H.R. 3485 — 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 3485 IH
102d CONGRESS
1st Session
 H. R. 3485
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
October 3, 1991
Mr. ANDREWS of Texas 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 employer 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), after first allocating all other annual additions
  for the limitation year, up to the limitations under sections 415(c) and (e);
  `(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; and
  `(vii) the employer whose employees are covered by the plan described in this
  subparagraph files with the Secretary a verified written statement consenting
  to the application of sections 4978 and 4979A with respect to such employer.
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- A person shall be treated as failing to
  meet the more than 5 percent ownership limitation of subparagraph (A)(vi)
  if such person fails 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.
  `(D) FAILURE TO MEET REQUIREMENTS- If a plan fails to meet the requirements
  of subparagraph (A)(vi)--
  `(i) the plan shall be treated as having distributed to the person described
  in subparagraph (A)(vi) the amount allocated to the account of such person
  in violation of subparagraph (A)(vi) at the time of such allocation,
  `(ii) the provisions of section 4979A shall apply, and
  `(iii) the statutory period for the assessment of any tax imposed by section
  4979A shall not expire before the date which is 3 years from the later of--
  `(I) the 1st allocation of employer securities in connection with a
  qualified gratuitous transfer to which this section applies, or
  `(II) the date on which the Secretary is notified of such failure.'
  (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 in this subsection.'
  (2) Section 415(c)(6) of such Code is amended by adding at the end thereof
  the following new sentence:
`The amount of any qualified gratuitous transfer (as defined in section
664(d)(3)(A)) allocated to a participant for any limitation year shall not
exceed the limitations imposed by this section, but such amount shall not
be taken into account in determining whether any other amount exceeds the
limitations imposed by this section.'
  (3) Section 4979A(b) of such Code is amended by striking `and' at the
  end of paragraph (1), by redesignating paragraph (2) as paragraph (3),
  and by inserting after paragraph (1) the following new paragraph:
  `(2) 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)(A)(vi), and'.
  (4) 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.'
  (5) 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).'
  (6) Section 4947(b) of such Code is amended by inserting after paragraph
  (3) the following new paragraph:
  `(4) SECTION 507- The provisions of section 507(a) shall not apply to a
  trust which is described in subsection (a)(2) by reason of a distribution
  of qualified employer securities (as defined in section 664(d)(3)(C))
  to an employee stock ownership plan (as defined in section 4975(e)(7))
  in a qualified gratuitous transfer (as defined by section 664(d)(3)).'
  (7) Section 404(a)(9) of such Code is amended by inserting after subparagraph
  (B) the following new subparagraph:
  `(C) A qualified gratuitous transfer (as defined in section 664(d)(3)(A))
  shall have no effect on the amount or amounts otherwise deductible under
  paragraph (3) or (7) or under this paragraph.'
  (8) Paragraph (3) of section 644(e) of such Code is amended to read
  as follows:
  `(3) acquired by a charitable remainder annuity trust (as defined in
  section 664(d)(1)) or a charitable remainder unitrust (as defined in
  sections 664(d)(2) and (4)), or'.
  (9) Paragraph (4) of section 674(b) of such Code is amended to read
  as follows:
  `(4) POWER TO ALLOCATE AMONG CHARITABLE BENEFICIARIES- A power to determine
  the beneficial enjoyment of the corpus or the income therefrom if the corpus
  or income is irrevocably payable for a purpose specified in section 170(c)
  (relating to definition of charitable contributions) or to an employee
  stock ownership plan (as defined in section 4975(e)(7)) in a qualified
  gratuitous transfer (as defined in section 664(d)(3)).'
  (10) Paragraph (8) of section 2056(b) of such Code is amended to read
  as follows:
  `(8) SPECIAL RULE FOR CHARITABLE REMAINDER TRUSTS-
  `(A) IN GENERAL- If the surviving spouse of the decedent is the only
  noncharitable or nonqualified ESOP beneficiary of a qualified charitable
  remainder trust, paragraph (1) shall not apply to any interest in such
  trust which passes or has passed from the decedent to such surviving spouse.
  `(B) DEFINITIONS- For purposes of subparagraph (A)--
  `(i) NONCHARITABLE BENEFICIARY- The term `noncharitable beneficiary'
  means any beneficiary of the qualified charitable remainder trust other
  than an organization described in section 170(c).
  `(ii) NONQUALIFIED ESOP BENEFICIARY- The term `nonqualified ESOP beneficiary'
  means any beneficiary of the qualified charitable remainder trust other
  than an employee stock ownership plan (as defined in section 4975(e)(7))
  that holds a remainder interest in qualified employer securities (as
  defined in section 664(d)(3)(C)) to be transferred to such plan in a
  qualified gratuitous transfer (as defined in section 664(d)(3)).
  `(iii) QUALIFIED CHARITABLE REMAINDER TRUST- The term `qualified charitable
  remainder trust' means a charitable remainder annuity trust or a charitable
  remainder unitrust (described in section 664).'
  (11) Paragraph (7) of section 4975(e) of such Code is amended to read
  as follows:
  `(7) EMPLOYEE STOCK OWNERSHIP PLAN- The term `employee stock ownership plan'
  means a defined contribution plan--
  `(A) which is a stock bonus plan which is qualified, or a stock bonus and
  a money purchase plan both of which are qualified under section 401(a) and
  which are designed to invest primarily in qualifying employer securities; and
  `(B) which is otherwise defined in regulations prescribed by the Secretary.
A plan shall not be treated as an employee stock ownership plan unless
it meets the requirements of section 409(h), section 409(o), and, if
applicable, section 409(n) and section 664(d)(3), and, if the employer has
a registration-type class of securities (as defined in section 409(e)(4)),
it meets the requirements of section 409(e).'
  (12) Subsection (a) of section 4978 of such Code is amended to read
  as follows:
  `(a) TAX ON DISPOSITIONS OF SECURITIES TO WHICH SECTION 664(d)(3) OR
  SECTION 1042 APPLIES BEFORE CLOSE OF MINIMUM HOLDING PERIOD- If, during the
  3-year period after the date on which the employee stock ownership plan or
  eligible worker-owned cooperative acquired any qualified securities in a
  sale to which section 1042 applied or in a qualified gratuitous transfer
  to which section 664(d)(3) applied, such plan or cooperative disposes of
  any qualified securities and--
  `(1) the total number of shares held by such plan or cooperative after
  such disposition is less than the total number of employer securities held
  immediately after such sale or such qualified gratuitous transfer, or
  `(2) except to the extent provided in regulations, the value of qualified
  securities held by such plan or cooperative after such disposition is
  less than 30 percent of the total value of all employer securities as of
  such disposition,
there is hereby imposed a tax on the disposition equal to the amount determined
under subsection (b).'
  (13) Paragraph (2) of section 4978(b) of such Code is amended to read
  as follows:
  `(2) LIMITATION- The amount realized taken into account under paragraph (1)
  shall not exceed that portion allocable to qualified securities acquired
  in the sale to which section 1042 applied or in the qualified gratuitous
  transfer to which section 664(d)(3) applied determined as if such securities
  were disposed of--
  `(A) first, from section 133 securities (as defined in section 4978B(e)(2))
  acquired during the 3-year period ending on the date of such disposition,
  beginning with the securities first so acquired,
  `(B) second, from section 133 securities (as so defined) acquired before
  such 3-year period unless such securities (or proceeds from the disposition)
  have been allocated to accounts of participants or beneficiaries,
  `(C) third, from qualified securities to which section 1042 applied or to
  which section 664(d)(3) applied during the 3-year period ending on the date
  of such disposition, beginning with the securities first so acquired, and
  `(D) then, from any other employer securities.
If subsection (d) or section 4978B(d) applies to a disposition, the disposition
shall be treated as made from employer securities in the opposite order of
the preceding sentence.'
  (14) Subsection (c) of section 4978 of such Code is amended to read
  as follows:
  `(c) LIABILITY FOR PAYMENT OF TAXES- The tax imposed by this section shall
  be paid by--
  `(1) the employer, or
  `(2) the eligible worker-owned cooperative,
that made the written statement described in section 664(d)(3) or in section
1042(b)(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 the enactment of this Act.
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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