in section 1042(b)(3) (as the case may 
        be).''
            (15) Paragraph (2) of section 4978(e) of such Code is 
        amended by striking the period and inserting ``; except that 
        such section shall be applied without regard to subparagraph 
        (B) thereof for purposes of applying this section and section 
        4979A with respect to securities acquired in a qualified 
        gratuitous transfer (as defined in section 664(d)(3)(A)).''
            (16) Subsection (a) of section 4979A of such Code is 
        amended to read as follows:
    ``(a) Imposition of Tax.--If--
            ``(1) there is a prohibited allocation of qualified 
        securities by any employee stock ownership plan or eligible 
        worker-owned cooperative, or
            ``(2) there is an allocation described in section 
        663(d)(3)(C)(i),
there is hereby imposed a tax on such allocation equal to 50 percent of 
the amount involved.''
            (17) Subsection (c) of section 4979A of such Code is 
        amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid by--
            ``(1) the employer sponsoring such plan, or
            ``(2) the eligible worker-owned cooperative,
which made the written statement described in section 664(d)(3)(A)(vi) 
or in section 1042(b)(3)(B) (as the case may be).''
            (18) Section 4979A of such Code is amended by redesignating 
        subsection (d) as subsection (e) and by inserting after 
        subsection (c) the following new subsection:
    ``(d) Special Statute of Limitations for Tax Attributable to 
Certain Allocations.--The statutory period for the assessment of any 
tax imposed by this section on an allocation described in subsection 
(a)(2) of qualified employer securities shall not expire before the 
date which is 3 years from the later of--
            ``(1) the 1st allocation of such securities in connection 
        with a qualified gratuitous transfer (as defined in section 
        664(d)(3)(A)), or
            ``(2) the date on which the Secretary is notified of the 
        allocation described in subsection (a)(2).''
    (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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