[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 101 Introduced in Senate (IS)]
112th CONGRESS
1st Session
S. 101
To amend the Internal Revenue Code of 1986 to improve the operation of
employee stock ownership plans, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
January 25 (legislative day, January 5), 2011
Mr. Ensign 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 improve the operation of
employee stock ownership plans, 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 ``Employee Stock Ownership Plan
Promotion and Improvement Act of 2011''.
SEC. 2. 10 PERCENT PENALTY TAX NOT TO APPLY TO CERTAIN S CORPORATION
DISTRIBUTIONS MADE ON STOCK HELD BY EMPLOYEE STOCK
OWNERSHIP PLAN.
(a) In General.--Clause (vi) of section 72(t)(2)(A) of the Internal
Revenue Code of 1986 is amended by inserting before the comma at the
end the following: ``or any distribution (as described in section
1368(a)) with respect to S corporation stock that constitutes
qualifying employer securities (as defined by section 409(l)) to the
extent that such distributions are paid to a participant in the manner
described in clause (i) or (ii) of section 404(k)(2)(A)''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions made after the date of the enactment of this Act.
SEC. 3. ESOP DIVIDEND EXCEPTION TO ADJUSTMENTS BASED ON ADJUSTED
CURRENT EARNINGS.
(a) In General.--Section 56(g)(4)(C) of the Internal Revenue Code
of 1986 is amended by adding at the end the following new clause:
``(vii) Treatment of esop dividends.--
Clause (i) shall not apply to any deduction
allowable under section 404(k) if the deduction
is allowed for dividends paid on employer
securities held by an employee stock ownership
plan established or authorized to be
established before March 15, 1991.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1989.
(c) Waiver of Limitations.--If refund or credit of any overpayment
of tax resulting from the application of the amendment made by this
section is prevented at any time before the close of the 1-year period
beginning on the date of the enactment of this Act by the operation of
any law or rule of law (including res judicata), such refund or credit
may nevertheless be made or allowed if claim therefor is filed before
the close of such period.
SEC. 4. AMENDMENTS RELATED TO SECTION 1042.
(a) Deferral of Tax for Certain Sales to Employee Stock Ownership
Plan Sponsored by S Corporation.--
(1) In general.--Section 1042(c)(1)(A) of the Internal
Revenue Code of 1986 is amended by striking ``C''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to sales after the date of the enactment of this
Act.
(b) Reinvestment in Certain Mutual Funds Permitted.--
(1) In general.--Clause (ii) of section 1042(c)(4)(B) of
the Internal Revenue Code of 1986 is amended to read as
follows:
``(ii) Financial institutions, insurance
companies, and mutual funds.--The term
`operating corporation' shall include--
``(I) any financial institution
described in section 581,
``(II) any insurance company
subject to tax under subchapter L, and
``(III) any regulated investment
company if substantially all of the
securities held by such company are
securities issued by operating
corporations (determined without regard
to this subclause).''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to sales of qualified securities after the date of
the enactment of this Act.
(c) Modification to 25-Percent Shareholder Rule.--
(1) In general.--Subparagraph (B) of section 409(n)(1) of
the Internal Revenue Code of 1986 is amended to read as
follows:
``(B) for the benefit of any other person who owns
(after the application of section 318(a)) more than 25
percent of--
``(i) the total combined voting power of
all classes of stock of the corporation which
issued such employer securities or of any
corporation which is a member of the same
controlled group of corporations (within the
meaning of subsection (l)(4)) as such
corporation, or
``(ii) the total value of all classes of
stock of any such corporation.''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect on the date of the enactment of this Act.
SEC. 5. SMALL BUSINESS AND EMPLOYEE STOCK OWNERSHIP.
(a) Findings.--Congress finds that--
(1) since 1974, the ownership of many small business
concerns (as defined under section 3 of the Small Business Act
(15 U.S.C. 632)) in the United States has transitioned from the
original owner, or owners, to an employee stock ownership plan
(referred to in this section as an ``ESOP''), as defined in
section 4975(e)(7) of the Internal Revenue Code of 1986;
(2) data collected on the performance of these small
business concerns owned 50 percent or more by an ESOP evidences
that more often than not these ESOP-owned small business
concerns provide significant benefit to the employees of the
small business concerns and the communities in which the small
business concerns are located;
(3) under the Small Business Act (15 U.S.C. 631 et seq.)
and the regulations promulgated by the Administrator of the
Small Business Administration, a business concern that
qualifies as a small business concern for the numerous
preferences of the Act, is denied treatment as a small business
concern once 50 percent or more of the business is acquired on
behalf of the employees by an ESOP; and
(4) a small business concern that was eligible under the
Small Business Act before being so acquired on behalf of the
employees by an ESOP, will no longer be treated as eligible,
even if the number of employees, the revenue of the small
business concern, and the racial, gender, or other criteria
used under the Act to determine whether the small business
concern is eligible for benefits under the Act remain the same,
solely because of the acquisition by the ESOP.
(b) Employee Stock Ownership Plans.--The Small Business Act (15
U.S.C. 631 et seq.) is amended--
(1) by redesignating section 44 as section 45; and
(2) by inserting after section 43 the following:
``SEC. 44. EMPLOYEE STOCK OWNERSHIP PLANS.
``(a) Definitions.--In this section--
``(1) the term `ESOP' means an employee stock ownership
plan, as defined in section 4975(e)(7) of the Internal Revenue
Code of 1986; and
``(2) the term `ESOP business concern' means a business
concern that was a small business concern eligible for a loan
or to participate in a contracting assistance or business
development program under this Act before the date on which 50
percent or more of the business concern was acquired by an
ESOP.
``(b) Continued Eligibility.--An ESOP business concern shall be
deemed a small business concern for purposes of a loan, preference, or
other program under this Act if--
``(1) on a continuing basis a majority of the shares of and
control of the ESOP that owns the business concern are held by
individuals who would otherwise meet criteria necessary to be
eligible for the loan, preference, or other program (as the
case may be);
``(2) control of the ESOP business concern is vested in the
shareholders of the ESOP; and
``(3) the ESOP that owns the business concern complies with
all requirements of a tax qualified deferred compensation
arrangement under the Internal Revenue Code of 1986.''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1 of the first calendar year beginning after the date
of the enactment of this Act.
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