Promotion and Expansion of Private Employee Ownership Act of 2021

II 117TH CONGRESS 1ST SESSION S. 1300 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 SENATE OF THE UNITED STATES APRIL 22, 2021 Mr. CARDIN (for himself, Mr. PORTMAN, Ms. STABENOW, Mr. CRAPO, Ms. CANTWELL, Mr. DAINES, Mr. BROWN, Ms. COLLINS, Mr. CASEY, Mr. RISCH, Mr. WHITEHOUSE, Mr. BLUNT, Ms. HASSAN, Mr. BOOZMAN, Mr. LEAHY, Mrs. FISCHER, Mrs. MURRAY, Ms. ERNST, Mr. SANDERS, Ms. KLOBUCHAR, Mr. TESTER, Mrs. SHAHEEN, Mr. KING, Mr. BOOKER, Mr. PETERS, Mr. VAN HOLLEN, and Ms. DUCKWORTH) introduced the fol- lowing bill; which was read twice and referred to the Committee on Fi- nance 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 pur- poses. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Promotion and Expan- 4 sion of Private Employee Ownership Act of 2021’’. 5 VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 1300 IS SEC. 2. FINDINGS. 1 Congress finds that— 2 (1) on January 1, 1998—nearly 25 years after 3 the Employee Retirement Income Security Act of 4 1974 was enacted and the employee stock ownership 5 plan (hereafter in this section referred to as an 6 ‘‘ESOP’’) was created—employees were first per- 7 mitted to be owners of subchapter S corporations 8 pursuant to the Small Business Job Protection Act 9 of 1996 (Public Law 104–188); 10 (2) with the passage of the Taxpayer Relief Act 11 of 1997 (Public Law 105–34), Congress designed in- 12 centives to encourage businesses to become ESOP- 13 owned S corporations; 14 (3) since that time, several thousand companies 15 have become ESOP-owned S corporations, creating 16 an ownership interest for several million Americans 17 in companies in every State in the country, in indus- 18 tries ranging from heavy manufacturing to tech- 19 nology development to services; 20 (4) while estimates show that 40 percent of 21 working Americans have no formal retirement ac- 22 count at all, every United States worker who is an 23 employee-owner of an S corporation company 24 through an ESOP has a valuable qualified retire- 25 ment savings account; 26 VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 1300 IS (5) recent studies have shown that employees of 1 ESOP-owned S corporations enjoy greater job sta- 2 bility than employees of comparable companies; 3 (6) studies also show that employee-owners of S 4 corporation ESOP companies have amassed mean- 5 ingful retirement savings through their S ESOP ac- 6 counts that will give them the means to retire with 7 dignity; 8 (7) under the Small Business Act (15 U.S.C. 9 631 et seq.) and the regulations promulgated by the 10 Administrator of the Small Business Administration, 11 a small business concern that was eligible under the 12 Small Business Act for the numerous preferences of 13 the Act is denied treatment as a small business con- 14 cern after an ESOP acquires more than 49 percent 15 of the business, even if the number of employees, the 16 revenue of the small business concern, and the ra- 17 cial, gender, or other criteria used under the Act to 18 determine whether the small business concern is eli- 19 gible for benefits under the Act remain the same, 20 solely because of the acquisition by the ESOP; and 21 (8) it is the goal of Congress to both preserve 22 and foster employee ownership of S corporations 23 through ESOPs. 24 VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 1300 IS SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EM- 1 PLOYER STOCK TO EMPLOYEE STOCK OWN- 2 ERSHIP PLAN SPONSORED BY S CORPORA- 3 TION. 4 (a) IN GENERAL.—Subparagraph (A) of section 5 1042(c)(1) of the Internal Revenue Code of 1986 is 6 amended by striking ‘‘domestic C corporation’’ and insert- 7 ing ‘‘domestic corporation’’. 8 (b) EFFECTIVE DATE.—The amendment made by 9 subsection (a) shall apply to sales after the date of the 10 enactment of this Act. 11 SEC. 4. DEPARTMENT OF THE TREASURY TECHNICAL AS- 12 SISTANCE OFFICE. 13 (a) ESTABLISHMENT REQUIRED.—Before the end of 14 the 90-day period beginning on the date of enactment of 15 this Act, the Secretary of the Treasury shall establish the 16 S Corporation Employee Ownership Assistance Office to 17 foster increased employee ownership of S corporations. 18 (b) DUTIES OF THE OFFICE.—The S Corporation 19 Employee Ownership Assistance Office shall provide— 20 (1) education and outreach to inform companies 21 and individuals about the possibilities and benefits of 22 employee ownership of S corporations; and 23 (2) technical assistance to assist S corporations 24 in sponsoring employee stock ownership plans. 25 VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 1300 IS SEC. 5. SMALL BUSINESS AND EMPLOYEE STOCK OWNER- 1 SHIP. 2 (a) IN GENERAL.—The Small Business Act (15 3 U.S.C. 631 et seq.) is amended— 4 (1) by redesignating section 49 as section 50; 5 and 6 (2) by inserting after section 48 the following: 7 ‘‘SEC. 49. EMPLOYEE STOCK OWNERSHIP PLANS. 8 ‘‘(a) DEFINITIONS.—In this section— 9 ‘‘(1) the term ‘ESOP’ means an employee stock 10 ownership plan, as defined in section 4975(e)(7) of 11 the Internal Revenue Code of 1986, as amended; 12 and 13 ‘‘(2) the term ‘ESOP business concern’ means 14 a business concern that was a small business con- 15 cern eligible for a loan, preference, or other program 16 under this Act before the date on which more than 17 49 percent of the business concern was acquired by 18 an ESOP. 19 ‘‘(b) CONTINUED ELIGIBILITY.—In determining 20 whether an ESOP business concern qualifies as a small 21 business concern for purposes of a loan, preference, or 22 other program under this Act, each ESOP participant 23 shall be treated as directly owning his or her proportionate 24 share of the stock in the ESOP business concern owned 25 by the ESOP.’’. 26 VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 1300 IS (b) EFFECTIVE DATE.—The amendments made by 1 this section shall take effect on January 1 of the first cal- 2 endar year beginning after the date of the enactment of 3 this Act. 4 Æ VerDate Sep 11 2014 15:58 May 19, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\S1300.IS S1300 pamtmann on DSKBC07HB2PROD with BILLS