The ESOP Association | Employee ownership through employee stock ownership plans

Introduced by Congressman Charles W. Boustany, Jr. (R-LA-7) and
Congressman Earl Pomeroy (D-ND-ATL)

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Explanation of ¨Employee Stock Ownership Plan Promotion and Improvement Act of 2010¨

[Note: These provisions are also included in the 2009 pro-ESOP legislation introduced by Senator Blanche L. Lincoln (D-AR), S. 1612.]

H.R. 5207 improves the 1042 ESOP tax deferred rollover provisions by permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the so-called 1042 treatment. The bill also makes needed clarifications and technical amendments to the section 1042 provision related to how proceeds from a sale to an ESOP may be reinvested, and who are not permitted to participate in a 1042 ESOP.
H.R. 5207 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.
H.R. 5207 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, that are passed through to ESOP participants in cash.
H.R. 5207 would eliminate a bias against majority owned ESOP companies by making clear that a non-ESOP small businesses currently eligible for any Small Business Administration program is still eligible for the SBA program if becoming a majority owned ESOP company with the same characteristics it had before becoming a majority owned ESOP company. (A majority owned ESOP company is 50% plus owned by the ESOP on behalf of the employees.)