Employee Ownership Act of 1999

Summary: (Sec. 3) Amends the Internal Revenue Code to provide for tax-exempt employee-owned and employee-controlled corporation (EOECC) trusts whose primary assets consist of the employer securities of an EOECC in which: (1) more than 50 percent of the voting stock is held by a trust for the benefit of the corporation's employees; (2) in all matters requiring the vote of stock, including the election of the corporate board of directors, the trustee of such trust is obligated to vote the stock held in trust and allocated to participants in the trust in the manner in which the participants direct, on the basis of one-employee one-vote (and vote any stock not so allocated as if it were so allocated); (3) at least 25 employees of such corporation are participants in and beneficiaries of such trust; (4) a minimum of 90 percent of the employees who work at least 1,000 hours annually for such corporation are participants in such trust; and (5) the trustee administers the trust for the benefit of the corporation's employees, complying with all Code requirements for employee stock ownership plans which pertain to independent appraisal of shares not readily tradable, and distribution of those shares.
Declares that: (1) there shall be no tax on the corporate income of an EOECC; and (2) the gross income of an employee owner shall not include any proceeds from the qualified sale of EOECC securities.
Exempts from inclusion in gross income of property transferred in connection with performance of services any transfer (in lieu of compensation) of EOECC securities during the three years following a corporation's election to become an EOECC.
Mandates nonrecognition of gain in the case of the sale or transfer of EOECC securities to an EOECC trust.
Establishes a credit against the estate tax for the amount of EOECC securities considered to have been acquired from or to have passed from a decedent to an EOECC trust.
(Sec. 4) Directs the Comptroller General to study and report to Congress on Federal regulations and policies affecting EOECCs.
(Sec. 5) Directs the President to establish a Presidential Commission on Employee Ownership to study and report on all issues that affect ownership of businesses in the United States, with a primary focus on the issues that affect employee ownership of such businesses.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Employee Ownership Act of 1999''.

SEC. 2. OWNERSHIP POLICY FOR THE UNITED STATES.

    (a) Findings.--The Congress finds that--
            (1) there is considerable evidence that employee-owned and 
        employee-controlled corporations are more productive and 
        provide more wealth to their employees than corporations not so 
        owned, and
            (2) the workplace experience of employee-owned and 
        employee-controlled corporations is proven to foster greater 
        appreciation of the economic system of the United States that 
        relies on ownership of private property and capitalism.
    (b) Policy.--It is the policy of the United States that by the year 
2010, 30 percent of all United States corporations are owned and 
controlled by employees of the corporations.

SEC. 3. TAX INCENTIVES RELATING TO EMPLOYEE-OWNED AND EMPLOYEE-
              CONTROLLED CORPORATIONS.

    (a) Trust of Employee-Owned and Employee-Controlled Corporation 
Exempt From Taxation.--
            (1) In general.--Section 501(c) of the Internal Revenue 
        Code of 1986 (relating to list of exempt organizations) is 
        amended by adding at the end the following new paragraph:
            ``(28)(A) employee-owned and employee-controlled 
        corporation trust.
            ``(B) For purposes of subparagraph (A), the term `employee-
        owned and employee-controlled corporation trust' means a trust 
        which has as its primary assets the employer securities (within 
        the meaning of section 409(l)) of an employee-owned and 
        employee-controlled corporation.
            (2) Employee-owned and employee-controlled corporation 
        defined.--Subsection (a) of section 7701 of such Code (relating 
        to definitions) is amended by adding at the end the following 
        new paragraph:
            ``(47) Employee-owned and employee-controlled 
        corporation.--The term `employee-owned and employee-controlled 
        corporation' means a corporation in which--
                    ``(A) more than 50 percent of the voting stock of 
                such corporation is held by a trust for the benefit of 
                the employees of that corporation,
                    ``(B) in all matters requiring the vote of stock, 
                including the election of the board of directors of the 
                corporation, the trustee of such trust is obligated to 
                vote the stock held in trust and allocated to 
                participants in the trust in the manner in which the 
                participants direct, on the basis of 1-employee 1-vote, 
                and to vote any stock not so allocated as if it were so 
                allocated,
                    ``(C) at least 25 employees of such corporation are 
                participants in and beneficiaries of such trust,
                    ``(D) a minimum of 90 percent of the employees who 
                work at least 1,000 hours annually for such corporation 
                are participants in such trust, and
                    ``(E) the trustee administers such trust for the 
                benefit of the employees of such corporation and 
                complies with all requirements of this title relating 
                to employee stock ownership plans (as defined in 
                section 4975(e)(7)) pertaining to independent appraisal 
                of shares not readily tradable and distribution of 
                those shares.''.
    (b) No Tax on Corporate Income of Employee-Owned and Employee-
Controlled Corporation.--Subsection (a) of section 11 of such Code 
(relating to corporations in general) is amended by inserting before 
the period at the end the following: ``(other than any employee-owned 
and employee-controlled corporation)''.
    (c) Exclusion of Income From Sale of Employee-Owned and Employee-
Controlled Corporation Stock by Employee Owner.--
            (1) In general.--Part III of subchapter B of chapter 1 of 
        such Code (relating to items specifically excluded from gross 
        income) is amended by redesignating section 139 as section 140 
        and by inserting after section 138 the following new section:

``SEC. 139. INCOME FROM EMPLOYEE OWNER SALE OF EMPLOYER SECURITIES 
              DISTRIBUTED FROM EMPLOYEE-OWNED AND EMPLOYEE-CONTROLLED 
              CORPORATION TRUST.

    ``(a) In General.--In the case of an individual, gross income shall 
not include any proceeds from the qualified sale of employer 
securities.
    ``(b) Qualified Sale of Employer Securities.--The term `qualified 
sale of employer securities' means the sale of employer securities (as 
defined in section 409(l)) which were distributed to a participant in 
the employee-owned and employee-controlled corporation trust to--
            ``(1) an employee of the employee-owned and employee-
        controlled corporation which issued such securities,
            ``(2) such corporation, or
            ``(3) such trust.''.
            (2) Clerical amendment.--The table of sections for part III 
        of subchapter B of chapter 1 of such Code is amended by 
        striking the item relating to section 139 and inserting after 
        the item relating to section 138 the following new items:

                              ``Sec. 139. Income from employee owner 
                                        sale of employer securities 
                                        distributed from employee-owned 
                                        and employee-controlled 
                                        corporation trust.
                              ``Sec. 140. Cross references to other 
                                        Acts.''.
    (d) Receipt of Stock in an Employee Owned and Controlled 
Corporation During 3-Year Transition Period.--Section 83 of such Code 
(relating to property transferred in connection with performance of 
services) is amended by adding at the end the following new subsection:
    ``(i) Receipt of Stock in an Employee Owned and Controlled 
Corporation During 3-Year Transition Period.--
            ``(1) In general.--In the case of an employee, this section 
        shall not apply to the transfer in lieu of compensation of 
        employer securities in an employer owned and controlled 
        corporation during the 3-year period beginning on the effective 
        date of the election of a corporation to become an employee 
        owned and controlled corporation.
            ``(2) Exception.--If, on the day after the end of the 3-
        year period referred to in paragraph (1), such corporation is 
        not an employee owned and controlled corporation, paragraph (1) 
        shall not apply and the following sum shall be included in the 
        gross income of such employee:
                    ``(A) an amount equal to the fair market value of 
                all of such securities at the time of transfer 
                (determined without regard to any restriction other 
                than a restriction which by its terms will never lapse) 
                to the employee in lieu of compensation for such 
                period, plus
                    ``(B) an amount equal to 10 percent of the amount 
                determined under subparagraph (A).''.
    (e) No Tax on Gain on Sales or Transfers to Employee-Owned and 
Employee-Controlled Corporation Trust.--
            (1) In general.--Part III of subchapter O of chapter 1 of 
        such Code (relating to common nontaxable exchanges) is amended 
        by adding at the end the following new section:

``SEC. 1046. SALE OF SECURITIES TO EMPLOYEE-OWNED AND EMPLOYEE-
              CONTROLLED CORPORATION TRUST.

    ``(a) Nonrecognition of Gain.--If the taxpayer elects the 
application of this section, in the case of the sale or transfer of 
employer securities (as defined in section 409(l)) to an employee-owned 
and employee-controlled corporation trust, gain on such sale or 
transfer shall not be recognized if the requirements of subsection (b) 
are met.
    ``(b) Requirements.--
            ``(1) In general.--The requirements of this subsection are 
        that--
                    ``(A) the employee-owned and employee-controlled 
                corporation trust acquiring such securities from the 
                taxpayer agrees--
                            ``(i) to hold such securities for the 3-
                        year period beginning on the date of such 
                        transfer or sale, and
                            ``(ii) to notify the taxpayer upon the 
                        transfer of such securities before the end of 
                        such period, and
                    ``(B) the taxpayer agrees to the provisions of 
                subsection (b).
            ``(2) Exceptions.--Paragraph (1) shall not apply--
                    ``(A) in a case where such securities are 
                securities of an employee-owned and employee-controlled 
                corporation which are distributed within such 3-year 
                period to an employee of such corporation, and
                    ``(B) in the case of the sale or transfer of stock 
                of an employee-owned and employee-controlled 
                corporation in connection with the sale or 
                reorganization of such corporation, if such sale or 
                reorganization is approved by the employees of such 
                corporation in a vote held on a 1-employee 1-vote 
                basis.
    ``(c) Recapture of Tax.--If, during any year within the 3-year 
period referred to in subsection (b)(1), securities subject to 
subsection (a) are sold or transferred in a manner that does not meet 
the requirements of subsection (b), then gain on the sale or transfer 
described in subsection (a) shall be recognized for the year in which 
such requirements are not met.''.
            (2) Clerical amendment.--The table of sections for part III 
        of subchapter O of chapter 1 of such Code is amended by adding 
        at the end the following new item:

                              ``Sec. 1046. Sale of securities to 
                                        employee-owned and employee-
                                        controlled corporation 
                                        trust.''.
    (f) Credit For Transfer of Stock From Estate to Employee-Owned and 
Employee-Controlled Corporation.--
            (1) In general.--Part II of subchapter A of chapter 11 of 
        such Code (relating to credits against tax) is amended by 
        redesignating section 2016 as section 2017 and by inserting 
        after section 2015 the following new section:

``SEC. 2016. CREDIT FOR TRANSFER OF EMPLOYEE SECURITIES FROM ESTATE TO 
              EMPLOYEE-OWNED AND EMPLOYEE-CONTROLLED CORPORATION TRUST.

    ``(a) General Rule.--The tax imposed by section 2001 shall be 
credited with the amount of employer securities considered to have been 
acquired from or to have passed from the decedent to an employee-owned 
and employee-controlled corporation trust.
    ``(b) Limitation.--Such credit may not exceed the tax imposed by 
section 2001, reduced under this part (other than by this section).
    ``(c) Value of Stock Not Readily Tradable.--No credit shall be 
allowed under subsection (a) in the case of employer securities which 
are not readily tradable on an established securities market unless the 
value of such employer securities is established by an independent 
appraiser. For purposes of the preceding sentence, the term 
`independent appraiser' means any appraiser meeting requirements 
similar to the requirements of the regulations prescribed under section 
170(a)(1).
    ``(d) Definitions.--For purposes of subsection (a)--
            ``(1) Acquired from or passed from a decedent.--Employer 
        securities shall be considered to have been acquired from or to 
        have passed from a decedent if the basis of such property in 
        the hands of the employee-owned and employee-controlled 
        corporation trust is determined under section 1014 by reference 
        to paragraph (1), (2), (4), or (9) of subsection (b) of such 
        section.
            ``(2) Employer securities.--The term `employer securities' 
        has the meaning given such term by section 409(l)), except that 
        such term shall not include any security which is not voting 
        common stock.''.
            (2) Clerical amendment.--The table of sections for part II 
        of subchapter A of chapter 11 of such Code (relating to credits 
        against tax) is amended by striking the item relating to 
        section 2016 and adding at the end the following new items:

                              ``Sec. 2016. Credit for transfer of 
                                        employee securities from estate 
                                        to employee-owned and employee-
                                        controlled corporation trust.
                              ``Sec. 2017. Recovery of taxes claimed as 
                                        credit.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after the date of the enactment of this Act.
            (2) Credit for transfer of stock from estate to employee-
        owned and employee-controlled corporation.--The amendments made 
        subsection (f) shall apply to estates of decedents dying after 
        the date of the enactment of this Act.

SEC. 4. STUDY OF GOVERNMENT POLICIES AFFECTING EMPLOYEE-OWNED AND 
              EMPLOYEE-CONTROLLED CORPORATIONS.

    The Comptroller General of the United States shall--
            (1) conduct a study of all Federal Government regulations 
        and policies that might impact the creation and operation of an 
        employee-owned and employee-controlled corporation as defined 
        in section 7701(a)(47) of the Internal Revenue Code of 1986,
            (2) identify those regulations and policies that are 
        barriers to employee ownership and control of such a 
        corporation, and
            (3) not later than one year after the date of the enactment 
        of this Act, submit a report on the findings of such study, 
        together with such recommendations as the Comptroller General 
        determines appropriate, to the Congress.

SEC. 5. PRESIDENTIAL COMMISSION ON EMPLOYEE OWNERSHIP.

    (a) Establishment.--Not later than one year after the date of the 
enactment of this Act, the President shall establish a commission to be 
known as the ``Presidential Commission on Employee Ownership'' 
(hereafter in this section referred to as the ``Commission'').
    (b) Duties and Report.--The Commission shall--
            (1) conduct a study concerning all issues that affect 
        ownership of businesses in the United States, with a primary 
        focus on the issues that affect employee ownership of such 
        businesses, and
            (2) not later than two years after the date of its 
        establishment, submit a final report to the President and the 
        Congress which includes the findings and recommendations of the 
        Commission.
    (c) Membership.--The Commission shall be composed of 15 members 
appointed by the President as follows:
            (1) Three individuals, each of whom is an employee of a 
        corporation that has at least 50 percent of its voting stock in 
        a trust for the benefit of employees and who is not an officer 
        or senior manager of that corporation.
            (2) Three individuals, each of whom is an employee of a 
        corporation that has at least 50 percent of its voting stock in 
        a trust for the benefit of employees and who is an officer or 
        senior manager of that corporation.
            (3) Three individuals, each of whom is a professor employed 
        by an institution of higher learning.
            (4) Three individuals, each of whom is employed by a not-
        for-profit entity that has as its primary mission issues 
        arising from employee ownership of businesses.
            (5) The Secretary of Labor, or his designee, the Secretary 
        of the Treasury, or his designee, and the Director of the 
        Office of Management and Budget, or his designee.
    (d) Staff.--The Commission shall have such number of staff as the 
President shall determine, except that such staff shall include not 
less than five full-time employees.
    (e) Gifts and Bequests.--The Commission may accept, use, and 
dispose of gifts or bequests or services or personal property for the 
purpose of aiding or facilitating the work of the Commission. Gifts or 
bequests of money and proceeds from sales of other property received as 
gifts or bequests shall be deposited in the Treasury and shall be 
available for disbursement upon order of the Commission.