H.R. 2992 — To amend the Internal Revenue Code of 1986 to provide special rules for certain gratuitous transfers of employer securities for the benefit of employees.

 
HR 2992 IH
101st CONGRESS
1st Session
 H. R. 2992
To amend the Internal Revenue Code of 1986 to provide special rules for certain
gratuitous transfers of employer securities for the benefit of employees.
IN THE HOUSE OF REPRESENTATIVES
July 25, 1989
Mr. ANDREWS 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 provide special rules for certain
gratuitous transfers of employer securities for the benefit of employees.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled,
SECTION 1. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.
  (a) IN GENERAL- Subparagraph (C) of section 664(d)(1) of the Internal Revenue
  Code of 1986 and subparagraph (C) of section 664(d)(2) of such Code are
  each amended by striking the period at the end thereof and inserting `or,
  to the extent the remainder interest is in qualified employer securities
  (as defined in paragraph (3)(C)), is to be transferred to an employee
  stock ownership plan (as defined in section 4975(e)(7)) in a qualified
  gratuitous transfer (as defined by paragraph (3)).'
  (b) QUALIFIED GRATUITOUS TRANSFER DEFINED- Subsection (d) of section 664
  of such Code is amended by redesignating paragraph (3) as paragraph (4)
  and by inserting after paragraph (2) the following new paragraph:
  `(3) QUALIFIED GRATUITOUS TRANSFER OF QUALIFIED EMPLOYER SECURITIES-
  `(A) IN GENERAL- For purposes of this section, the term `qualified
  gratuitous transfer' means a transfer of qualified employee securities
  to an employee stock ownership plan (as defined in section 4975(e)(7))
  but only to the extent that--
  `(i) the securities transferred previously passed from a decedent to a
  trust described in paragraph (1) or (2);
  `(ii) no deduction under section 404 is allowable with respect to such
  transfer;
  `(iii) such plan provides that the securities so transferred are allocated
  to plan participants in a manner consistent with section 401(a)(4);
  `(iv) such plan treats such securities as being attributable to employer
  contributions but without regard to the limitations otherwise applicable
  to such contributions under section 404;
  `(v) such plan provides that such securities are held in a suspense
  account under the plan to be allocated each year, up to the limitations
  under section 415(c)--
  `(I) disregarding the special limitations of paragraph (6) of section
  415(c), and
  `(II) after first allocating all other annual additions under the plan
  for the limitation year; and
  `(vi) such plan provides that no portion of the assets of the plan
  attributable to securities acquired by the plan in such transfer may
  at any time accrue for the benefit of any person who is related to the
  decedent (within the meaning of section 267(b)) or any person who owns
  (after application of section 318(a)) more than 5 percent of--
  `(I) any class of outstanding stock of the corporation which issued such
  qualified employer securities or of any corporation which is a member of
  the same controlled group of corporations (within the meaning of section
  409(l)(4)) as such corporation, or
  `(II) the total value of any class of outstanding stock of any such
  corporation.
For purposes of clause (vi), section 318(a) shall be applied without regard
to the exception in paragraph (2)(B)(i) thereof.
  `(B) 5-PERCENT SHAREHOLDERS- The more than 5 percent ownership limitation
  of subparagraph (B)(vi) shall be treated as met if such person meets
  such limitation--
  `(i) at any time during the 1-year period ending on the date of the
  acquisition of qualified employer securities by the plan, or
  `(ii) on any date as of which qualified employer securities are allocated
  to participants in the plan.
  `(C) QUALIFIED EMPLOYER SECURITIES- For purposes of this section, the term
  `qualified employer securities' means employer securities (as defined in
  section 409(l)) which are issued by a domestic corporation which has no
  outstanding stock which is readily tradable on an established securities
  market.'
  (c) CONFORMING AMENDMENTS-
  (1) Section 415(e) of such Code is amended--
  (A) by redesignating paragraph (6) as paragraph (7), and
  (B) by inserting after paragraph (5) the following new paragraph:
  `(6) SPECIAL RULE FOR QUALIFIED GRATUITOUS TRANSFERS- Any qualified
  gratuitous transfer of qualified employer securities (as defined by section
  664(d)(3)) shall not be taken into account in calculating, and shall not
  be subject to, the limitations provided under this subsection.'
  (2) Section 415(f) of such Code is amended by inserting after paragraph
  (2) the following new paragraph:
  `(3) SPECIAL RULE FOR QUALIFIED GRATUITOUS TRANSFERS- For purposes of
  applying the limitations of subsections (b), (c), and (e), any qualified
  gratuitous transfer (as defined by section 664(d)(3)) shall not be subject
  to the limitations provided under this subsection.'
  (3) Section 4979A(b) of such Code is amended by redesignating paragraph
  (3) as paragraph (4) and by inserting after paragraph (2) the following
  new paragraph:
  `(3) any allocation of qualified employer securities acquired by an
  employee stock ownership plan pursuant to a qualified gratuitous transfer,
  as described in section 664(d)(3), which fails to meet the requirements
  of section 664(d)(3)(B)(vi).'
  (4)(A) The heading for section 664 is amended to read as follows:
`SEC. 664. CHARITABLE OR ESOP REMAINDER TRUSTS.'
  (B) The table of sections for subpart C of part I of subchapter J of
  chapter 1 of such Code is amended by striking the item relating to section
  664 and inserting in lieu thereof the following:
`Sec. 664. Charitable or ESOP remainder trusts.'
  (5) Section 664(d) of such Code is amended by adding at the end thereof
  the following new paragraph:
  `(5) Notwithstanding subsections (d)(1)(B) and (d)(2)(B), a qualified
  gratuitous transfer of qualified employer securities to an employee stock
  ownership plan shall be permitted.'
  (6) Section 2055(a) of such Code is amended--
  (A) by striking `or' at the end of paragraph (3);
  (B) by striking the period at the end of paragraph (4) and inserting `;
  or'; and
  (C) by inserting after paragraph (4) the following new paragraph:
  `(5) to an employee stock ownership plan if such transfer qualifies as a
  qualified gratuitous transfer of qualified employer securities within the
  meaning of section 664(d)(3).'
  (d) EFFECTIVE DATE- The amendments made by this section shall apply to
  transfers made by trusts to, or for the use of, an employee stock ownership
  plan after the date of enactment.
To amend the Internal Revenue Code of 1986 to provide special rules for certain gratuitous transfers of employer securities for the benefit of employees.

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