Promotion and Expansion of Private Employee Ownership Act of 2021
Bill: H.R.4141 | Sponsor: Rep. Kind, Ron (D-WI)
Policy area: Taxation

Summary:
Promotion and Expansion of Private Employee Ownership Act of 2021
This bill expands tax incentives and federal assistance for employee stock ownership plans (ESOPs) that are sponsored by S corporations.
The bill provides additional tax incentives for ESOPs by (1) extending to all domestic corporations, including S corporations, provisions allowing deferral of tax on gain from the sale of employer securities to an ESOP; and (2) allowing a tax deduction for 50% of the interest received by a bank on loans to S corporation-sponsored ESOPs for the purchase of employer securities.
The Department of the Treasury must establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations.
The bill defines an ESOP business concern for purposes of the Small Business Act as a business concern that was eligible for a loan, preference, or other program under such Act before more than 49% of the business concern was acquired by an ESOP.

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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Promotion and Expansion of Private 
Employee Ownership Act of 2021''.

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 
        permitted 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 incentives 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 industries ranging from heavy manufacturing to 
        technology development to services;
            (4) while estimates show that 40 percent of working 
        Americans have no formal retirement account at all, every 
        United States worker who is an employee-owner of an S 
        corporation company through an ESOP has a valuable qualified 
        retirement savings account;
            (5) recent studies have shown that employees of ESOP-owned 
        S corporations enjoy greater job stability than employees of 
        comparable companies;
            (6) studies also show that employee-owners of S corporation 
        ESOP companies have amassed meaningful retirement savings 
        through their S ESOP accounts 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 
        concern 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 racial, gender, or other 
        criteria used under the Act to determine whether the small 
        business concern is eligible 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.

SEC. 3. DEFERRAL OF TAX FOR CERTAIN SALES OF EMPLOYER STOCK TO EMPLOYEE 
              STOCK OWNERSHIP PLAN SPONSORED BY S CORPORATION.

    (a) In General.--Section 1042(c)(1)(A) of the Internal Revenue Code 
of 1986 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.

SEC. 4. DEDUCTION FOR INTEREST ON LOAN TO FINANCE PURCHASE OF EMPLOYER 
              SECURITIES BY AN EMPLOYEE STOCK OWNERSHIP PLAN SPONSORED 
              BY AN S CORPORATION.

    (a) In General.--Part VI of subchapter B of chapter 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 PURCHASE OF EMPLOYER 
              SECURITIES BY AN EMPLOYEE STOCK OWNERSHIP PLAN SPONSORED 
              BY AN S CORPORATION.

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to 50 percent of the interest received during the taxable year by 
a bank (within the meaning of section 581) with respect to a qualified 
securities acquisition loan.
    ``(b) Qualified Securities Acquisition Loan.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified securities acquisition loan' means--
                    ``(A) any loan to an employee stock ownership 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 section 409(l).
            ``(2) Terms applicable to certain qualified securities 
        acquisition loans.--For purposes of paragraph (1)(B), the term 
        `qualified securities 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 substantially 
        similar to the terms of the loan to the S corporation.
            ``(3) Treatment of refinancings.--The term `qualified 
        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 percent of stock after 
        acquisition or transfer.--
                    ``(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 referred 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 acquisition loan which 
                        is allocable to any period during which the 
                        employee stock ownership plan does not own 
                        stock meeting the requirements of subparagraph 
                        (A).
                            ``(ii) Exception.--To the extent provided 
                        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 subparagraph (A), the 
                Secretary may provide that warrants, options, contracts 
                to acquire stock, convertible debt interests and other 
                similar interests be treated as stock for one or more 
                purposes under subparagraph (A).
    ``(c) Employee Stock Ownership Plan.--For purposes of this section, 
the term `employee stock ownership 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 corporation.''.
    (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 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 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 OWNERSHIP.

    (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:

``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 concern 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 calendar year beginning after the date 
of the enactment of this Act.
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