Promotion and Expansion of Private Employee Ownership Act of 2019

I 116TH CONGRESS 1ST SESSION H. R. 2258 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 APRIL 10, 2019 Mr. KIND (for himself, Mr. SMITH of Missouri, Mr. BLUMENAUER, Mr. KELLY of Pennsylvania, Mr. REED, and Mr. PASCRELL) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Education and Labor, and Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdic- tion 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 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 2019’’. 5 VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 2 •HR 2258 IH 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 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 3 •HR 2258 IH (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 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 4 •HR 2258 IH 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.—Section 1042(c)(1)(A) of the In- 5 ternal Revenue Code of 1986 is amended by striking ‘‘do- 6 mestic C corporation’’ and inserting ‘‘domestic corpora- 7 tion’’. 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. DEDUCTION FOR INTEREST ON LOAN TO FINANCE 12 PURCHASE OF EMPLOYER SECURITIES BY AN 13 EMPLOYEE STOCK OWNERSHIP PLAN SPON- 14 SORED BY AN S CORPORATION. 15 (a) IN GENERAL.—Part VI of subchapter B of chap- 16 ter 1 of the Internal Revenue Code of 1986 is amended 17 by adding at the end following new section: 18 ‘‘SEC. 200. INTEREST ON CERTAIN LOANS FOR THE PUR- 19 CHASE OF EMPLOYER SECURITIES BY AN EM- 20 PLOYEE STOCK OWNERSHIP PLAN SPON- 21 SORED BY AN S CORPORATION. 22 ‘‘(a) IN GENERAL.—There shall be allowed as a de- 23 duction an amount equal to 50 percent of the interest re- 24 ceived during the taxable year by a bank (within the mean- 25 VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 5 •HR 2258 IH ing of section 581) with respect to a qualified securities 1 acquisition loan. 2 ‘‘(b) QUALIFIED SECURITIES ACQUISITION LOAN.— 3 ‘‘(1) IN GENERAL.—For purposes of this sec- 4 tion, the term ‘qualified securities acquisition loan’ 5 means— 6 ‘‘(A) any loan to an employee stock owner- 7 ship plan sponsored by an S corporation to the 8 extent that the proceeds are used to acquire 9 employer securities for the plan, and 10 ‘‘(B) any loan to an S corporation that 11 sponsors an employee stock ownership plan to 12 the extent that the proceeds of such loan are 13 loaned to the employee stock ownership plan to 14 acquire employer securities for the plan. 15 For purposes of this paragraph, the term ‘employer 16 securities’ has the meaning given such term by sec- 17 tion 409(l). 18 ‘‘(2) TERMS APPLICABLE TO CERTAIN QUALI- 19 FIED SECURITIES ACQUISITION LOANS.—For pur- 20 poses of paragraph (1)(B), the term ‘qualified secu- 21 rities acquisition loan’ shall not include any loan to 22 the S corporation unless the loan to the employee 23 stock ownership plan has repayment terms which are 24 VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 6 •HR 2258 IH substantially similar to the terms of the loan to the 1 S corporation. 2 ‘‘(3) TREATMENT OF REFINANCINGS.—The 3 term ‘qualified securities acquisition loan’ shall in- 4 clude any loan which is (or is part of a series of 5 loans) used to refinance a loan described in para- 6 graph (1) (after the application of paragraph (2)). 7 ‘‘(4) PLAN MUST HOLD MORE THAN 50 PER- 8 CENT OF STOCK AFTER ACQUISITION OR TRANS- 9 FER.— 10 ‘‘(A) IN GENERAL.—A loan shall not be 11 treated as a qualified securities acquisition loan 12 for purposes of this section unless, immediately 13 after an acquisition of employer securities re- 14 ferred to in paragraph (1), the employee stock 15 ownership plan owns more than 50 percent of 16 the outstanding stock of the S corporation. 17 ‘‘(B) FAILURE TO RETAIN MINIMUM STOCK 18 INTEREST.— 19 ‘‘(i) IN GENERAL.—Subsection (a) 20 shall not apply to any interest received 21 with respect to a qualified securities acqui- 22 sition loan which is allocable to any period 23 during which the employee stock ownership 24 VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 7 •HR 2258 IH plan does not own stock meeting the re- 1 quirements of subparagraph (A). 2 ‘‘(ii) EXCEPTION.—To the extent pro- 3 vided by the Secretary, clause (i) shall not 4 apply to any period if, within 90 days of 5 the first date on which the failure occurred 6 (or such longer period not in excess of 180 7 days as the Secretary may prescribe), the 8 plan acquires stock which results in its 9 meeting the requirements of subparagraph 10 (A). 11 ‘‘(C) STOCK.—For purposes of subpara- 12 graph (A), the Secretary may provide that war- 13 rants, options, contracts to acquire stock, con- 14 vertible debt interests and other similar inter- 15 ests be treated as stock for one or more pur- 16 poses under subparagraph (A). 17 ‘‘(c) EMPLOYEE STOCK OWNERSHIP PLAN.—For 18 purposes of this section, the term ‘employee stock owner- 19 ship plan’ has the meaning given to such term by section 20 4975(e)(7).’’. 21 (b) CLERICAL AMENDMENT.—The table of sections 22 for part VI of subchapter B of chapter 1 of such Code 23 is amended by adding at the end the following new item: 24 ‘‘Sec. 200. Interest on certain loans for the purchase of employer securities by an employee stock ownership plan sponsored by an S corpora- tion.’’. VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6211 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 8 •HR 2258 IH (c) EFFECTIVE DATE.—The amendments made by 1 this section shall apply to interest accrued on loans made 2 after the date of the enactment of this Act. 3 SEC. 5. DEPARTMENT OF THE TREASURY TECHNICAL AS- 4 SISTANCE OFFICE. 5 (a) ESTABLISHMENT REQUIRED.—Before the end of 6 the 90-day period beginning on the date of enactment of 7 this Act, the Secretary of the Treasury shall establish the 8 S Corporation Employee Ownership Assistance Office to 9 foster increased employee ownership of S corporations. 10 (b) DUTIES OF THE OFFICE.—The S Corporation 11 Employee Ownership Assistance Office shall provide— 12 (1) education and outreach to inform companies 13 and individuals about the possibilities and benefits of 14 employee ownership of S corporations; and 15 (2) technical assistance to assist S corporations 16 in sponsoring employee stock ownership plans. 17 SEC. 6. SMALL BUSINESS AND EMPLOYEE STOCK OWNER- 18 SHIP. 19 (a) IN GENERAL.—The Small Business Act (15 20 U.S.C. 631 et seq.) is amended— 21 (1) by redesignating section 47 as section 48; 22 and 23 (2) by inserting after section 46 the following: 24 VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS 9 •HR 2258 IH ‘‘SEC. 47. EMPLOYEE STOCK OWNERSHIP PLANS. 1 ‘‘(a) DEFINITIONS.—In this section— 2 ‘‘(1) the term ‘ESOP’ means an employee stock 3 ownership plan, as defined in section 4975(e)(7) of 4 the Internal Revenue Code of 1986; and 5 ‘‘(2) the term ‘ESOP business concern’ means 6 a business concern that was a small business con- 7 cern eligible for a loan, preference, or other program 8 under this Act before the date on which more than 9 49 percent of the business concern was acquired by 10 an ESOP. 11 ‘‘(b) CONTINUED ELIGIBILITY.—In determining 12 whether an ESOP business concern qualifies as a small 13 business concern for purposes of a loan, preference, or 14 other program under this Act, each ESOP participant 15 shall be treated as directly owning his or her proportionate 16 share of the stock in the ESOP business concern owned 17 by the ESOP.’’. 18 (b) EFFECTIVE DATE.—The amendments made by 19 this section shall take effect on January 1 of the first cal- 20 endar year beginning after the date of the enactment of 21 this Act. 22 Æ VerDate Sep 11 2014 01:24 Apr 23, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6301 E:\BILLS\H2258.IH H2258 kjohnson on DSK79L0C42 with BILLS