I 
108TH CONGRESS 
2D SESSION 
H. R. 4796 
To amend the Internal Revenue Code of 1986 to improve the operation 
of employee stock ownership plans, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 9, 2004 
Mr. BALLENGER (for himself, Mrs. JOHNSON of Connecticut, Mr. CANTOR, 
Mr. ROHRABACHER, Mr. GOODE, Mr. PAUL, and Mr. PLATTS) 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 improve 
the operation of employee stock ownership plans, 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 ‘‘Employee Stock Own-
ership Plan Promotion and Improvement Act of 2004’’.
SEC. 2. DISTRIBUTIONS BY AN S CORPORATION TO AN EM-
PLOYEE STOCK OWNERSHIP PLAN. 
(a) IN GENERAL.—Section 1368 of the Internal Rev-
enue Code of 1986 (relating to distributions) is amended 
by adding at the end the following new subsection: 
‘‘(f) DISTRIBUTIONS BY AN S CORPORATION TO AN 
EMPLOYEE STOCK OWNERSHIP PLAN.—Any distribution 
described in subsection (a) to an employee stock ownership 
plan (as defined in section 4975(e)(7)) shall be treated 
as a dividend under section 404(k)(2)(A).’’. 
(b) TECHNICAL AMENDMENT.—Section 404(a)(9)(C) 
of the Internal Revenue Code of 1986 (relating to S cor-
porations) is amended to read as follows: 
‘‘(C) S CORPORATIONS.—The deduction 
provided in this paragraph shall not apply to an 
S corporation.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions received after De-
cember 31, 1998. 
(d) WAIVER OF LIMITATIONS.—If refund or credit of 
any overpayment of tax resulting from the application of 
the amendments made by this section is prevented at any 
time before the close of the 1-year period beginning on 
the date of the enactment of this Act by the operation 
of any law or rule of law (including res judicata), such
refund or credit may nevertheless be made or allowed if 
claim therefor is filed before the close of such period. 
SEC. 3. ESOP DIVIDEND EXCEPTION TO ADJUSTMENTS 
BASED ON ADJUSTED CURRENT EARNINGS. 
(a) IN GENERAL.—Section 56(g)(4)(C) of the Inter-
nal Revenue Code of 1986 (relating to disallowance of 
items not deductible in computing earnings and profits) 
is amended by adding at the end the following new clause: 
‘‘(v) TREATMENT
OF
ESOP
DIVI-
DENDS.—Clause (i) shall not apply to any 
deduction allowable under section 404(k) if 
the deduction is allowed for dividends paid 
on employer securities held by an employee 
stock ownership plan established or author-
ized to be established before March 15, 
1991.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 1989. 
(c) WAIVER OF LIMITATIONS.—If refund or credit of 
any overpayment of tax resulting from the application of 
the amendment made by this section is prevented at any 
time before the close of the 1-year period beginning on 
the date of the enactment of this Act by the operation 
of any law or rule of law (including res judicata), such