[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3803 Introduced in Senate (IS)]

111th CONGRESS
  2d Session
                                S. 3803

 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 SENATE OF THE UNITED STATES

                           September 20, 2010

Mr. Roberts (for himself and Mrs. Lincoln) (by request) 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 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 2010''.

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) 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) 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
            (6) 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. DEPARTMENT OF THE TREASURY 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 the 
Treasury 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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