I 
111TH CONGRESS 
1ST SESSION H. R. 3586 
To amend the Internal Revenue Code of 1986 to expand the availability 
of employee stock ownership plans in S corporations, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 16, 2009 
Mr. KIND (for himself and Mr. BLUMENAUER) introduced the following bill; 
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committee on Education and Labor, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such 
provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to expand 
the availability of employee stock ownership plans in 
S corporations, and for other purposes. 
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 ‘‘S Corporation ESOP 
Promotion and Expansion Act of 2009’’. 
SEC. 2. FINDINGS. 
Congress finds that— 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
(1) since January 1, 1998, employees have been 
permitted to be owners of subchapter S corporations 
through an employee stock ownership plan (hereafter 
in this section referred to as an ‘‘ESOP’’) pursuant 
to Small Business Job Protection Act of 1996 (Pub-
lic 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; 
(5) recent studies have shown that employees of 
ESOP-owned S corporations enjoy greater job sta-
bility than employees of comparable companies; 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
(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; and 
(7) it is the goal of Congress to both preserve 
and foster employee ownership of S corporations 
through ESOPs. 
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.—Subparagraph (A) of section 
1042(c)(1) of the Internal Revenue Code of 1986 (defin-
ing qualified securities) is amended by striking ‘‘domestic 
C corporation’’ and inserting ‘‘domestic corporation’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to sales after the date of the 
enactment of this Act. 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
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 inserting after section 199 the 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-
ing of section 581) with respect to a securities acquisition 
loan. 
‘‘(b) SECURITIES ACQUISITION LOAN.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘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 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
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 SECURI-
TIES ACQUISITION LOANS.—For purposes of para-
graph (1)(B), the term ‘securities acquisition loan’ 
shall not include any loan to the S corporation un-
less the loan to the employee stock ownership plan 
has repayment terms which are substantially similar 
to the terms of the loan to the S corporation. 
‘‘(3) TREATMENT
OF
REFINANCINGS.—The 
term ‘securities acquisition loan’ shall include any 
loan which is (or is part of a series of loans) used 
to refinance a loan described in paragraph (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 securities acquisition loan for pur-
poses of this section unless, immediately after 
an acquisition of employer securities referred to 
in paragraph (1), the employee stock ownership 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
plan owns more than 50 percent of the out-
standing 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 securities acquisition loan 
which is allocable to any period during 
which the employee stock ownership plan 
does not own stock meeting the require-
ments 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-
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
ests be treated as stock for 1 or more purposes 
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 inserting after the item relating to section 
199 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.’’. 
(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. ASSUMPTION OF ESTATE TAX LIABILITY WITH RE-
SPECT TO CERTAIN TRANSFERS OF EM-
PLOYER 
SECURITIES 
TO 
AN 
EMPLOYEE 
STOCK OWNERSHIP PLAN SPONSORED BY AN 
S CORPORATION. 
(a) IN GENERAL.—Subchapter C of chapter 11 of the 
Internal Revenue Code of 1986 is amended by inserting 
after section 2209 the following new section: 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘SEC. 2209A. LIABILITY FOR PAYMENT OF ESTATE TAX LI-
ABILITY IN CASE OF CERTAIN TRANSFERS OF 
EMPLOYER SECURITIES TO AN EMPLOYEE 
STOCK OWNERSHIP PLAN SPONSORED BY AN 
S CORPORATION. 
‘‘(a) IN GENERAL.—If— 
‘‘(1) employer securities— 
‘‘(A) are transferred by gift by the dece-
dent to an employee stock ownership plan spon-
sored by an S corporation, 
‘‘(B) are transferred to such a plan by rea-
son of the decedent’s death under the dece-
dent’s will or a trust created by the decedent, 
or 
‘‘(C) are transferred by gift by the execu-
tor of the estate of the decedent to such a plan, 
and 
‘‘(2) the executor of the estate of the decedent 
elects the application of this section and files the 
agreements described in subsection (e) before the 
due date (including extensions) for filing the return 
of tax imposed by section 2001, 
then the executor of the estate of the decedent is relieved 
of liability for payment of that portion of the tax imposed 
by section 2001 which such employee stock ownership plan 
is required to pay under subsection (b). 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00008
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘(b) PAYMENT OF TAX BY EMPLOYEE STOCK OWN-
ERSHIP PLAN.— 
‘‘(1) IN GENERAL.—An employee stock owner-
ship plan— 
‘‘(A)(i) to which employer securities have 
been transferred by gift by the decedent, 
‘‘(ii) to which such securities have been 
transferred by reason of the decedent’s death 
under the decedent’s will or a trust created by 
the decedent, or 
‘‘(iii) to which such securities have been 
transferred by gift by the executor of the estate 
of the decedent, 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 described in 
this paragraph 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 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00009
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘(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— 
‘‘(A) the executor of the estate of the dece-
dent (without regard to this section) elects to 
have the provisions of section 6166 (relating to 
extensions of time for payment of estate tax 
where the estate consists largely of interests in 
a closely held business) apply to payment of 
that portion of the tax imposed by section 2001 
with respect to such estate which is attributable 
to employer securities, and 
‘‘(B) the plan administrator provides to 
the executor the agreement described in sub-
section (e)(1), 
then the plan administrator may elect, before the 
due date (including extensions) for filing the return 
of such tax, to pay all or part of the tax described 
in subsection (b)(2) in installments under the provi-
sions of section 6166. 
‘‘(2) INTEREST ON INSTALLMENTS.—In deter-
mining the 2-percent portion for purposes of section 
6601(j)— 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00010
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘(A) the portion of the tax imposed by sec-
tion 2001 with respect to an estate for which 
the executor is liable, and 
‘‘(B) the portion of such tax for which an 
employee stock ownership plan is liable, shall be 
aggregated. 
‘‘(3) SPECIAL RULES FOR APPLICATION OF SEC-
TION 6166(G).—In the case of any transfer of em-
ployer securities to an employee stock ownership 
plan to which this section applies— 
‘‘(A) TRANSFER DOES NOT TRIGGER AC-
CELERATION.—Such transfer shall not be treat-
ed as a disposition or withdrawal to which sec-
tion 6166(g) applies. 
‘‘(B) SEPARATE APPLICATION TO ESTATE 
AND PLAN INTERESTS.—Section 6166(g) shall 
be applied separately to the interests held after 
such transfer by the estate and such plan. 
‘‘(C) REQUIRED DISTRIBUTION NOT TAKEN 
INTO ACCOUNT.—In the case of any distribution 
of such securities (or sale of such securities) by 
such plan which is described in section 
4978(d)(1)— 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00011
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘(i) such distribution shall not be 
treated as a disposition or withdrawal for 
purposes of section 6166(g), and 
‘‘(ii) such securities shall not be taken 
into account in applying section 6166(g) to 
any subsequent disposition or withdrawal. 
‘‘(D) DISPOSITION TO MEET DIVERSIFICA-
TION REQUIREMENTS.—Any disposition of such 
securities which is made to meet the require-
ments of section 401(a)(28)— 
‘‘(i) shall not treated as a disposition 
or withdrawal for purposes of section 
6166(g), and 
‘‘(ii) such securities shall not be taken 
into account in applying section 6166(g) to 
any subsequent disposition or withdrawal. 
‘‘(d) GUARANTEE OF PAYMENTS.—Any employer— 
‘‘(1) whose employees are covered by an em-
ployee stock ownership plan, and 
‘‘(2) who has entered into an agreement de-
scribed in subsection (e)(2) which is in effect, 
shall guarantee (in such manner as the Secretary may pre-
scribe) the payment of any amount such plan is required 
to pay under subsection (b). 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00012
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
‘‘(4) TAX
IMPOSED
BY
SECTION
2001.—The 
term ‘tax imposed by section 2001’ includes any in-
terest, penalty, addition to tax, or additional amount 
relating to any tax imposed by section 2001.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for subchapter C of chapter 11 of such Code is amended 
by inserting after the item relating to section 2209 the 
following new item: 
‘‘Sec. 2209A. Liability for payment of estate tax liability in case of certain 
transfers of employer securities to an employee stock ownership 
plan sponsored by an S corporation.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers of employer securities 
after the date of the enactment of this Act. 
SEC. 6. ESTATE TAX DEDUCTION FOR CERTAIN SALES OF 
EMPLOYER SECURITIES TO AN EMPLOYEE 
STOCK OWNERSHIP PLAN SPONSORED BY AN 
S CORPORATION. 
(a) IN GENERAL.—Part IV of subchapter A of chap-
ter 11 of the Internal Revenue Code of 1986 is amended 
by inserting after section 2057 the following new section: 
‘‘SEC. 2057A. SALES OF EMPLOYER SECURITIES TO AN EM-
PLOYEE STOCK OWNERSHIP PLAN SPON-
SORED BY AN S CORPORATION. 
‘‘(a) GENERAL RULE.—For purposes of the tax im-
posed by section 2001, in the case of a sale of any quali-
fied employer securities to an employee stock ownership 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00014
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
plan sponsored by an S corporation on or before the date 
on which the return of the tax imposed by section 2001 
is required to be filed (determined by taking into account 
any extension of time for filing), the value of the taxable 
estate shall be determined by deducting from the value 
of the gross estate an amount equal to 50 percent of the 
proceeds of such sale. 
‘‘(b) QUALIFIED EMPLOYER SECURITIES.— 
‘‘(1) IN
GENERAL.—The term ‘qualified em-
ployer securities’ means employer securities— 
‘‘(A) which are includible in the gross es-
tate of the decedent, 
‘‘(B) which would have been includible in 
the gross estate of the decedent if the decedent 
had died at any time during the 5-year period 
ending on the date of death, and 
‘‘(C) with respect to which the executor 
elects the application of this section in the man-
ner prescribed by the Secretary. 
‘‘(2) CERTAIN ASSETS HELD BY SPOUSE.—For 
purposes of paragraph (1)(B), any employer security 
which would have been includible in the gross estate 
of the spouse of a decedent during the period de-
scribed in paragraph (1)(B) if the spouse had died 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00015
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
during such period shall be treated as includible in 
the gross estate of the decedent during such period. 
‘‘(c) OTHER DEFINITIONS.—For purposes of this 
section— 
‘‘(1) EMPLOYER SECURITIES.—The term ‘em-
ployer securities’ has the meaning given such term 
by section 409(1). 
‘‘(2) EMPLOYEE
STOCK
OWNERSHIP
PLAN.— 
The term ‘employee stock ownership plan’ means a 
plan described in section 4975(e)(7).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part IV of subchapter A of chapter 11 of such Code 
is amended by inserting after the item relating to section 
2057 the following new item: 
‘‘Sec. 2057A. Sales of employer securities to an employee stock ownership plan 
sponsored by an S corporation.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales of employer securities after 
the date of the enactment of this Act. 
SEC. 7. DEPARTMENT OF LABOR TECHNICAL ASSISTANCE 
OFFICE. 
(a) ESTABLISHMENT REQUIRED.—Before the end of 
the 90-day period beginning on the date of enactment of 
this Act, the Secretary of Labor shall establish the S Cor-
poration Employee Ownership Assistance Office to foster 
increased employee ownership of S corporations. 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00016
Fmt 6652
Sfmt 6201
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS
(b) DUTIES OF THE OFFICE.—The S Corporation 
Employee Ownership Assistance Office shall provide— 
(1) education and outreach to inform people 
about the possibilities and benefits of employee own-
ership of S corporations; and 
(2) technical assistance to assist S corporations 
to sponsor employee stock ownership plans. 
Æ 
VerDate Nov 24 2008 
02:24 Sep 17, 2009
Jkt 079200
PO 00000
Frm 00017
Fmt 6652
Sfmt 6301
E:\BILLS\H3586.IH
H3586
tjames on DSKG8SOYB1PROD with BILLS