May 8, 2007 (Washington, DC) – The ESOP Promotion and Improvement Act of 2007 (S. 1322) was introduced on May 7, 2007 by Senator Blanche L. Lincoln (D-AR). The provisions of the proposed Act fall within the jurisdiction of the Senate Finance Committee.
“S. 1322 contains provisions clarifying current law that impacts S corporations sponsoring employee ownership through ESOPs as well as C corporations sponsoring ESOPs, plus modest alterations in current law that will result in more employee ownership through ESOPs,” said The ESOP Association President, J. Michael Keeling. “It is important that leaders such as Senator Lincoln continue active and purposeful legislative efforts to promote ESOPs to create more ownership in our nation.”
In summary, the proposed Act will repeal the punitive 10% penalty tax on S corporations’ distributions from current earning, also referred to as dividends, paid on ESOP stock that are passed through to ESOP participants in cash; clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax; permit sellers of stock to an ESOP on an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover or the 1042 treatment; permit proceeds received from a 1042 transaction to be invested in mutual funds consisting of operating US corporation securities; redefine what is a 25% or more owner for purposes of IRC 1042 to be 25% or more ownership of voting stock, or 25% or more ownership of all stock of the corporation, not 25% of any class of stock; increase the de minimus amount eligible for diversification from ESOP stock balances over $500 to balances over ESOP stock $2,500.
Frequently Asked Questions About S. 1322 (.pdf)
For additional information about S. 1322, please visit The ESOP Association’s website at www.esopassociation.org.
Founded in 1978, The ESOP Association represents over 1,400 ESOP companies who believe that employee ownership will improve American competitiveness, increase productivity through greater employee participation and strengthen our free enterprise economy
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