‘‘(iv) such plan treats such securities
as being attributable to employer contribu-
tions but without regard to the limitations
otherwise applicable to such contributions
under section 404;
‘‘(v) such plan provides that such se-
curities are held in a suspense account
under the plan to be allocated each year,
up to the limitations under section 415(c),
after first allocating all other annual addi-
tions for the limitation year, up to the lim-
itations under sections 415(c) and (e);
‘‘(vi) such plan provides that no por-
tion of the assets of the plan attributable
to securities acquired by the plan in such
transfer may at any time accrue for the
benefit of any person who is related to the
decedent (within the meaning of section
267(b)) or any person who owns (after ap-
plication of section 318(a)) more than 5
percent of—
‘‘(I) any class of outstanding
stock of the corporation which issued
such qualified employer securities or
of any corporation which is a member
of the same controlled group of cor-
porations (within the meaning of sec-
tion 409(l)(4)) as such corporation, or
‘‘(II) the total value of any class
of outstanding stock of any such cor-
poration; and
‘‘(vii) the employer whose employees
are covered by the plan described in this
subparagraph files with the Secretary a
verified written statement consenting to
the application of sections 4978 and
4979A with respect to such employer.
For purposes of clause (vi), section 318(a) shall
be applied without regard to the exception in
paragraph (2)(B)(i) thereof.
‘‘(B) 5-PERCENT SHAREHOLDERS.—A per-
son shall be treated as failing to meet the more
than 5 percent ownership limitation of subpara-
graph (A)(vi) if such person fails such limita-
tion—
‘‘(i) at any time during the 1-year pe-
riod ending on the date of the acquisition
of qualified employer securities by the
plan, or
‘‘(ii) on any date as of which qualified
employer securities are allocated to partici-
pants in the plan.
‘‘(C) 
QUALIFIED
EMPLOYER
SECURI-
TIES.—For purposes of this section, the term
‘qualified employer securities’ means employer
securities (as defined in section 409(l)) which
are issued by a domestic corporation which has
no outstanding stock which is readily tradable
on an established securities market.
‘‘(D) 
FAILURE
TO
MEET
REQUIRE-
MENTS.—If a plan fails to meet the require-
ments of subparagraph (A)(vi)—
‘‘(i) the plan shall be treated as hav-
ing distributed to the person described in
subparagraph (A)(vi) the amount allocated
to the account of such person in violation
of subparagraph (A)(vi) at the time of
such allocation,
‘‘(ii) the provisions of section 4979A
shall apply, and
‘‘(iii) the statutory period for the as-
sessment of any tax imposed by section
4979A shall not expire before the date
which is 3 years from the later of—
‘‘(I) the 1st allocation of em-
ployer securities in connection with a
qualified gratuitous transfer to which
this section applies, or
‘‘(II) the date on which the Sec-
retary is notified of such failure.’’
(c) CONFORMING AMENDMENTS.—
(1) Section 415(e) of such Code is amended—
(A) by redesignating paragraph (6) as
paragraph (7), and
(B) by inserting after paragraph (5) the
following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
QUALIFIED
GRATU-
ITOUS TRANSFERS.—Any qualified gratuitous trans-
fer of qualified employer securities (as defined by
section 664(d)(3)) shall not be taken into account in
calculating, and shall not be subject to, the limita-
tions provided in this subsection.’’
(2) Section 415(c)(6) of such Code is amended
by adding at the end thereof the following new sen-
tence:
‘‘The amount of any qualified gratuitous transfer
(as defined in section 664(d)(3)(A)) allocated to a
participant for any limitation year shall not exceed
the limitations imposed by this section, but such
amount shall not be taken into account in determin-
ing whether any other amount exceeds the limita-
tions imposed by this section.’’
(3) Section 4979A(b) of such Code is amended
by striking ‘‘and’’ at the end of paragraph (1), by
redesignating paragraph (2) as paragraph (3), and
by inserting after paragraph (1) the following new
paragraph:
‘‘(2) any allocation of qualified employer securi-
ties acquired by an employee stock ownership plan
pursuant to a qualified gratuitous transfer, as de-
scribed in section 664(d)(3), which fails to meet the
requirements of section 664(d)(3)(A)(vi), and’’.
(4) Section 664(d) of such Code is amended by
adding at the end thereof the following new para-
graph:
‘‘(5) Notwithstanding subsections (d)(1)(B) and
(d)(2)(B), a qualified gratuitous transfer of qualified
employer securities to an employee stock ownership
plan shall be permitted.’’
(5) Section 2055(a) of such Code is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (3),
(B) by striking the period at the end of
paragraph (4) and inserting ‘‘; or’’, and
(C) by inserting after paragraph (4) the
following new paragraph:
‘‘(5) to an employee stock ownership plan if
such transfer qualifies as a qualified gratuitous
transfer of qualified employer securities within the
meaning of section 664(d)(3).’’
(6) Section 4947(b) of such Code is amended
by inserting after paragraph (3) the following new
paragraph:
‘‘(4) SECTION 507.—The provisions of section
507(a) shall not apply to a trust which is described
in subsection (a)(2) by reason of a distribution of
qualified employer securities (as defined in section
664(d)(3)(C)) to an employee stock ownership plan
(as defined in section 4975(e)(7)) in a qualified gra-
tuitous transfer (as defined by section 664(d)(3)).’’
(7) Section 404(a)(9) of such Code is amended
by inserting after subparagraph (B) the following
new subparagraph:
‘‘(C) A qualified gratuitous transfer (as de-
fined in section 664(d)(3)(A)) shall have no ef-
fect on the amount or amounts otherwise de-
ductible under paragraph (3) or (7) or under
this paragraph.’’
(8) Paragraph (3) of section 644(e) of such
Code is amended to read as follows:
‘‘(3) acquired by a charitable remainder annuity
trust (as defined in section 664(d)(1)) or a chari-
table remainder unitrust (as defined in sections
664(d)(2) and (4)), or’’.
(9) Paragraph (4) of section 674(b) of such
Code is amended to read as follows:
‘‘(4) POWER TO ALLOCATE AMONG CHARITABLE
BENEFICIARIES.—A power to determine the bene-
ficial enjoyment of the corpus or the income there-
from if the corpus or income is irrevocably payable
for a purpose specified in section 170(c) (relating to
definition of charitable contributions) or to an em-
ployee stock ownership plan (as defined in section
4975(e)(7)) in a qualified gratuitous transfer (as de-
fined in section 664(d)(3)).’’
(10) Paragraph (8) of section 2056(b) of such
Code is amended to read as follows:
‘‘(8) SPECIAL RULE FOR CHARITABLE REMAIN-
DER TRUSTS.—
‘‘(A) 
IN
GENERAL.—If 
the 
surviving
spouse of the decedent is the only noncharitable
or nonqualified ESOP beneficiary of a qualified
charitable remainder trust, paragraph (1) shall
not apply to any interest in such trust which
passes or has passed from the decedent to such
surviving spouse.
‘‘(B) DEFINITIONS.—For purposes of sub-
paragraph (A)—
‘‘(i) 
NONCHARITABLE
BENE-
FICIARY.—The term ‘noncharitable bene-
ficiary’ means any beneficiary of the quali-
fied charitable remainder trust other than
an 
organization 
described 
in 
section
170(c).
‘‘(ii) NONQUALIFIED
ESOP
BENE-
FICIARY.—The term ‘nonqualified ESOP
beneficiary’ means any beneficiary of the
qualified charitable remainder trust other
than an employee stock ownership plan (as
defined in section 4975(e)(7)) that holds a
remainder interest in qualified employer
securities 
(as 
defined 
in 
section
664(d)(3)(C)) to be transferred to such
plan in a qualified gratuitous transfer (as
defined in section 664(d)(3)).
‘‘(iii) QUALIFIED
CHARITABLE
RE-
MAINDER
TRUST.—The term ‘qualified
charitable remainder trust’ means a chari-
table remainder annuity trust or a chari-
table remainder unitrust (described in sec-
tion 664).’’
(11) Paragraph (7) of section 4975(e) of such
Code is amended to read as follows:
‘‘(7) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—
The term ‘employee stock ownership plan’ means a
defined contribution plan—
‘‘(A) which is a stock bonus plan which is
qualified, or a stock bonus and a money pur-
chase plan both of which are qualified under
section 401(a) and which are designed to invest
primarily in qualifying employer securities; and
‘‘(B) which is otherwise defined in regula-
tions prescribed by the Secretary.
A plan shall not be treated as an employee stock
ownership plan unless it meets the requirements of
section 409(h), section 409(o), and, if applicable,
section 409(n) and section 664(d)(3), and, if the em-
ployer has a registration-type class of securities (as
defined in section 409(e)(4)), it meets the require-
ments of section 409(e).’’
(12) Subsection (a) of section 4978 of such
Code is amended to read as follows:
‘‘(a) TAX
ON DISPOSITIONS
OF SECURITIES
TO
WHICH SECTION 664(d)(3) OR SECTION 1042 APPLIES
BEFORE CLOSE
OF MINIMUM HOLDING PERIOD.—If,
during the 3-year period after the date on which the em-
ployee stock ownership plan or eligible worker-owned coop-
erative acquired any qualified securities in a sale to which
section 1042 applied or in a qualified gratuitous transfer
to which section 664(d)(3) applied, such plan or coopera-
tive disposes of any qualified securities and—
‘‘(1) the total number of shares held by such
plan or cooperative after such disposition is less
than the total number of employer securities held
immediately after such sale or such qualified gratu-
itous transfer, or
‘‘(2) except to the extent provided in regula-
tions, the value of qualified securities held by such
plan or cooperative after such disposition is less
than 30 percent of the total value of all employer se-
curities as of such disposition,
there is hereby imposed a tax on the disposition equal to
the amount determined under subsection (b).’’
(13) Paragraph (2) of section 4978(b) of such
Code is amended to read as follows:
‘‘(2) LIMITATION.—The amount realized taken
into account under paragraph (1) shall not exceed