Expanded Ownership Act of 1981

Expanded Ownership Act of 1981 - Amends the Internal Revenue Code to establish, without expiration dates, an investment tax credit percentage income tax for contributions by an employer to a tax credit employee stock ownership plan (ESOP). Sets the amount of such credit at a sum equal to the lesser of: (1) the aggregate value of employer securities transferred for the taxable year to a tax credit ESOP; or (2) one percent of the aggregate compensation paid or accrued during the taxable year to all employees under such a plan. Includes amounts of the credit as part of the investment tax credit amount.

Denies business expense, production of income expense, or contribution to deferred-payment plan deductions for amounts required to be transferred to a tax credit ESOP.

Allows an employer to take advantage of the investment tax credit even though he or she contributes employer securities to an ESOP with an aggregate value of less than one percent of the qualified investment.

Allows an income tax deduction for employer contributions to an ESOP which are applied to the repayment of principal and interest on a loan incurred for the purpose of acquiring qualifying employer securities. Limits the deductible amount for principal contributions to 25 percent of the compensation otherwise paid or accrued to all employees under the plan for the taxable year. Exempts such an ESOP from the limitations otherwise imposed on annual additions to an employee stock ownership plan.

Increases the permissible deduction for employer contributions made to both a stock bonus trust and a profit sharing trust if the additional amount deductible is attributable to a contribution of employer stock or amounts used for the acquisition of such stock.

Allows an income tax deduction for cash dividends paid with respect to employer stock which is held by a tax credit ESOP or by a former employee or a beneficiary to whom the stock was distributed from a tax credit ESOP or an ESOP. Extends the partial exclusion for dividends received to such amounts.

Excludes from the gross income of an ESOP or a tax credit ESOP participant any lump-sum distribution of employer securities (not to exceed $25,000) made from a qualified trust which is part of an ESOP or a tax credit ESOP.

Deems contributions, bequests, or similar transfers of employer securities, under certain conditions, to an ESOP or to a tax credit ESOP as a deductible charitable contribution.

Provides for nonrecognition of any long-term capital gain from the sale of small business stock to an ESOP, a tax credit ESOP, or a specified type of consumer cooperative, except to the extent that the taxpayer's sale price exceeds the cost of small business stock or small business investment company stock purchased by the taxpayer within 18 months after the date of such sale. Reduces the basis of such stock by the amount not recognized as gain.

Prescribes a three-year statute of limitations for the assessment of any deficiency attributable to gain realized by the sale of small business stock.

Relieves an estate of liability for payment of the estate tax to the extent that amounts of the tax are attributable to employer securities transferred to an ESOP pursuant to a written agreement guaranteeing that the tax will be paid by the plan in an amount equal to the lesser of: (1) the amount of the tax imposed upon the acquired employer securities; or (2) the amount of the tax imposed on the gross estate reduced by the sum of allowable credits. Permits the payment of such tax in installments. Exempts such transfers from the tax on prohibited transactions.

Permits the use of nonvoting stock in tax credit employer stock ownership plans.

Permits a tax credit ESOP, where ownership of all outstanding employer securities is restricted to employees, to distribute benefits in cash although it does not permit a participant to exercise the right to demand that benefits be distributed in employer securities. Allows a stock bonus plan which distributes benefits in cash to qualify as a deferred compensation plan if benefits may be distributed in the form of any securities of the employer held by a tax credit ESOP.

Allows financial institutions whose securities are not readily tradable to reduce the period for exercise of a put option to a period of at least 60 days following the date of distribution of employer stock and an additional such period in the following plan year.

Permits a trust which is part of an ESOP or a tax credit ESOP to be a shareholder in a subchapter S corporation.

Permits distributions from a tax credit ESOP of employer securities allocated to a participant's account in the case of a sale of the assets of a division or a sale of the stock of a subsidiary and the transfer of the participant to the employment of the acquiring entity.

Includes provision of cafeteria plan benefits in qualified cash or deferred arrangements, for purposes of applying participation and discrimination standards to profit-sharing or stock bonus plans.