I 

116TH CONGRESS 

1ST SESSION H. R. 1294 

To amend the Internal Revenue Code of 1986 to deny the deduction for 

executive compensation unless the employer maintains profit-sharing distributions for employees. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 14, 2019 

Mrs. WATSON COLEMAN 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 deny the 

deduction for executive compensation unless the employer 

maintains profit-sharing distributions for employees. 

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 ‘‘Employee Profit-Shar5 ing Encouragement Act of 2019’’. 


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1 SEC. 2. DENIAL OF DEDUCTION FOR EXECUTIVE COM2 PENSATION UNLESS EMPLOYER MAINTAINS 

3 PROFIT-SHARING DISTRIBUTIONS. 

4 (a) IN GENERAL.—Section 162 of the Internal Rev5 enue Code of 1986 is amended by redesignating subsection 

6 (s) as subsection (t) and by inserting after subsection (r) 

7 the following new subsection: 

8 ‘‘(s) EXECUTIVE COMPENSATION PAID BY EMPLOY9 ERS WHO DO NOT MAINTAIN PROFIT-SHARING DIS10 TRIBUTIONS.— 

11 ‘‘(1) IN GENERAL.—In the case of a specified 

12 employer, no deduction shall be allowed under this 

13 chapter for applicable employee remuneration with 

14 respect to any highly compensated individual (within 

15 the meaning of section 105(h)) for any taxable year 

16 unless qualified profit-sharing distributions are made 

17 during such taxable year. 

18 ‘‘(2) QUALIFIED PROFIT-SHARING DISTRIBU19 TIONS.—For purposes of this subsection— 

20 ‘‘(A) IN GENERAL.—The term ‘qualified 

21 profit-sharing distributions’ means a cash dis22 tribution made pursuant to a written plan of 

23 the employer under which— 

24 ‘‘(i) employees (including part-time 

25 employees) who have been employed for at 


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1 least 1 year as of the date of the distribu2 tion have a right to such distribution, and 

3 ‘‘(ii) the amount of such distributions 

4 are defined under such plan on the basis of 

5 a measure of the receipts, profit, revenues, 

6 or earnings of such employer. 

7 ‘‘(B) MINIMUM DISTRIBUTION REQUIRE8 MENTS.—Such term shall not include any dis9 tributions made pursuant to such plan during 

10 the taxable year if the aggregate distributions 

11 made pursuant to such plan during such tax12 able year are less than 5 percent of the employ13 er’s net income for the taxable year as deter14 mined pursuant to the employer’s books and 

15 records prepared in accordance with the em16 ployer’s accounting procedures. 

17 ‘‘(C) NONDISCRIMINATION.—Such term 

18 shall not include any distributions made pursu19 ant to such plan during the taxable year unless 

20 such plan satisfies requirements similar to the 

21 requirements of section 401(k)(3)(A)(ii) applied 

22 by treating the distributions made pursuant to 

23 the plan as though such distributions were con24 tributions paid over to the trust referred to in 

25 such section. 


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1 ‘‘(D) EXCEPTION IF DISTRIBUTIONS

2 WOULD JEOPARDIZE THE BUSINESS.—An em3 ployer shall not fail to be treated as making 

4 qualified profit-sharing distributions during the 

5 taxable year to the extent that such employer 

6 establishes to the satisfaction of the Secretary 

7 by clear and convincing evidence that making 

8 such distributions would jeopardize the ability 

9 of the employer to continue as a going concern. 

10 ‘‘(3) SPECIFIED EMPLOYER.—For purposes of 

11 this subsection— 

12 ‘‘(A) IN GENERAL.—The term ‘specified 

13 employer’ means, with respect to any taxable 

14 year, any employer which meets the gross re15 ceipts test of section 448(c) (determined with16 out regard to paragraph (4) thereof) for such 

17 taxable year. 

18 ‘‘(B) APPLICATION OF GROSS RECEIPTS

19 TEST TO INDIVIDUALS, ETC.—For purposes of 

20 subparagraph (A), in the case of any employer 

21 which is not a corporation or a partnership, the 

22 gross receipts test referred to in such subpara23 graph shall be applied in the same manner as 

24 if each trade or business of such employer were 

25 a corporation or partnership. 


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1 ‘‘(4) APPLICABLE EMPLOYEE REMUNERA2 TION.—For purposes of this subsection, the term 

3 ‘applicable employee remuneration’ has the meaning 

4 given such term by subsection (m)(4), determined 

5 without regard to subparagraph (B) thereof. 

6 ‘‘(5) CONTROLLED GROUPS.—For purposes of 

7 this subsection, all persons treated as a single em8 ployer under subsection (b), (c), (m), or (o) of sec9 tion 414 shall be treated as one employer. 

10 ‘‘(6) COORDINATION.—Rules similar to the 

11 rules of subparagraphs (D) and (E) of subsection 

12 (m)(4) shall apply for purposes of this subsection. 

13 ‘‘(7) AUTHORITY TO ADDRESS ABUSE.—The 

14 Secretary shall have the authority to address any 

15 abuses by employers under this subsection, includ16 ing, but not limited to, a reduction in employee com17 pensation or benefits in conjunction with the pay18 ment of qualified profit-sharing distributions.’’. 

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

20 this section shall apply to taxable years beginning after 

21 the date of the enactment of this Act. 

Æ 


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