I 
116TH CONGRESS 
1ST SESSION H. R. 2258 
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 10, 2019 
Mr. KIND (for himself, Mr. SMITH of Missouri, Mr. BLUMENAUER, Mr. 
KELLY of Pennsylvania, Mr. REED, 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 Labor, 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 jurisdic-
tion 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 pur-
poses. 
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 ‘‘Promotion and Expan-
sion of Private Employee Ownership Act of 2019’’. 
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SEC. 2. FINDINGS. 
Congress finds that— 
(1) on January 1, 1998—nearly 25 years after 
the Employee Retirement Income Security Act of 
1974 was enacted and the employee stock ownership 
plan (hereafter in this section referred to as an 
‘‘ESOP’’) was created—employees were first per-
mitted to be owners of subchapter S corporations 
pursuant to the Small Business Job Protection Act 
of 1996 (Public Law 104–188); 
(2) with the passage of the Taxpayer Relief Act 
of 1997 (Public Law 105–34), Congress designed in-
centives to encourage businesses to become ESOP- 
owned S corporations; 
(3) since that time, several thousand companies 
have become ESOP-owned S corporations, creating 
an ownership interest for several million Americans 
in companies in every State in the country, in indus-
tries ranging from heavy manufacturing to tech-
nology development to services; 
(4) while estimates show that 40 percent of 
working Americans have no formal retirement ac-
count at all, every United States worker who is an 
employee-owner of an S corporation company 
through an ESOP has a valuable qualified retire-
ment savings account; 
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(5) recent studies have shown that employees of 
ESOP-owned S corporations enjoy greater job sta-
bility than employees of comparable companies; 
(6) studies also show that employee-owners of S 
corporation ESOP companies have amassed mean-
ingful retirement savings through their S ESOP ac-
counts that will give them the means to retire with 
dignity; 
(7) under the Small Business Act (15 U.S.C. 
631 et seq.) and the regulations promulgated by the 
Administrator of the Small Business Administration, 
a small business concern that was eligible under the 
Small Business Act for the numerous preferences of 
the Act is denied treatment as a small business con-
cern after an ESOP acquires more than 49 percent 
of the business, even if the number of employees, the 
revenue of the small business concern, and the ra-
cial, gender, or other criteria used under the Act to 
determine whether the small business concern is eli-
gible for benefits under the Act remain the same, 
solely because of the acquisition by the ESOP; and 
(8) it is the goal of Congress to both preserve 
and foster employee ownership of S corporations 
through ESOPs. 
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SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EM-
PLOYER STOCK TO EMPLOYEE STOCK OWN-
ERSHIP PLAN SPONSORED BY S CORPORA-
TION. 
(a) IN GENERAL.—Section 1042(c)(1)(A) of the In-
ternal Revenue Code of 1986 is amended by striking ‘‘do-
mestic C corporation’’ and inserting ‘‘domestic corpora-
tion’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to sales after the date of the 
enactment of this Act. 
SEC. 4. DEDUCTION FOR INTEREST ON LOAN TO FINANCE 
PURCHASE OF EMPLOYER SECURITIES BY AN 
EMPLOYEE STOCK OWNERSHIP PLAN SPON-
SORED BY AN S CORPORATION. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by adding at the end following new section: 
‘‘SEC. 200. INTEREST ON CERTAIN LOANS FOR THE PUR-
CHASE OF EMPLOYER SECURITIES BY AN EM-
PLOYEE STOCK OWNERSHIP PLAN SPON-
SORED BY AN S CORPORATION. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to 50 percent of the interest re-
ceived during the taxable year by a bank (within the mean-
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ing of section 581) with respect to a qualified securities 
acquisition loan. 
‘‘(b) QUALIFIED SECURITIES ACQUISITION LOAN.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified securities acquisition loan’ 
means— 
‘‘(A) any loan to an employee stock owner-
ship plan sponsored by an S corporation to the 
extent that the proceeds are used to acquire 
employer securities for the plan, and 
‘‘(B) any loan to an S corporation that 
sponsors an employee stock ownership plan to 
the extent that the proceeds of such loan are 
loaned to the employee stock ownership plan to 
acquire employer securities for the plan. 
For purposes of this paragraph, the term ‘employer 
securities’ has the meaning given such term by sec-
tion 409(l). 
‘‘(2) TERMS APPLICABLE TO CERTAIN QUALI-
FIED
SECURITIES
ACQUISITION
LOANS.—For pur-
poses of paragraph (1)(B), the term ‘qualified secu-
rities acquisition loan’ shall not include any loan to 
the S corporation unless the loan to the employee 
stock ownership plan has repayment terms which are 
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substantially similar to the terms of the loan to the 
S corporation. 
‘‘(3) TREATMENT
OF
REFINANCINGS.—The 
term ‘qualified securities acquisition loan’ shall in-
clude any loan which is (or is part of a series of 
loans) used to refinance a loan described in para-
graph (1) (after the application of paragraph (2)). 
‘‘(4) PLAN MUST HOLD MORE THAN 50 PER-
CENT
OF
STOCK
AFTER
ACQUISITION
OR
TRANS-
FER.— 
‘‘(A) IN GENERAL.—A loan shall not be 
treated as a qualified securities acquisition loan 
for purposes of this section unless, immediately 
after an acquisition of employer securities re-
ferred to in paragraph (1), the employee stock 
ownership plan owns more than 50 percent of 
the outstanding stock of the S corporation. 
‘‘(B) FAILURE TO RETAIN MINIMUM STOCK 
INTEREST.— 
‘‘(i) IN
GENERAL.—Subsection (a) 
shall not apply to any interest received 
with respect to a qualified securities acqui-
sition loan which is allocable to any period 
during which the employee stock ownership 
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plan does not own stock meeting the re-
quirements of subparagraph (A). 
‘‘(ii) EXCEPTION.—To the extent pro-
vided by the Secretary, clause (i) shall not 
apply to any period if, within 90 days of 
the first date on which the failure occurred 
(or such longer period not in excess of 180 
days as the Secretary may prescribe), the 
plan acquires stock which results in its 
meeting the requirements of subparagraph 
(A). 
‘‘(C) STOCK.—For purposes of subpara-
graph (A), the Secretary may provide that war-
rants, options, contracts to acquire stock, con-
vertible debt interests and other similar inter-
ests be treated as stock for one or more pur-
poses under subparagraph (A). 
‘‘(c) EMPLOYEE STOCK OWNERSHIP PLAN.—For 
purposes of this section, the term ‘employee stock owner-
ship plan’ has the meaning given to such term by section 
4975(e)(7).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of such Code 
is amended by adding at the end the following new item: 
‘‘Sec. 200. Interest on certain loans for the purchase of employer securities by 
an employee stock ownership plan sponsored by an S corpora-
tion.’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to interest accrued on loans made 
after the date of the enactment of this Act. 
SEC. 5. DEPARTMENT OF THE TREASURY TECHNICAL AS-
SISTANCE OFFICE. 
(a) ESTABLISHMENT REQUIRED.—Before the end of 
the 90-day period beginning on the date of enactment of 
this Act, the Secretary of the Treasury shall establish the 
S Corporation Employee Ownership Assistance Office to 
foster increased employee ownership of S corporations. 
(b) DUTIES OF THE OFFICE.—The S Corporation 
Employee Ownership Assistance Office shall provide— 
(1) education and outreach to inform companies 
and individuals about the possibilities and benefits of 
employee ownership of S corporations; and 
(2) technical assistance to assist S corporations 
in sponsoring employee stock ownership plans. 
SEC. 6. SMALL BUSINESS AND EMPLOYEE STOCK OWNER-
SHIP. 
(a) IN GENERAL.—The Small Business Act (15 
U.S.C. 631 et seq.) is amended— 
(1) by redesignating section 47 as section 48; 
and 
(2) by inserting after section 46 the following: 
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‘‘SEC. 47. EMPLOYEE STOCK OWNERSHIP PLANS. 
‘‘(a) DEFINITIONS.—In this section— 
‘‘(1) the term ‘ESOP’ means an employee stock 
ownership plan, as defined in section 4975(e)(7) of 
the Internal Revenue Code of 1986; and 
‘‘(2) the term ‘ESOP business concern’ means 
a business concern that was a small business con-
cern eligible for a loan, preference, or other program 
under this Act before the date on which more than 
49 percent of the business concern was acquired by 
an ESOP. 
‘‘(b) CONTINUED
ELIGIBILITY.—In determining 
whether an ESOP business concern qualifies as a small 
business concern for purposes of a loan, preference, or 
other program under this Act, each ESOP participant 
shall be treated as directly owning his or her proportionate 
share of the stock in the ESOP business concern owned 
by the ESOP.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1 of the first cal-
endar year beginning after the date of the enactment of 
this Act. 
Æ 
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