1.This Act may be cited as the
Employee Stock Ownership Plan
Promotion and Improvement Act of 2011
.
2.10 percent penalty tax
not to apply to certain S corporation distributions made on stock held by
employee stock ownership plan
(a)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)The amendment made by
this section shall apply to distributions made after the date of the enactment
of this Act.
3.ESOP dividend
exception to adjustments based on adjusted current earnings
(a)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 dividendsClause (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)The amendment made by
this section shall apply to taxable years beginning after December 31,
1989.
(c)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.
4.Amendments related to
section 1042
(a)Deferral of tax
for certain sales to employee stock ownership plan sponsored by s
corporation
(1)Section 1042(c)(1)(A)
of the Internal Revenue Code of 1986 is amended by striking
C
.
(2)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)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 fundsThe 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)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)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)The amendment made by
paragraph (1) shall take effect on the date of the enactment of this
Act.
5.Small business
and employee stock ownership
(a)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 plansThe 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:
44.Employee stock
ownership plans
(a)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)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)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.