I
105TH CONGRESS
1ST SESSION
H. R. 1592
To amend the Internal Revenue Code of 1986 and Employee Retirement
Income Security Act of 1974 in order to promote and improve employee
stock ownership plans.
IN THE HOUSE OF REPRESENTATIVES
MAY 14, 1997
Mr. BALLENGER (for himself, Mr. LEVIN, Mr. ROHRABACHER, Mr. JEFFER-
SON, Mrs. JOHNSON of Connecticut, Mrs. THURMAN, and Mr. RAMSTAD)
introduced the following bill; which was referred to the Committee on
Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 and Employee
Retirement Income Security Act of 1974 in order to
promote and improve employee stock ownership plans.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘ESOP Promotion Act
of 1997’’.
SEC. 2. PROVISIONS RELATING TO S CORPORATIONS ES-
TABLISHING EMPLOYEE STOCK OWNERSHIP
PLANS.
(a) REPEAL OF PROVISION MAKING CERTAIN ESOP
BENEFITS INAPPLICABLE TO S CORPORATIONS.—Section
1316(d) of the Small Business Job Protection Act of 1996
is repealed, and the Internal Revenue Code of 1986 shall
be applied and administered as if the amendments made
by such section had not been enacted.
(b) REPEAL OF APPLICATION OF UNRELATED BUSI-
NESS INCOME TAX.—Section 512(e) of the Internal Reve-
nue Code of 1986 is amended—
(1) 
by 
striking 
‘‘described 
in 
section
1361(c)(7)’’ in paragraph (1) and inserting ‘‘de-
scribed in section 501(c)(3) and exempt from tax-
ation under section 501(a)’’, and
(2) by inserting ‘‘CHARITABLE ORGANIZATIONS
HOLDING STOCK IN’’ after ‘‘APPLICABLE TO’’ in the
heading.
(c) ESOPS ALLOWED TO DISTRIBUTE CASH RATH-
ER THAN STOCK.—
(1) IN GENERAL.—Section 409(h)(2) of the In-
ternal Revenue Code of 1986 is amended by adding
at the end the following new subparagraph:
‘‘(C) PLAN MAINTAINED BY S CORPORA-
TION.—In the case of a plan established and
maintained by an S corporation which otherwise
meets the requirements of this subsection or
section 4975(e)(7), such plan shall not be treat-
ed as failing to meet the requirements of this
subsection or section 401(a) merely because it
does not permit a participant to exercise the
right described in paragraph (1)(A) if such plan
provides that the participant entitled to a dis-
tribution has a right to receive the distribution
in cash.’’
(2) 
CONFORMING
AMENDMENTS.—Section
409(h)(2) of such Code is amended—
(A) by striking ‘‘A plan’’ and inserting:
‘‘(A) IN GENERAL.—A plan’’, and
(B) by striking ‘‘In the case of an em-
ployer’’ and inserting:
‘‘(B) PLANS RESTRICTED BY CHARTER OR
BYLAWS.—In the case of an employer’’.
(d) EXEMPTIONS FROM PROHIBITED TRANSACTION
RULES AVAILABLE TO ESOPS AND SHAREHOLDER EM-
PLOYEES.—The last sentence of section 408(d) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1108(d)) is amended by striking all that precedes
‘‘a participant or beneficiary’’ and inserting ‘‘For purposes
of this subsection,’’.
(e) S CORPORATION
STOCK
DISTRIBUTIONS
TO
ESOP NOT
TREATED
AS
CONTRIBUTIONS.—Section
404(a) of such Code is amended by adding at the end the
following new paragraph:
‘‘(11) 
DISTRIBUTIONS
WITH
RESPECT
TO
STOCK OF S CORPORATION.—Distributions with re-
spect to the stock of an S corporation made to an
employee stock ownership plan (as defined in section
4975(e)(7)) shall not be considered contributions for
purposes of this section or under section 415(c).’’
(f) DEDUCTION FOR S CORPORATION STOCK DIS-
TRIBUTIONS.—Paragraph (6) of section 404(k) of such
Code is amended by adding at the end the following new
subparagraph:
‘‘(C) DIVIDEND.—The term ‘dividend’
shall include distributions with respect to stock
of an S corporation which would be treated as
a dividend but for the application of section
1368(a).’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 3. ESOP ASSUMPTION OF ESTATE TAX.
(a) IN GENERAL.—Subchapter C of chapter 11 of the
Internal Revenue Code of 1986 (relating to miscellaneous
estate tax provisions) is amended by adding at the end
thereof the following new section:
‘‘SEC. 2210. LIABILITY FOR PAYMENT IN CASE OF TRANS-
FER OF EMPLOYER SECURITIES TO AN EM-
PLOYEE STOCK OWNERSHIP PLAN OR A
WORKER-OWNED COOPERATIVE.
‘‘(a) IN GENERAL.—If—
‘‘(1) employer securities—
‘‘(A) are acquired from the decedent by an
employee stock ownership plan or by an eligible
worker-owned cooperative from any decedent,
‘‘(B) pass from the decedent to such a
plan or cooperative, or
‘‘(C) are transferred by the executor to
such a plan or cooperative, and
‘‘(2) the executor of the estate of the decedent
may (without regard to this section) make an elec-
tion under section 6166 with respect to that portion
of the tax imposed by section 2001 which is attrib-
utable to employer securities; and
then the executor is relieved of liability for payment of
that portion of the tax imposed by section 2001 which
such employee stock ownership plan or cooperative is re-
quired to pay under subsection (b).
‘‘(b) PAYMENT OF TAX BY EMPLOYEE STOCK OWN-
ERSHIP PLAN OR COOPERATIVE.—
‘‘(1) IN GENERAL.—An employee stock owner-
ship plan or eligible worker-owned cooperative—
‘‘(A) which has acquired employer securi-
ties from the decedent, or to which such securi-
ties have passed from the decedent or been
transferred by the executor, and
‘‘(B) with respect to which an agreement
described in subsection (e)(1) is in effect,
shall pay that portion of the tax imposed by section
2001 with respect to the taxable estate of the dece-
dent which is described in paragraph (2).
‘‘(2) AMOUNT OF TAX TO BE PAID.—The por-
tion of the tax imposed by section 2001 with respect
to the taxable estate of the decedent that is referred
to in paragraph (1) is equal to the lesser of:
‘‘(A) the value of the employer securities
described in subsection (a)(1) which is included
in the gross estate of the decedent, or
‘‘(B) the tax imposed by section 2001 with
respect to such taxable estate reduced by the
sum of the credits allowable against such tax.
‘‘(c) INSTALLMENT PAYMENTS.—
‘‘(1) IN GENERAL.—If—