I 

114TH CONGRESS 

1ST SESSION H. R. 2096 

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 HOUSE OF REPRESENTATIVES 

APRIL 29, 2015 

Mr. REICHERT (for himself, Mr. KIND, Mr. TIBERI, Mr. NEAL, Mr. PAULSEN, 

Mr. BLUMENAUER, Mr. BOUSTANY, and Mr. PASCRELL) introduced the 

following bill; which was referred to the Committee on Ways and Means, 

and in addition to the Committees on Education and the Workforce and 

Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

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 2015’’. 


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1 SEC. 2. FINDINGS. 

2 Congress finds that— 

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

4 the Employee Retirement Income Security Act of 

5 1974 was enacted and the employee stock ownership 

6 plan (hereafter in this section referred to as an 

7 ‘‘ESOP’’) was created—employees were first per8 mitted to be owners of subchapter S corporations 

9 pursuant to the Small Business Job Protection Act 

10 of 1996 (Public Law 104–188); 

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

12 of 1997 (Public Law 105–34), Congress designed in13 centives to encourage businesses to become ESOP14 owned S corporations; 

15 (3) since that time, several thousand companies 

16 have become ESOP-owned S corporations, creating 

17 an ownership interest for several million Americans 

18 in companies in every State in the country, in indus19 tries ranging from heavy manufacturing to tech20 nology development to services; 

21 (4) while estimates show that 40 percent of 

22 working Americans have no formal retirement ac23 count at all, every United States worker who is an 

24 employee-owner of an S corporation company 

25 through an ESOP has a valuable qualified retire26 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.—Section 1042(c)(1)(A) of the In6 ternal Revenue Code of 1986 is amended by striking ‘‘do7 mestic C corporation’’ and inserting ‘‘domestic corpora8 tion’’. 

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. DEDUCTION FOR INTEREST ON LOAN TO FINANCE 

13 PURCHASE OF EMPLOYER SECURITIES BY AN 

14 EMPLOYEE STOCK OWNERSHIP PLAN SPON15 SORED BY AN S CORPORATION. 

16 (a) IN GENERAL.—Part VI of subchapter B of chap17 ter 1 of the Internal Revenue Code of 1986 is amended 

18 by inserting after section 199 the following new section: 

19 ‘‘SEC. 200. INTEREST ON CERTAIN LOANS FOR THE PUR20 CHASE OF EMPLOYER SECURITIES BY AN EM21 PLOYEE STOCK OWNERSHIP PLAN SPON22 SORED BY AN S CORPORATION. 

23 ‘‘(a) IN GENERAL.—There shall be allowed as a de24 duction an amount equal to 50 percent of the interest re25 ceived during the taxable year by a bank (within the meanVerDate Sep 11 2014 00:58 May 08, 2015 Jkt 049200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2096.IH H2096

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1 ing of section 581) with respect to a qualified securities 

2 acquisition loan. 

3 ‘‘(b) QUALIFIED SECURITIES ACQUISITION LOAN.— 

4 ‘‘(1) IN GENERAL.—For purposes of this sec5 tion, the term ‘qualified securities acquisition loan’ 

6 means— 

7 ‘‘(A) any loan to an employee stock owner8 ship plan sponsored by an S corporation to the 

9 extent that the proceeds are used to acquire 

10 employer securities for the plan, and 

11 ‘‘(B) any loan to an S corporation that 

12 sponsors an employee stock ownership plan to 

13 the extent that the proceeds of such loan are 

14 loaned to the employee stock ownership plan to 

15 acquire employer securities for the plan. 

16 For purposes of this paragraph, the term ‘employer 

17 securities’ has the meaning given such term by sec18 tion 409(l). 

19 ‘‘(2) TERMS APPLICABLE TO CERTAIN QUALI20 FIED SECURITIES ACQUISITION LOANS.—For pur21 poses of paragraph (1)(B), the term ‘qualified secu22 rities acquisition loan’ shall not include any loan to 

23 the S corporation unless the loan to the employee 

24 stock ownership plan has repayment terms which are 


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1 substantially similar to the terms of the loan to the 

2 S corporation. 

3 ‘‘(3) TREATMENT OF REFINANCINGS.—The 

4 term ‘qualified securities acquisition loan’ shall in5 clude any loan which is (or is part of a series of 

6 loans) used to refinance a loan described in para7 graph (1) (after the application of paragraph (2)). 

8 ‘‘(4) PLAN MUST HOLD MORE THAN 50 PER9 CENT OF STOCK AFTER ACQUISITION OR TRANS10 FER.— 

11 ‘‘(A) IN GENERAL.—A loan shall not be 

12 treated as a qualified securities acquisition loan 

13 for purposes of this section unless, immediately 

14 after an acquisition of employer securities re15 ferred to in paragraph (1), the employee stock 

16 ownership plan owns more than 50 percent of 

17 the outstanding stock of the S corporation. 

18 ‘‘(B) FAILURE TO RETAIN MINIMUM STOCK

19 INTEREST.— 

20 ‘‘(i) IN GENERAL.—Subsection (a) 

21 shall not apply to any interest received 

22 with respect to a qualified securities acqui23 sition loan which is allocable to any period 

24 during which the employee stock ownership 


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1 plan does not own stock meeting the re2 quirements of subparagraph (A). 

3 ‘‘(ii) EXCEPTION.—To the extent pro4 vided by the Secretary, clause (i) shall not 

5 apply to any period if, within 90 days of 

6 the first date on which the failure occurred 

7 (or such longer period not in excess of 180 

8 days as the Secretary may prescribe), the 

9 plan acquires stock which results in its 

10 meeting the requirements of subparagraph 

11 (A). 

12 ‘‘(C) STOCK.—For purposes of subpara13 graph (A), the Secretary may provide that war14 rants, options, contracts to acquire stock, con15 vertible debt interests and other similar inter16 ests be treated as stock for 1 or more purposes 

17 under subparagraph (A). 

18 ‘‘(c) EMPLOYEE STOCK OWNERSHIP PLAN.—For 

19 purposes of this section, the term ‘employee stock owner20 ship plan’ has the meaning given to such term by section 

21 4975(e)(7).’’. 

22 (b) CLERICAL AMENDMENT.—The table of sections 

23 for part VI of subchapter B of chapter 1 of such Code 

24 is amended by inserting after the item relating to section 

25 199 the following new item: 


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‘‘Sec. 200. Interest on certain loans for the purchase of employer securities by 

an employee stock ownership plan sponsored by an S corporation.’’. 

1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to interest accrued on loans made 

3 after the date of the enactment of this Act. 

4 SEC. 5. DEPARTMENT OF THE TREASURY TECHNICAL AS5 SISTANCE OFFICE. 

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

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

8 this Act, the Secretary of the Treasury shall establish the 

9 S Corporation Employee Ownership Assistance Office to 

10 foster increased employee ownership of S corporations. 

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

12 Employee Ownership Assistance Office shall provide— 

13 (1) education and outreach to inform companies 

14 and individuals about the possibilities and benefits of 

15 employee ownership of S corporations; and 

16 (2) technical assistance to assist S corporations 

17 in sponsoring employee stock ownership plans. 

18 SEC. 6. SMALL BUSINESS AND EMPLOYEE STOCK OWNER19 SHIP. 

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

21 U.S.C. 631 et seq.) is amended— 

22 (1) by redesignating section 47 as section 48; 

23 and 

24 (2) by inserting after section 46 the following: 


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1 ‘‘SEC. 47. EMPLOYEE STOCK OWNERSHIP PLANS. 

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

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

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

5 the Internal Revenue Code of 1986; and 

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

7 a business concern that was a small business con8 cern eligible for a loan, preference, or other program 

9 under this Act before the date on which more than 

10 49 percent of the business concern was acquired by 

11 an ESOP. 

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

13 whether an ESOP business concern qualifies as a small 

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

15 other program under this Act, each ESOP participant 

16 shall be treated as directly owning his or her proportionate 

17 share of the stock in the ESOP business concern owned 

18 by the ESOP.’’. 

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

20 this section shall take effect on January 1 of the first cal21 endar year beginning after the date of the enactment of 

22 this Act. 

Æ 


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