[Congressional Record Volume 151, Number 165 (Monday, December 19, 2005)]
[Senate]
[Page S14028]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  INTERNAL REVENUE CODE SECTION 664(G)

  Mr. JOHNSON. Mr. President, I have a question for the chairman and 
ranking democrat of the Finance Committee with respect to one special 
kind of retirement plan that is defined in Internal Revenue Code 
section 664(g) and involves qualified gratuitous transfers of employer 
securities. That section of the code was added in 1997 and later 
amended in 2001. It provides certain rules and requirements for a 
business owner who wants to bequeath his company to its employees 
through the company retirement plan.
  One of the limitations in section 664(g) is that the maximum 
allocation that would be permitted to any participant each year is the 
lesser of $30,000 or 25 percent of compensation. That limitation, which 
is contained in code section 664(g)(7) was intended to ensure for an 
orderly and fair allocation of shares received by a plan in a 
gratuitous transfer from a charitable remainder trust.
  A question has been raised with me as to the appropriate timing of 
valuation of the stock that is transferred to the accounts of 
participants for purposes of the unique section 664(g)(7) limitation. 
Should the stock be valued at the time the shares are transferred to 
the plan or on the date the shares are allocated to the accounts of 
participants? It is my understanding, that the clear intent of the 
limitation of section 664(g)(7) was to measure the value of the stock 
on the date it is actually allocated to the account of the participant. 
Any other reading could result in potential circumvention of the 
statutory limitation if the value of the stock were to increase during 
the period between the actual transfer of the stock to the plan and the 
subsequent allocation to the account of the participant. Put 
differently, when the statute says no participant shall receive more 
than the lesser of $30,000 or 25 percent of compensation each year, 
that is precisely what was intended. To be clear, this is a unique rule 
that is specific to section 664(g). It has no bearing on any other 
rules involving plans, including employee stock ownership plans 
(ESOPs), that are not described in section 664(g).
  Mr. GRASSLEY. I thank the Senator for his careful explanation of the 
law. I agree completely that the intent of the Finance Committee in 
including the limitation of section 664(g)(7) was to provide for an 
orderly and fair transfer of stock received in a gratuitous transfer 
and that we intended the value of the stock to be determined upon 
allocation to the participant's account and not upon some earlier date.
  Mr. BAUCUS. Yes, I agree. In applying the unique limit of Internal 
Revenue Code section 664(g)(7), the valuation should be determined upon 
allocation to the participant's account.

                          ____________________