I
104TH CONGRESS
1ST SESSION
H. R. 1962
To amend the Internal Revenue Code of 1986 to provide special rules for
certain gratuitous transfers of employer securities for the benefit of employees.
IN THE HOUSE OF REPRESENTATIVES
JUNE 29, 1995
Mr. SAM JOHNSON of Texas 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
special rules for certain gratuitous transfers of employer
securities for the benefit of employees.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. GRATUITOUS TRANSFERS FOR THE BENEFIT
OF EMPLOYEES.
(a) IN GENERAL.—Subparagraph (C) of section
664(d)(1) of the Internal Revenue Code of 1986 and sub-
paragraph (C) of section 664(d)(2) of such Code are each
amended by striking the period at the end thereof and in-
serting ‘‘or, to the extent the remainder interest is in
qualified employer securities (as defined in paragraph
(3)(C)), is to be transferred to an employee stock owner-
ship plan (as defined in section 4975(e)(7)) in a qualified
gratuitous transfer (as defined by paragraph (3)).’’
(b) QUALIFIED GRATUITOUS TRANSFER DEFINED.—
Subsection (d) of section 664 of such Code is amended
by redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
‘‘(3) QUALIFIED
GRATUITOUS
TRANSFER
OF
QUALIFIED EMPLOYER SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘qualified gratuitous transfer’
means a transfer of qualified employer securi-
ties to an employee stock ownership plan (as
defined in section 4975(e)(7)) but only to the
extent that—
‘‘(i) the securities transferred pre-
viously passed from a decedent to a trust
described in paragraph (1) or (2);
‘‘(ii) no deduction under section 404
is allowable with respect to such transfer;
‘‘(iii) such plan provides that the se-
curities so transferred are allocated to plan
participants in a manner consistent with
section 401(a)(4);
‘‘(iv) such plan treats such securities
as being attributable to employer contribu-
tions but without regard to the limitations
otherwise applicable to such contributions
under section 404;
‘‘(v) such plan provides that such se-
curities are held in a suspense account
under the plan to be allocated each year,
up to the limitations under section 415(c),
after first allocating all other annual addi-
tions for the limitation year, up to the lim-
itations under sections 415 (c) and (e);
and
‘‘(vi) the employer whose employees
are covered by the plan described in this
subparagraph files with the Secretary a
verified written statement consenting to
the application of sections 4978 and
4979A with respect to such employer.
‘‘(B) 
QUALIFIED
EMPLOYER
SECURI-
TIES.—For purposes of this section, the term
‘qualified employer securities’ means employer
securities (as defined in section 409(l)) which
are issued by a domestic corporation which has
no outstanding stock which is readily tradable
on an established securities market.
‘‘(C) TREATMENT
OF
SECURITIES
ALLO-
CATED BY EMPLOYEE STOCK OWNERSHIP PLAN
TO PERSONS RELATED TO DECEDENT OR 5-PER-
CENT SHAREHOLDERS.—
‘‘(i) IN GENERAL.—If any portion of
the assets of the plan attributable to secu-
rities acquired by the plan in a qualified
gratuitous transfer are allocated to the ac-
count of—
‘‘(I) any person who is related to
the decedent (within the meaning of
section 267(b)), or
‘‘(II) any person who, at the time
of such allocation or at any time dur-
ing the 1-year period ending on the
date of the acquisition of qualified
employer securities by the plan, is a
5-percent shareholder of the employer
maintaining the plan,
the plan shall be treated as having distrib-
uted (at the time of such allocation) to
such person or shareholder the amount so
allocated.
‘‘(ii) 
5-PERCENT
SHAREHOLDER.—
For purposes of clause (i), the term ‘5-per-
cent shareholder’ means any person who
owns (directly or through the application
of section 318(a)) more than 5 percent
of—
‘‘(I) any class of outstanding
stock of the corporation which issued
such qualified employer securities or
of any corporation which is a member
of the same controlled group of cor-
porations (within the meaning of sec-
tion 409(l)(4)) as such corporation, or
‘‘(II) the total value of any class
of outstanding stock of any such cor-
poration; and
For purposes of the preceding sentence,
section 318(a) shall be applied without re-
gard to the exception in paragraph
(2)(B)(i) thereof.
‘‘(iii) CROSS REFERENCE.—
‘‘For excise tax on allocations described in clause
(i), see section 4979A.’’
(c) CONFORMING AMENDMENTS.—
(1) Section 401(a)(1) of such Code is amended
by inserting ‘‘or by a charitable remainder trust pur-
suant to a qualified gratuitous transfer (as defined
in section 664(d)(3)(A)),’’ after ‘‘stock bonus
plans),’’.
(2) Section 404(a)(9) of such Code is amended
by inserting after subparagraph (B) the following
new subparagraph:
‘‘(C) A qualified gratuitous transfer (as de-
fined in section 664(d)(3)(A)) shall have no ef-
fect on the amount or amounts otherwise de-
ductible under paragraph (3) or (7) or under
this paragraph.’’
(3) Section 415(c)(6) of such Code is amended
by adding at the end thereof the following new sen-
tence:
‘‘The amount of any qualified gratuitous transfer
(as defined in section 664(d)(3)(A)) allocated to a
participant for any limitation year shall not exceed
the limitations imposed by this section, but such
amount shall not be taken into account in determin-
ing whether any other amount exceeds the limita-
tions imposed by this section.’’
(4) Section 415(e) of such Code is amended—
(A) by redesignating paragraph (6) as
paragraph (7), and
(B) by inserting after paragraph (5) the
following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
QUALIFIED
GRATU-
ITOUS TRANSFERS.—Any qualified gratuitous trans-
fer of qualified employer securities (as defined by
section 664(d)(3)) shall not be taken into account in
calculating, and shall not be subject to, the limita-
tions provided in this subsection.’’
(5) Paragraph (3) of section 644(e) of such
Code is amended to read as follows:
‘‘(3) acquired by a charitable remainder annuity
trust (as defined in section 664(d)(1)) or a chari-
table remainder unitrust (as defined in sections
664(d) (2) and (4)), or’’.
(6) Subparagraph (B) of section 664(d)(1) of
such Code and subparagraph (B) of section
664(d)(2) of such Code are each amended by insert-
ing ‘‘and other than qualified gratuitous transfers
described in subparagraph (C)’’ after ‘‘subparagraph
(A)’’.
(7) Paragraph (4) of section 674(b) of such
Code is amended by inserting before the period ‘‘or
to an employee stock ownership plan (as defined in
section 4975(e)(7)) in a qualified gratuitous transfer
(as defined in section 664(d)(3))’’.
(8)(A) Section 2055(a) of such Code is amend-
ed—
(i) by striking ‘‘or’’ at the end of para-
graph (3),
(ii) by striking the period at the end of
paragraph (4) and inserting ‘‘; or’’, and
(iii) by inserting after paragraph (4) the
following new paragraph:
‘‘(5) to an employee stock ownership plan if
such transfer qualifies as a qualified gratuitous
transfer of qualified employer securities within the
meaning of section 664(d)(3).’’
(B) Clause (ii) of section 2055(e)(3)(C) of such
Code is amended by striking ‘‘section 664(d)(3)’’
and inserting ‘‘section 664(d)(4)’’.
(9) Paragraph (8) of section 2056(b) of such
Code is amended to read as follows:
‘‘(8) SPECIAL RULE FOR CHARITABLE REMAIN-
DER TRUSTS.—
‘‘(A) 
IN
GENERAL.—If 
the 
surviving
spouse of the decedent is the only beneficiary of
a qualified charitable remainder trust who is
not a charitable beneficiary nor an ESOP bene-
ficiary, paragraph (1) shall not apply to any in-