I 

108TH CONGRESS 

1ST SESSION H. R. 913

To amend the Internal Revenue Code of 1986 to provide incentives for 

the ownership and control of corporations by employees. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 25, 2003

Mr. ROHRABACHER 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 provide 

incentives for the ownership and control of corporations 

by 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 Ownership 

5 Act of 2003’’. 

6 SEC. 2. OWNERSHIP POLICY FOR THE UNITED STATES. 

7 (a) FINDINGS.—The Congress finds that—

8 (1) there is considerable evidence that em9 ployee-owned and employee-controlled corporations 
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1 are more productive and provide more wealth to 

2 their employees than corporations not so owned, and 

3 (2) the workplace experience of employee-owned 

4 and employee-controlled corporations is proven to 

5 foster greater appreciation of the economic system of 

6 the United States that relies on ownership of private 

7 property and capitalism. 

8 (b) POLICY.—It is the policy of the United States 

9 that by the year 2010, 30 percent of all United States 

10 corporations are owned and controlled by employees of the 

11 corporations. 

12 SEC. 3. TAX INCENTIVES RELATING TO EMPLOYEE-OWNED 

13 AND EMPLOYEE-CONTROLLED CORPORA14 TIONS. 

15 (a) TRUST OF EMPLOYEE-OWNED AND EMPLOYEE16 CONTROLLED CORPORATION EXEMPT FROM TAX17 ATION.—

18 (1) IN GENERAL.—Section 501(c) of the Inter19 nal Revenue Code of 1986 (relating to list of exempt 

20 organizations) is amended by adding at the end the 

21 following new paragraph: 

22 ‘‘(29)(A) employee-owned and employee-con23 trolled corporation trust. 

24 ‘‘(B) For purposes of subparagraph (A), the 

25 term ‘employee-owned and employee-controlled cor-
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1 poration trust’ means a trust which has as its pri2 mary assets the employer securities (within the 

3 meaning of section 409(l)) of an employee-owned 

4 and employee-controlled corporation.’’. 

5 (2) EMPLOYEE-OWNED AND EMPLOYEE-CON6 TROLLED CORPORATION DEFINED.—Subsection (a) 

7 of section 7701 of such Code (relating to definitions) 

8 is amended by adding at the end the following new 

9 paragraph: 

10 ‘‘(48) EMPLOYEE-OWNED AND EMPLOYEE-CON11 TROLLED CORPORATION.—The term ‘employee12 owned and employee-controlled corporation’ means a 

13 corporation in which—

14 ‘‘(A) more than 50 percent of the voting 

15 stock of such corporation is held by a trust for 

16 the benefit of the employees of that corporation, 

17 ‘‘(B) in all matters requiring the vote of 

18 stock, including the election of the board of di19 rectors of the corporation, the trustee of such 

20 trust is obligated to vote the stock held in trust 

21 and allocated to participants in the trust in the 

22 manner in which the participants direct, on the 

23 basis of 1-employee 1-vote, and to vote any 

24 stock not so allocated as if it were so allocated, 
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1 ‘‘(C) at least 25 employees of such cor2 poration are participants in and beneficiaries of 

3 such trust, 

4 ‘‘(D) a minimum of 90 percent of the em5 ployees who work at least 1,000 hours annually 

6 for such corporation are participants in such 

7 trust, and 

8 ‘‘(E) the trustee administers such trust for 

9 the benefit of the employees of such corporation 

10 and complies with all requirements of this title 

11 relating to employee stock ownership plans (as 

12 defined in section 4975(e)(7)) pertaining to 

13 independent appraisal of shares not readily 

14 tradable and distribution of those shares.’’. 

15 (b) NO TAX ON CORPORATE INCOME OF EMPLOYEE16 OWNED AND EMPLOYEE-CONTROLLED CORPORATION.—

17 Subsection (a) of section 11 of such Code (relating to cor18 porations in general) is amended by inserting before the 

19 period at the end the following: ‘‘(other than any em20 ployee-owned and employee-controlled corporation)’’. 

21 (c) EXCLUSION OF INCOME FROM SALE OF EM22 PLOYEE-OWNED AND EMPLOYEE–CONTROLLED COR23 PORATION STOCK BY EMPLOYEE OWNER.—

24 (1) IN GENERAL.—Part III of subchapter B of 

25 chapter 1 of such Code (relating to items specifically 
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1 excluded from gross income) is amended by redesig2 nating section 140 as section 140A and by inserting 

3 after section 139 the following new section: 

4 ‘‘SEC. 140. INCOME FROM EMPLOYEE OWNER SALE OF EM5 PLOYER SECURITIES DISTRIBUTED FROM 

6 EMPLOYEE-OWNED AND EMPLOYEE-CON7 TROLLED CORPORATION TRUST. 

8 ‘‘(a) IN GENERAL.—In the case of an individual, 

9 gross income shall not include any proceeds from the 

10 qualified sale of employer securities. 

11 ‘‘(b) QUALIFIED SALE OF EMPLOYER SECURITIES.—

12 The term ‘qualified sale of employer securities’ means the 

13 sale of employer securities (as defined in section 409(l)) 

14 which were distributed to a participant in the employee15 owned and employee-controlled corporation trust to—

16 ‘‘(1) an employee of the employee-owned and 

17 employee-controlled corporation which issued such 

18 securities, 

19 ‘‘(2) such corporation, or 

20 ‘‘(3) such trust.’’. 

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for part III of subchapter B of chapter 1 of 

23 such Code is amended by striking the item relating 

24 to section 140 and inserting after the item relating 

25 to section 139 the following new items:
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‘‘Sec. 140. Income from employee owner sale of employer securities distributed from employee-owned and employeecontrolled corporation trust. 

‘‘Sec. 140A. Cross references to other Acts.’’.

1 (d) RECEIPT OF STOCK IN AN EMPLOYEE OWNED

2 AND CONTROLLED CORPORATION DURING 3-YEAR TRAN3 SITION PERIOD.—Section 83 of such Code (relating to 

4 property transferred in connection with performance of 

5 services) is amended by adding at the end the following 

6 new subsection: 

7 ‘‘(i) RECEIPT OF STOCK IN AN EMPLOYEE OWNED

8 AND CONTROLLED CORPORATION DURING 3-YEAR TRAN9 SITION PERIOD.—

10 ‘‘(1) IN GENERAL.—In the case of an employee, 

11 this section shall not apply to the transfer in lieu of 

12 compensation of employer securities in an employer 

13 owned and controlled corporation during the 3-year 

14 period beginning on the effective date of the election 

15 of a corporation to become an employee owned and 

16 controlled corporation. 

17 ‘‘(2) EXCEPTION.—If, on the day after the end 

18 of the 3-year period referred to in paragraph (1), 

19 such corporation is not an employee owned and con20 trolled corporation, paragraph (1) shall not apply 

21 and the following sum shall be included in the gross 

22 income of such employee: 
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1 ‘‘(A) an amount equal to the fair market 

2 value of all of such securities at the time of 

3 transfer (determined without regard to any re4 striction other than a restriction which by its 

5 terms will never lapse) to the employee in lieu 

6 of compensation for such period, plus 

7 ‘‘(B) an amount equal to 10 percent of the 

8 amount determined under subparagraph (A).’’. 

9 (e) NO TAX ON GAIN ON SALES OR TRANSFERS TO

10 EMPLOYEE-OWNED AND EMPLOYEE–CONTROLLED COR11 PORATION TRUST.—

12 (1) IN GENERAL.—Part III of subchapter O of 

13 chapter 1 of such Code (relating to common non14 taxable exchanges) is amended by adding at the end 

15 the following new section: 

16 ‘‘SEC. 1046. SALE OF SECURITIES TO EMPLOYEE-OWNED 

17 AND EMPLOYEE-CONTROLLED CORPORATION 

18 TRUST. 

19 ‘‘(a) NONRECOGNITION OF GAIN.—If the taxpayer 

20 elects the application of this section, in the case of the 

21 sale or transfer of employer securities (as defined in sec22 tion 409(l)) to an employee-owned and employee-con23 trolled corporation trust, gain on such sale or transfer 

24 shall not be recognized if the requirements of subsection 

25 (b) are met. 
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1 ‘‘(b) REQUIREMENTS.—

2 ‘‘(1) IN GENERAL.—The requirements of this 

3 subsection are that—

4 ‘‘(A) the employee-owned and employee5 controlled corporation trust acquiring such se6 curities from the taxpayer agrees—

7 ‘‘(i) to hold such securities for the 3-

8 year period beginning on the date of such 

9 transfer or sale, and 

10 ‘‘(ii) to notify the taxpayer upon the 

11 transfer of such securities before the end 

12 of such period, and 

13 ‘‘(B) the taxpayer agrees to the provisions 

14 of subsection (b). 

15 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 

16 apply—

17 ‘‘(A) in a case where such securities are se18 curities of an employee-owned and employee19 controlled corporation which are distributed 

20 within such 3-year period to an employee of 

21 such corporation, and 

22 ‘‘(B) in the case of the sale or transfer of 

23 stock of an employee-owned and employee-con24 trolled corporation in connection with the sale 

25 or reorganization of such corporation, if such 
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1 sale or reorganization is approved by the em2 ployees of such corporation in a vote held on a 

3 1-employee 1-vote basis. 

4 ‘‘(c) RECAPTURE OF TAX.—If, during any year with5 in the 3-year period referred to in subsection (b)(1), secu6 rities subject to subsection (a) are sold or transferred in 

7 a manner that does not meet the requirements of sub8 section (b), then gain on the sale or transfer described 

9 in subsection (a) shall be recognized for the year in which 

10 such requirements are not met.’’. 

11 (2) CLERICAL AMENDMENT.—The table of sec12 tions for part III of subchapter O of chapter 1 of 

13 such Code is amended by adding at the end the fol14 lowing new item:

‘‘Sec. 1046. Sale of securities to employee-owned and employeecontrolled corporation trust.’’.

15 (f) CREDIT FOR TRANSFER OF STOCK FROM ESTATE

16 TO EMPLOYEE-OWNED AND EMPLOYEE-CONTROLLED

17 CORPORATION.—

18 (1) IN GENERAL.—Part II of subchapter A of 

19 chapter 11 of such Code (relating to credits against 

20 tax) is amended by redesignating section 2016 as 

21 section 2017 and by inserting after section 2015 the 

22 following new section:
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1 ‘‘SEC. 2016. CREDIT FOR TRANSFER OF EMPLOYEE SECURI2 TIES FROM ESTATE TO EMPLOYEE-OWNED 

3 AND EMPLOYEE-CONTROLLED CORPORATION 

4 TRUST. 

5 ‘‘(a) GENERAL RULE.—The tax imposed by section 

6 2001 shall be credited with the amount of employer securi7 ties considered to have been acquired from or to have 

8 passed from the decedent to an employee-owned and em9 ployee-controlled corporation trust. 

10 ‘‘(b) LIMITATION.—Such credit may not exceed the 

11 tax imposed by section 2001, reduced under this part 

12 (other than by this section). 

13 ‘‘(c) VALUE OF STOCK NOT READILY TRADABLE.—

14 No credit shall be allowed under subsection (a) in the case 

15 of employer securities which are not readily tradable on 

16 an established securities market unless the value of such 

17 employer securities is established by an independent ap18 praiser. For purposes of the preceding sentence, the term 

19 ‘independent appraiser’ means any appraiser meeting re20 quirements similar to the requirements of the regulations 

21 prescribed under section 170(a)(1). 

22 ‘‘(d) DEFINITIONS.—For purposes of subsection 

23 (a)—

24 ‘‘(1) ACQUIRED FROM OR PASSED FROM A DE25 CEDENT.—Employer securities shall be considered to 

26 have been acquired from or to have passed from a 
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1 decedent if the basis of such property in the hands 

2 of the employee-owned and employee-controlled cor3 poration trust is determined under section 1014 by 

4 reference to paragraph (1), (2), (4), or (9) of sub5 section (b) of such section. 

6 ‘‘(2) EMPLOYER SECURITIES.—The term ‘em7 ployer securities’ has the meaning given such term 

8 by section 409(l)), except that such term shall not 

9 include any security which is not voting common 

10 stock.’’. 

11 (2) CLERICAL AMENDMENT.—The table of sec12 tions for part II of subchapter A of chapter 11 of 

13 such Code (relating to credits against tax) is amend14 ed by striking the item relating to section 2016 and 

15 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.’’.

16 (g) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in para18 graph (2), the amendments made by this section 

19 shall apply to taxable years beginning after the date 

20 of the enactment of this Act. 

21 (2) CREDIT FOR TRANSFER OF STOCK FROM

22 ESTATE TO EMPLOYEE-OWNED AND EMPLOYEE-CON23 TROLLED CORPORATION.—The amendments made 
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1 by subsection (f) shall apply to estates of decedents 

2 dying after the date of the enactment of this Act. 

3 SEC. 4. STUDY OF GOVERNMENT POLICIES AFFECTING EM4 PLOYEE-OWNED AND EMPLOYEE-CON5 TROLLED CORPORATIONS. 

6 The Comptroller General of the United States shall—

7 (1) conduct a study of all Federal Government 

8 regulations and policies that might impact the cre9 ation and operation of an employee-owned and em10 ployee-controlled corporation as defined in section 

11 7701(a)(47) of the Internal Revenue Code of 1986, 

12 (2) identify those regulations and policies that 

13 are barriers to employee ownership and control of 

14 such a corporation, and 

15 (3) not later than one year after the date of the 

16 enactment of this Act, submit a report on the find17 ings of such study, together with such recommenda18 tions as the Comptroller General determines appro19 priate, to the Congress. 

20 SEC. 5. PRESIDENTIAL COMMISSION ON EMPLOYEE OWN21 ERSHIP. 

22 (a) ESTABLISHMENT.—Not later than one year after 

23 the date of the enactment of this Act, the President shall 

24 establish a commission to be known as the ‘‘Presidential 
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1 Commission on Employee Ownership’’ (hereafter in this 

2 section referred to as the ‘‘Commission’’). 

3 (b) DUTIES AND REPORT.—The Commission shall—

4 (1) conduct a study concerning all issues that 

5 affect ownership of businesses in the United States, 

6 with a primary focus on the issues that affect em7 ployee ownership of such businesses, and 

8 (2) not later than two years after the date of 

9 its establishment, submit a final report to the Presi10 dent and the Congress which includes the findings 

11 and recommendations of the Commission. 

12 (c) MEMBERSHIP.—The Commission shall be com13 posed of 15 members appointed by the President as fol14 lows: 

15 (1) Three individuals, each of whom is an em16 ployee of a corporation that has at least 50 percent 

17 of its voting stock in a trust for the benefit of em18 ployees and who is not an officer or senior manager 

19 of that corporation. 

20 (2) Three individuals, each of whom is an em21 ployee of a corporation that has at least 50 percent 

22 of its voting stock in a trust for the benefit of em23 ployees and who is an officer or senior manager of 

24 that corporation. 
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1 (3) Three individuals, each of whom is a pro2 fessor employed by an institution of higher learning. 

3 (4) Three individuals, each of whom is em4 ployed by a not-for-profit entity that has as its pri5 mary mission issues arising from employee owner6 ship of businesses. 

7 (5) The Secretary of Labor, or his designee, the 

8 Secretary of the Treasury, or his designee, and the 

9 Director of the Office of Management and Budget, 

10 or his designee. 

11 (d) STAFF.—The Commission shall have such num12 ber of staff as the President shall determine, except that 

13 such staff shall include not less than five full-time employ14 ees. 

15 (e) GIFTS AND BEQUESTS.—The Commission may 

16 accept, use, and dispose of gifts or bequests or services 

17 or personal property for the purpose of aiding or facili18 tating the work of the Commission. Gifts or bequests of 

19 money and proceeds from sales of other property received 

20 as gifts or bequests shall be deposited in the Treasury and 

21 shall be available for disbursement upon order of the Com22 mission.

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