Employee Profit-Sharing Encouragement Act of 2019

I 116TH CONGRESS 1ST SESSION H. R. 1294 To amend the Internal Revenue Code of 1986 to deny the deduction for executive compensation unless the employer maintains profit-sharing dis- tributions for employees. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 14, 2019 Mrs. WATSON COLEMAN introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to deny the deduction for executive compensation unless the employer maintains profit-sharing distributions for employees. 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 ‘‘Employee Profit-Shar- 4 ing Encouragement Act of 2019’’. 5 VerDate Sep 11 2014 21:37 Mar 01, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1294.IH H1294 pamtmann on DSKBFK8HB2PROD with BILLS 2 •HR 1294 IH SEC. 2. DENIAL OF DEDUCTION FOR EXECUTIVE COM- 1 PENSATION UNLESS EMPLOYER MAINTAINS 2 PROFIT-SHARING DISTRIBUTIONS. 3 (a) IN GENERAL.—Section 162 of the Internal Rev- 4 enue Code of 1986 is amended by redesignating subsection 5 (s) as subsection (t) and by inserting after subsection (r) 6 the following new subsection: 7 ‘‘(s) EXECUTIVE COMPENSATION PAID BY EMPLOY- 8 ERS WHO DO NOT MAINTAIN PROFIT-SHARING DIS- 9 TRIBUTIONS.— 10 ‘‘(1) IN GENERAL.—In the case of a specified 11 employer, no deduction shall be allowed under this 12 chapter for applicable employee remuneration with 13 respect to any highly compensated individual (within 14 the meaning of section 105(h)) for any taxable year 15 unless qualified profit-sharing distributions are made 16 during such taxable year. 17 ‘‘(2) QUALIFIED PROFIT-SHARING DISTRIBU- 18 TIONS.—For purposes of this subsection— 19 ‘‘(A) IN GENERAL.—The term ‘qualified 20 profit-sharing distributions’ means a cash dis- 21 tribution made pursuant to a written plan of 22 the employer under which— 23 ‘‘(i) employees (including part-time 24 employees) who have been employed for at 25 VerDate Sep 11 2014 21:37 Mar 01, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1294.IH H1294 pamtmann on DSKBFK8HB2PROD with BILLS 3 •HR 1294 IH least 1 year as of the date of the distribu- 1 tion have a right to such distribution, and 2 ‘‘(ii) the amount of such distributions 3 are defined under such plan on the basis of 4 a measure of the receipts, profit, revenues, 5 or earnings of such employer. 6 ‘‘(B) MINIMUM DISTRIBUTION REQUIRE- 7 MENTS.—Such term shall not include any dis- 8 tributions made pursuant to such plan during 9 the taxable year if the aggregate distributions 10 made pursuant to such plan during such tax- 11 able year are less than 5 percent of the employ- 12 er’s net income for the taxable year as deter- 13 mined pursuant to the employer’s books and 14 records prepared in accordance with the em- 15 ployer’s accounting procedures. 16 ‘‘(C) NONDISCRIMINATION.—Such term 17 shall not include any distributions made pursu- 18 ant to such plan during the taxable year unless 19 such plan satisfies requirements similar to the 20 requirements of section 401(k)(3)(A)(ii) applied 21 by treating the distributions made pursuant to 22 the plan as though such distributions were con- 23 tributions paid over to the trust referred to in 24 such section. 25 VerDate Sep 11 2014 21:37 Mar 01, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1294.IH H1294 pamtmann on DSKBFK8HB2PROD with BILLS 4 •HR 1294 IH ‘‘(D) EXCEPTION IF DISTRIBUTIONS 1 WOULD JEOPARDIZE THE BUSINESS.—An em- 2 ployer shall not fail to be treated as making 3 qualified profit-sharing distributions during the 4 taxable year to the extent that such employer 5 establishes to the satisfaction of the Secretary 6 by clear and convincing evidence that making 7 such distributions would jeopardize the ability 8 of the employer to continue as a going concern. 9 ‘‘(3) SPECIFIED EMPLOYER.—For purposes of 10 this subsection— 11 ‘‘(A) IN GENERAL.—The term ‘specified 12 employer’ means, with respect to any taxable 13 year, any employer which meets the gross re- 14 ceipts test of section 448(c) (determined with- 15 out regard to paragraph (4) thereof) for such 16 taxable year. 17 ‘‘(B) APPLICATION OF GROSS RECEIPTS 18 TEST TO INDIVIDUALS, ETC.—For purposes of 19 subparagraph (A), in the case of any employer 20 which is not a corporation or a partnership, the 21 gross receipts test referred to in such subpara- 22 graph shall be applied in the same manner as 23 if each trade or business of such employer were 24 a corporation or partnership. 25 VerDate Sep 11 2014 21:37 Mar 01, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1294.IH H1294 pamtmann on DSKBFK8HB2PROD with BILLS 5 •HR 1294 IH ‘‘(4) APPLICABLE EMPLOYEE REMUNERA- 1 TION.—For purposes of this subsection, the term 2 ‘applicable employee remuneration’ has the meaning 3 given such term by subsection (m)(4), determined 4 without regard to subparagraph (B) thereof. 5 ‘‘(5) CONTROLLED GROUPS.—For purposes of 6 this subsection, all persons treated as a single em- 7 ployer under subsection (b), (c), (m), or (o) of sec- 8 tion 414 shall be treated as one employer. 9 ‘‘(6) COORDINATION.—Rules similar to the 10 rules of subparagraphs (D) and (E) of subsection 11 (m)(4) shall apply for purposes of this subsection. 12 ‘‘(7) AUTHORITY TO ADDRESS ABUSE.—The 13 Secretary shall have the authority to address any 14 abuses by employers under this subsection, includ- 15 ing, but not limited to, a reduction in employee com- 16 pensation or benefits in conjunction with the pay- 17 ment of qualified profit-sharing distributions.’’. 18 (b) EFFECTIVE DATE.—The amendments made by 19 this section shall apply to taxable years beginning after 20 the date of the enactment of this Act. 21 Æ VerDate Sep 11 2014 21:37 Mar 01, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6301 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