H. R. 2488—206 
‘‘(p) PROHIBITED ALLOCATION OF SECURITIES IN AN S CORPORA-
TION.— 
‘‘(1) IN
GENERAL.—An employee stock ownership plan 
holding employer securities consisting of stock in an S corpora-
tion shall provide that no portion of the assets of the plan 
attributable to (or allocable in lieu of) such employer securities 
may, during a nonallocation year, accrue (or be allocated 
directly or indirectly under any plan of the employer meeting 
the requirements of section 401(a)) for the benefit of any dis-
qualified individual. 
‘‘(2) FAILURE TO MEET REQUIREMENTS.—If a plan fails to 
meet the requirements of paragraph (1)— 
‘‘(A) the plan shall be treated as having distributed 
to any disqualified individual the amount allocated to the 
account of such individual in violation of paragraph (1) 
at the time of such allocation, 
‘‘(B) the provisions of section 4979A shall apply, and 
‘‘(C) the statutory period for the assessment of any 
tax imposed by section 4979A shall not expire before the 
date which is 3 years from the later of— 
‘‘(i) the allocation of employer securities resulting 
in the failure under paragraph (1) giving rise to such 
tax, or 
‘‘(ii) the date on which the Secretary is notified 
of such failure. 
‘‘(3) NONALLOCATION
YEAR.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—The term ‘nonallocation year’ means 
any plan year of an employee stock ownership plan if, 
at any time during such plan year— 
‘‘(i) such plan holds employer securities consisting 
of stock in an S corporation, and 
‘‘(ii) disqualified individuals own at least 50 per-
cent of the number of outstanding shares of stock 
in such S corporation. 
‘‘(B) ATTRIBUTION
RULES.—For purposes of subpara-
graph (A)— 
‘‘(i) IN GENERAL.—The rules of section 318(a) shall 
apply for purposes of determining ownership, except 
that— 
‘‘(I) in applying paragraph (1) thereof, the 
members of an individual’s family shall include 
members of the family described in paragraph 
(4)(D), and 
‘‘(II) paragraph (4) thereof shall not apply. 
‘‘(ii) DEEMED-OWNED
SHARES.—Notwithstanding 
the employee trust exception in section 318(a)(2)(B)(i), 
disqualified individuals shall be treated as owning 
deemed-owned shares. 
‘‘(4) DISQUALIFIED INDIVIDUAL.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—The term ‘disqualified individual’ 
means any individual who is a participant or beneficiary 
under the employee stock ownership plan if— 
‘‘(i) the aggregate number of deemed-owned shares 
of such individual and the members of the individual’s 
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H. R. 2488—207 
family is at least 20 percent of the number of out-
standing shares of stock in the S corporation consti-
tuting employer securities of such plan, or 
‘‘(ii) if such individual is not described in clause 
(i), the number of deemed-owned shares of such indi-
vidual is at least 10 percent of the number of out-
standing shares of stock in such corporation. 
‘‘(B) TREATMENT OF FAMILY MEMBERS.—In the case of 
a disqualified individual described in subparagraph (A)(i), 
any member of the individual’s family with deemed-owned 
shares shall be treated as a disqualified individual if not 
otherwise a disqualified individual under subparagraph (A). 
‘‘(C) DEEMED-OWNED
SHARES.—For purposes of this 
paragraph— 
‘‘(i) IN GENERAL.—The term ‘deemed-owned shares’ 
means, with respect to any participant or beneficiary 
under the employee stock ownership plan— 
‘‘(I) the stock in the S corporation constituting 
employer securities of such plan which is allocated 
to such participant or beneficiary under the plan, 
and 
‘‘(II) such participant’s or beneficiary’s share 
of the stock in such corporation which is held 
by such trust but which is not allocated under 
the plan to employees. 
‘‘(ii) INDIVIDUAL’S SHARE OF UNALLOCATED STOCK.— 
For purposes of clause (i)(II), an individual’s share 
of unallocated S corporation stock held by the trust 
is the amount of the unallocated stock which would 
be allocated to such individual if the unallocated stock 
were allocated to individuals in the same proportions 
as the most recent stock allocation under the plan. 
‘‘(D) MEMBER OF FAMILY.—For purposes of this para-
graph, the term ‘member of the family’ means, with respect 
to any individual— 
‘‘(i) the spouse of the individual, 
‘‘(ii) an ancestor or lineal descendant of the indi-
vidual or the individual’s spouse, 
‘‘(iii) a brother or sister of the individual or the 
individual’s spouse and any lineal descendant of the 
brother or sister, and 
‘‘(iv) the spouse of any person described in clause 
(ii) or (iii). 
‘‘(5) DEFINITIONS.—For purposes of this subsection— 
‘‘(A) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term 
‘employee stock ownership plan’ has the meaning given 
such term by section 4975(e)(7). 
‘‘(B) EMPLOYER SECURITIES.—The term ‘employer secu-
rity’ has the meaning given such term by section 409(l). 
‘‘(6) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes 
of this subsection, including regulations providing for the treat-
ment of any stock option, restricted stock, stock appreciation 
right, phantom stock unit, performance unit, or similar 
instrument granted by an S corporation as stock or not stock.’’. 
(b) EXCISE TAX.— 
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H. R. 2488—208 
(1) IN
GENERAL.—Section 4979A(b) (defining prohibited 
allocation) is amended by striking ‘‘and’’ at the end of paragraph 
(1), by striking the period at the end of paragraph (2) and 
inserting ‘‘, and’’, and by adding at the end the following new 
paragraph: 
‘‘(3) any allocation of employer securities which violates 
the provisions of section 409(p).’’. 
(2) LIABILITY.—Section 4979A(c) (defining liability for tax) 
is amended by adding at the end the following new sentence: 
‘‘In the case of a prohibited allocation described in subsection 
(b)(3), such tax shall be paid by the S corporation the stock 
in which was allocated in violation of section 409(p).’’. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to plan years beginning after December 31, 2000. 
(2) EXCEPTION FOR CERTAIN PLANS.—In the case of any— 
(A) employee stock ownership plan established after 
July 14, 1999, or 
(B) employee stock ownership plan established on or 
before such date if employer securities held by the plan 
consist of stock in a corporation with respect to which 
an election under section 1362(a) of the Internal Revenue 
Code of 1986 is not in effect on such date, 
the amendments made by this section shall apply to plan years 
ending after July 14, 1999. 
TITLE XVI—COMPLIANCE WITH BUDGET 
ACT 
SEC. 1601. COMPLIANCE WITH BUDGET ACT. 
(a) IN GENERAL.—Except as provided in subsection (b), all provi-
sions of, and amendments made by, this Act which are in effect 
on September 30, 2009, shall cease to apply as of the close of 
September 30, 2009. 
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H. R. 2488—209 
(b) SUNSET FOR CERTAIN PROVISIONS.—The amendments made 
by sections 101, 111, 121, 201, 202, 211, 214, and 1221 of this 
Act shall not apply to any taxable year beginning after December 
31, 2008. 
Speaker of the House of Representatives. 
Vice President of the United States and
President of the Senate. 
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