[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3586 Introduced in House (IH)]
111th CONGRESS
1st Session
H. R. 3586
To amend the Internal Revenue Code of 1986 to expand the availability
of employee stock ownership plans in S corporations, and for other
purposes.
_______________________________________________________________________
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.
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 ``S Corporation ESOP Promotion and
Expansion Act of 2009''.
SEC. 2. FINDINGS.
Congress finds that--
(1) 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);
(2) 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;
(3) 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;
(4) 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;
(5) recent studies have shown that employees of ESOP-owned
S corporations enjoy greater job stability than employees of
comparable companies;
(6) 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
(7) it is the goal of Congress to both preserve and foster
employee ownership of S corporations through ESOPs.
SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EMPLOYER STOCK TO EMPLOYEE
STOCK OWNERSHIP PLAN SPONSORED BY S CORPORATION.
(a) 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''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to sales after the date of the enactment of this Act.
SEC. 4. DEDUCTION FOR INTEREST ON LOAN TO FINANCE PURCHASE OF EMPLOYER
SECURITIES BY AN EMPLOYEE STOCK OWNERSHIP PLAN SPONSORED
BY AN S CORPORATION.
(a) 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:
``SEC. 200. INTEREST ON CERTAIN LOANS FOR THE PURCHASE OF EMPLOYER
SECURITIES BY AN EMPLOYEE STOCK OWNERSHIP PLAN SPONSORED
BY AN S CORPORATION.
``(a) 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.
``(b) Securities Acquisition Loan.--
``(1) In general.--For purposes of this section, the term
`securities acquisition loan' means--
``(A) 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
``(B) 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.
For purposes of this paragraph, the term `employer securities'
has the meaning given such term by section 409(l).
``(2) 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.
``(3) 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)).
``(4) Plan must hold more than 50 percent of stock after
acquisition or transfer.--
``(A) 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.
``(B) Failure to retain minimum stock interest.--
``(i) 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).
``(ii) 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).
``(C) 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).
``(c) 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).''.
(b) 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.''.
(c) 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.
SEC. 5. ASSUMPTION OF ESTATE TAX LIABILITY WITH RESPECT TO CERTAIN
TRANSFERS OF EMPLOYER SECURITIES TO AN EMPLOYEE STOCK
OWNERSHIP PLAN SPONSORED BY AN S CORPORATION.
(a) 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:
``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.
``(a) In General.--If--
``(1) employer securities--
``(A) are transferred by gift by the decedent to an
employee stock ownership plan sponsored by an S
corporation,
``(B) 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
``(C) are transferred by gift by the executor of
the estate of the decedent to such a plan, and
``(2) 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,
then the executor of the estate of the decedent is relieved of
liability for payment of that portion of the tax imposed by section
2001 which such employee stock ownership plan is required to pay under
subsection (b).
``(b) Payment of Tax by Employee Stock Ownership Plan.--
``(1) In general.--An employee stock ownership plan--
``(A)(i) to which employer securities have been
transferred by gift by the decedent,
``(ii) 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
``(iii) to which such securities have been
transferred by gift by the executor of the estate of
the decedent, and
``(B) with respect to which an agreement described
in subsection (e)(1) is in effect,
shall pay that portion of the tax imposed by section 2001 with
respect to the taxable estate of the decedent which is
described in paragraph (2).
``(2) 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--
``(A) the value of the employer securities
described in subsection (a)(1) which is included in the
gross estate of the decedent, or
``(B) the tax imposed by section 2001 with respect
to such taxable estate reduced by the sum of the
credits allowable against such tax.
``(c) Installment Payments.--
``(1) In general.--If--
``(A) 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
``(B) the plan administrator provides to the
executor the agreement described in subsection (e)(1),
then the plan administrator may elect, before the due date
(including extensions) for filing the return of such tax, to
pay all or part of the tax described in subsection (b)(2) in
installments under the provisions of section 6166.
``(2) Interest on installments.--In determining the 2-
percent portion for purposes of section 6601(j)--
``(A) the portion of the tax imposed by section
2001 with respect to an estate for which the executor
is liable, and
``(B) the portion of such tax for which an employee
stock ownership plan is liable, shall be aggregated.
``(3) 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--
``(A) Transfer does not trigger acceleration.--Such
transfer shall not be treated as a disposition or
withdrawal to which section 6166(g) applies.
``(B) 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.
``(C) 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)--
``(i) such distribution shall not be
treated as a disposition or withdrawal for
purposes of section 6166(g), and
``(ii) such securities shall not be taken
into account in applying section 6166(g) to any
subsequent disposition or withdrawal.
``(D) Disposition to meet diversification
requirements.--Any disposition of such securities which
is made to meet the requirements of section
401(a)(28)--
``(i) shall not treated as a disposition or
withdrawal for purposes of section 6166(g), and
``(ii) such securities shall not be taken
into account in applying section 6166(g) to any
subsequent disposition or withdrawal.
``(d) Guarantee of Payments.--Any employer--
``(1) whose employees are covered by an employee stock
ownership plan, and
``(2) who has entered into an agreement described in
subsection (e)(2) which is in effect,
shall guarantee (in such manner as the Secretary may prescribe) the
payment of any amount such plan is required to pay under subsection
(b).
``(e) Agreements.--The agreements described in this subsection are
as follows:
``(1) A written agreement signed by the plan administrator
consenting to the application of subsection (b) to such plan.
``(2) 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).
``(f) 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).
``(g) Definitions.--For purposes of this section--
``(1) Employer securities.--The term `employer securities'
has the meaning given such term by section 409(l).
``(2) Employee stock ownership plan.--The term `employee
stock ownership plan' has the meaning given such term by
section 4975(e)(7).
``(3) Plan administrator.--The term `plan administrator'
has the meaning given such term by section 414(g).
``(4) 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.''.
(b) 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.''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers of employer securities after the date of the
enactment of this Act.
SEC. 6. ESTATE TAX DEDUCTION FOR CERTAIN SALES OF EMPLOYER SECURITIES
TO AN EMPLOYEE STOCK OWNERSHIP PLAN SPONSORED BY AN S
CORPORATION.
(a) 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:
``SEC. 2057A. SALES OF EMPLOYER SECURITIES TO AN EMPLOYEE STOCK
OWNERSHIP PLAN SPONSORED BY AN S CORPORATION.
``(a) 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.
``(b) Qualified Employer Securities.--
``(1) In general.--The term `qualified employer securities'
means employer securities--
``(A) which are includible in the gross estate of
the decedent,
``(B) 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
``(C) with respect to which the executor elects the
application of this section in the manner prescribed by
the Secretary.
``(2) 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.
``(c) Other Definitions.--For purposes of this section--
``(1) Employer securities.--The term `employer securities'
has the meaning given such term by section 409(1).
``(2) Employee stock ownership plan.--The term `employee
stock ownership plan' means a plan described in section
4975(e)(7).''.
(b) 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.''.
(c) Effective Date.--The amendments made by this section shall
apply to sales of employer securities after the date of the enactment
of this Act.
SEC. 7. DEPARTMENT OF LABOR TECHNICAL ASSISTANCE OFFICE.
(a) 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.
(b) Duties of the Office.--The S Corporation Employee Ownership
Assistance Office shall provide--
(1) education and outreach to inform people about the
possibilities and benefits of employee ownership of S
corporations; and
(2) technical assistance to assist S corporations to
sponsor employee stock ownership plans.
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