Promotion and Expansion of Private Employee Ownership Act of 2021

Promotion and Expansion of Private Employee Ownership Act of 2021

This bill expands tax incentives and federal assistance for employee stock ownership plans (ESOPs) that are sponsored by S corporations.

The bill extends to all domestic corporations, including S corporations, provisions allowing deferral of tax on gain from the sale of employer securities to an ESOP.

The Department of the Treasury must establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations.

The bill defines an ESOP business concern and allows such a concern to continue to qualify as a small business for the purposes of programs under the Small Business Act. An ESOP business concern is a business concern that was a small business concern eligible for a loan, preference, or other program under the Small Business Act before more than 49% of the business concern was acquired by an ESOP.

[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 1300 Introduced in Senate (IS)]

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117th CONGRESS
  1st Session
                                S. 1300

 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 SENATE OF THE UNITED STATES

                             April 22, 2021

  Mr. Cardin (for himself, Mr. Portman, Ms. Stabenow, Mr. Crapo, Ms. 
Cantwell, Mr. Daines, Mr. Brown, Ms. Collins, Mr. Casey, Mr. Risch, Mr. 
    Whitehouse, Mr. Blunt, Ms. Hassan, Mr. Boozman, Mr. Leahy, Mrs. 
   Fischer, Mrs. Murray, Ms. Ernst, Mr. Sanders, Ms. Klobuchar, Mr. 
Tester, Mrs. Shaheen, Mr. King, Mr. Booker, Mr. Peters, Mr. Van Hollen, 
and Ms. Duckworth) introduced the following bill; which was read twice 
                and referred to the Committee on Finance

_______________________________________________________________________

                                 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 purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Promotion and Expansion of Private 
Employee Ownership Act of 2021''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) on January 1, 1998--nearly 25 years after the Employee 
        Retirement Income Security Act of 1974 was enacted and the 
        employee stock ownership plan (hereafter in this section 
        referred to as an ``ESOP'') was created--employees were first 
        permitted to be owners of subchapter S corporations pursuant to 
        the Small Business Job Protection Act of 1996 (Public Law 104-
        188);
            (2) with the passage of the Taxpayer Relief Act of 1997 
        (Public Law 105-34), Congress designed incentives to encourage 
        businesses to become ESOP-owned S corporations;
            (3) since that time, several thousand companies have become 
        ESOP-owned S corporations, creating an ownership interest for 
        several million Americans in companies in every State in the 
        country, in industries ranging from heavy manufacturing to 
        technology development to services;
            (4) while estimates show that 40 percent of working 
        Americans have no formal retirement account at all, every 
        United States worker who is an employee-owner of an S 
        corporation company through an ESOP has a valuable qualified 
        retirement savings account;
            (5) recent studies have shown that employees of ESOP-owned 
        S corporations enjoy greater job stability than employees of 
        comparable companies;
            (6) studies also show that employee-owners of S corporation 
        ESOP companies have amassed meaningful retirement savings 
        through their S ESOP accounts that will give them the means to 
        retire with dignity;
            (7) under the Small Business Act (15 U.S.C. 631 et seq.) 
        and the regulations promulgated by the Administrator of the 
        Small Business Administration, a small business concern that 
        was eligible under the Small Business Act for the numerous 
        preferences of the Act is denied treatment as a small business 
        concern after an ESOP acquires more than 49 percent of the 
        business, even if the number of employees, the revenue of the 
        small business concern, and the racial, gender, or other 
        criteria used under the Act to determine whether the small 
        business concern is eligible for benefits under the Act remain 
        the same, solely because of the acquisition by the ESOP; and
            (8) it is the goal of Congress to both preserve and foster 
        employee ownership of S corporations through ESOPs.

SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EMPLOYER STOCK TO EMPLOYEE 
              STOCK OWNERSHIP PLAN SPONSORED BY S CORPORATION.

    (a) In General.--Subparagraph (A) of section 1042(c)(1) of the 
Internal Revenue Code of 1986 is amended by striking ``domestic C 
corporation'' and inserting ``domestic corporation''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales after the date of the enactment of this Act.

SEC. 4. DEPARTMENT OF THE TREASURY TECHNICAL ASSISTANCE OFFICE.

    (a) Establishment Required.--Before the end of the 90-day period 
beginning on the date of enactment of this Act, the Secretary of the 
Treasury shall establish the S Corporation Employee Ownership 
Assistance Office to foster increased employee ownership of S 
corporations.
    (b) Duties of the Office.--The S Corporation Employee Ownership 
Assistance Office shall provide--
            (1) education and outreach to inform companies and 
        individuals about the possibilities and benefits of employee 
        ownership of S corporations; and
            (2) technical assistance to assist S corporations in 
        sponsoring employee stock ownership plans.

SEC. 5. SMALL BUSINESS AND EMPLOYEE STOCK OWNERSHIP.

    (a) In General.--The Small Business Act (15 U.S.C. 631 et seq.) is 
amended--
            (1) by redesignating section 49 as section 50; and
            (2) by inserting after section 48 the following:

``SEC. 49. EMPLOYEE STOCK OWNERSHIP PLANS.

    ``(a) Definitions.--In this section--
            ``(1) the term `ESOP' means an employee stock ownership 
        plan, as defined in section 4975(e)(7) of the Internal Revenue 
        Code of 1986, as amended; and
            ``(2) the term `ESOP business concern' means a business 
        concern that was a small business concern eligible for a loan, 
        preference, or other program under this Act before the date on 
        which more than 49 percent of the business concern was acquired 
        by an ESOP.
    ``(b) Continued Eligibility.--In determining whether an ESOP 
business concern qualifies as a small business concern for purposes of 
a loan, preference, or other program under this Act, each ESOP 
participant shall be treated as directly owning his or her 
proportionate share of the stock in the ESOP business concern owned by 
the ESOP.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on January 1 of the first calendar year beginning after the date 
of the enactment of this Act.
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