II 

112TH CONGRESS 

1ST SESSION S. 1512 

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 

SEPTEMBER 6, 2011 

Mr. CARDIN (for himself, Mr. ROBERTS, and Ms. SNOWE) 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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Promotion and Expan5 sion of Private Employee Ownership Act of 2011’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds that— 


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1 (1) on January 1, 1998—nearly 25 years after 

2 the Employee Retirement Income Security Act of 

3 1974 was enacted and the employee stock ownership 

4 plan (hereafter in this section referred to as an 

5 ‘‘ESOP’’) was created—employees were first per6 mitted to be owners of subchapter S corporations 

7 pursuant to the Small Business Job Protection Act 

8 of 1996 (Public Law 104–188); 

9 (2) with the passage of the Taxpayer Relief Act 

10 of 1997 (Public Law 105–34), Congress designed in11 centives to encourage businesses to become ESOP12 owned S corporations; 

13 (3) since that time, several thousand companies 

14 have become ESOP-owned S corporations, creating 

15 an ownership interest for several million Americans 

16 in companies in every State in the country, in indus17 tries ranging from heavy manufacturing to tech18 nology development to services; 

19 (4) while estimates show that 40 percent of 

20 working Americans have no formal retirement ac21 count at all, every United States worker who is an 

22 employee-owner of an S corporation company 

23 through an ESOP has a valuable qualified retire24 ment savings account; 


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1 (5) recent studies have shown that employees of 

2 ESOP-owned S corporations enjoy greater job sta3 bility than employees of comparable companies; 

4 (6) studies also show that employee-owners of S 

5 corporation ESOP companies have amassed mean6 ingful retirement savings through their S ESOP ac7 counts that will give them the means to retire with 

8 dignity; 

9 (7) under the Small Business Act (15 U.S.C. 

10 631 et seq.) and the regulations promulgated by the 

11 Administrator of the Small Business Administration, 

12 a small business concern that was eligible under the 

13 Small Business Act for the numerous preferences of 

14 the Act is denied treatment as a small business con15 cern after an ESOP acquires more than 49 percent 

16 of the business, even if the number of employees, the 

17 revenue of the small business concern, and the ra18 cial, gender, or other criteria used under the Act to 

19 determine whether the small business concern is eli20 gible for benefits under the Act remain the same, 

21 solely because of the acquisition by the ESOP; and 

22 (8) it is the goal of Congress to both preserve 

23 and foster employee ownership of S corporations 

24 through ESOPs. 


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1 SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EM2 PLOYER STOCK TO EMPLOYEE STOCK OWN3 ERSHIP PLAN SPONSORED BY S CORPORA4 TION. 

5 (a) IN GENERAL.—Subparagraph (A) of section 

6 1042(c)(1) of the Internal Revenue Code of 1986 (defin7 ing qualified securities) is amended by striking ‘‘domestic 

8 C corporation’’ and inserting ‘‘domestic corporation’’. 

9 (b) EFFECTIVE DATE.—The amendment made by 

10 subsection (a) shall apply to sales after the date of the 

11 enactment of this Act. 

12 SEC. 4. DEPARTMENT OF TREASURY TECHNICAL ASSIST13 ANCE OFFICE. 

14 (a) ESTABLISHMENT REQUIRED.—Before the end of 

15 the 90-day period beginning on the date of enactment of 

16 this Act, the Secretary of Treasury shall establish the S 

17 Corporation Employee Ownership Assistance Office to fos18 ter increased employee ownership of S corporations. 

19 (b) DUTIES OF THE OFFICE.—The S Corporation 

20 Employee Ownership Assistance Office shall provide— 

21 (1) education and outreach to inform companies 

22 and individuals about the possibilities and benefits of 

23 employee ownership of S corporations; and 

24 (2) technical assistance to assist S corporations 

25 in sponsoring employee stock ownership plans. 


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1 SEC. 5. SMALL BUSINESS AND EMPLOYEE STOCK OWNER2 SHIP. 

3 (a) IN GENERAL.—The Small Business Act (15 

4 U.S.C. 631 et seq.) is amended— 

5 (1) by redesignating section 45 as section 46; 

6 and 

7 (2) by inserting after section 44 the following: 

8 ‘‘SEC. 45. EMPLOYEE STOCK OWNERSHIP PLANS. 

9 ‘‘(a) DEFINITIONS.—In this section— 

10 ‘‘(1) the term ‘ESOP’ means an employee stock 

11 ownership plan, as defined in section 4975(e)(7) of 

12 the Internal Revenue Code of 1986, as amended; 

13 and 

14 ‘‘(2) the term ‘ESOP business concern’ means 

15 a business concern that was a small business con16 cern eligible for a loan or to participate in a con17 tracting assistance or business development program 

18 under this Act before the date on which more than 

19 49 percent of the business concern was acquired by 

20 an ESOP. 

21 ‘‘(b) CONTINUED ELIGIBILITY.—In determining 

22 whether an ESOP business concern qualifies as a small 

23 business concern for purposes of a loan, preference, or 

24 other program under this Act, each ESOP participant 

25 shall be treated as directly owning his or her proportionate 


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1 share of the stock in the ESOP business concern owned 

2 by the ESOP.’’. 

3 (b) EFFECTIVE DATE.—The amendments made by 

4 this section shall take effect on January 1 of the first cal5 endar year beginning after the date of the enactment of 

6 this Act. 

Æ 


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