Congressmen Boustany and Pomeroy Introduce H.R. 5207 --- The ESOP Promotion and Improvement Act of 2010

by The ESOP Association | May 12, 2010

May 12, 2010 (Washington, DC) – On May 12, 2010, Congressman Charles W. Boustany, Jr. (R-LA-7th) and Congressman Earl Pomeroy (D-ND-ATL) announced the introduction of the ESOP Promotion and Improvement Act of 2010.  The bill is an important step to broaden employee ownership in the U.S. 

In summary, the proposed Act 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 and 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.)

“Employee stock ownership plans help workers take ownership in their company, which is part of the American dream,” said Congressman Boustany.  “ESOPs continue to be a critical component of improving American competitiveness and helping to create jobs here at home, and this bill improves options for employees to participate in these plans.”

"Businesses that follow the path of employee ownership are often more successful and provide better services, and ownership can make them more exciting places to work. There's no better example of that than some of the great companies we have in North Dakota like Border States Electric and Dakota Supply Group," Congressman Pomeroy said. "The federal tax system needs to encourage employee ownership, not stymie it. Our bill will finally set this system on a path of growth."

“As members of the House Ways and Means Committee, there could be no better proponents in Congress for equitable ownership polices for all working Americans than Congressman Boustany and Congressman Pomeroy,” stated J. Michael Keeling, president of The ESOP Association.  “The ESOP community appreciates their recognition of employee stock ownership plans and the need to make them stronger for employee owners across America.”

For additional information about H.R. 5207, please visit The ESOP Association’s website,www.esopassociation.org and the Employee Ownership Blog,http://esopassociationblog.org/

The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.