Promotion and Expansion of Private Employee Ownership Act of 2021
This bill expands tax incentives and federal assistance for employee stock ownership plans (ESOPs) that are sponsored by S corporations.
The bill provides additional tax incentives for ESOPs by (1) extending to all domestic corporations, including S corporations, provisions allowing deferral of tax on gain from the sale of employer securities to an ESOP; and (2) allowing a tax deduction for 50% of the interest received by a bank on loans to S corporation-sponsored ESOPs for the purchase of employer securities.
The Department of the Treasury must establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations.
The bill defines an ESOP business concern for purposes of the Small Business Act as a business concern that was eligible for a loan, preference, or other program under such Act before more than 49% of the business concern was acquired by an ESOP.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4141 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 4141
To amend the Internal Revenue Code of 1986 and the Small Business Act
to expand the availability of employee stock ownership plans in S
corporations, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
June 24, 2021
Mr. Kind (for himself, Mr. Smith of Missouri, Mr. Blumenauer, Mr. Kelly
of Pennsylvania, Mr. Pascrell, and Mr. Reed) introduced the following
bill; which was referred to the Committee on Ways and Means, and in
addition to the Committees on Small Business, and 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 and the Small Business Act
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 ``Promotion and Expansion of Private
Employee Ownership Act of 2021''.
SEC. 2. FINDINGS.
Congress finds that--
(1) on January 1, 1998--nearly 25 years after the Employee
Retirement Income Security Act of 1974 was enacted and the
employee stock ownership plan (hereafter in this section
referred to as an ``ESOP'') was created--employees were first
permitted to be owners of subchapter S corporations pursuant to
the 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;
(7) 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 small business concern that
was eligible under the Small Business Act for the numerous
preferences of the Act is denied treatment as a small business
concern after an ESOP acquires more than 49 percent of the
business, 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; and
(8) 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.--Section 1042(c)(1)(A) of the Internal Revenue Code
of 1986 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 adding at the end 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 qualified
securities acquisition loan.
``(b) Qualified Securities Acquisition Loan.--
``(1) In general.--For purposes of this section, the term
`qualified 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 qualified securities
acquisition loans.--For purposes of paragraph (1)(B), the term
`qualified 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 `qualified
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
qualified 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 qualified 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 one 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 adding at the end
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. 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 companies and
individuals about the possibilities and benefits of employee
ownership of S corporations; and
(2) technical assistance to assist S corporations in
sponsoring employee stock ownership plans.
SEC. 6. SMALL BUSINESS AND EMPLOYEE STOCK OWNERSHIP.
(a) In General.--The Small Business Act (15 U.S.C. 631 et seq.) is
amended--
(1) by redesignating section 47 as section 48; and
(2) by inserting after section 46 the following:
``SEC. 47. 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,
preference, or other program under this Act before the date on
which more than 49 percent of the business concern was acquired
by an ESOP.
``(b) Continued Eligibility.--In determining whether an ESOP
business concern qualifies as a small business concern for purposes of
a loan, preference, or other program under this Act, each ESOP
participant shall be treated as directly owning his or her
proportionate share of the stock in the ESOP business concern owned by
the ESOP.''.
(b) 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.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committees on Small Business, and 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.
Referred to the Committee on Ways and Means, and in addition to the Committees on Small Business, and 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.
Referred to the Committee on Ways and Means, and in addition to the Committees on Small Business, and 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.
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