Amends the Internal Revenue Code regarding estates and trusts to provide rules for the gratuitous transfer of qualified employer securities to an employee stock ownership plan from charitable remainder trusts.
[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1807 Introduced in House (IH)]
103d CONGRESS
1st Session
H. R. 1807
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
April 22, 1993
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.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
Referred to the Subcommittee on Select Revenue Measures.
Subcommittee Hearings Held.
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