H.R.3082 - To amend the Internal Revenue Code of 1986 to prohibit certain allocations of S corporation stock held by an employee stock ownership plan.106th Congress (1999-2000)
|Sponsor:||Rep. Ramstad, Jim [R-MN-3] (Introduced 10/14/1999)|
|Committees:||House - Ways and Means|
|Latest Action:||House - 10/14/1999 Referred to the House Committee on Ways and Means. (All Actions)|
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Text: H.R.3082 — 106th Congress (1999-2000)All Information (Except Text)
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Introduced in House (10/14/1999)
[Congressional Bills 106th Congress] [From the U.S. Government Printing Office] [H.R. 3082 Introduced in House (IH)] 106th CONGRESS 1st Session H. R. 3082 To amend the Internal Revenue Code of 1986 to prohibit certain allocations of S corporation stock held by an employee stock ownership plan. _______________________________________________________________________ IN THE HOUSE OF REPRESENTATIVES October 14, 1999 Mr. Ramstad (for himself, Mr. Cardin, Mr. Crane, Mr. Foley, Mr. Herger, Mr. Houghton, Mrs. Johnson of Connecticut, Mr. Kleczka, Mr. Lewis of Kentucky, Mr. Luther, Mr. McCrery, Mr. McInnis, Mr. Portman, Mrs. Thurman, Mr. Watkins, and Mr. Weller) introduced the following bill; which was referred to the Committee on Ways and Means _______________________________________________________________________ A BILL To amend the Internal Revenue Code of 1986 to prohibit certain allocations of S corporation stock held by an employee stock ownership plan. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. PROHIBITED ALLOCATIONS OF S CORPORATIONS STOCK HELD BY AN ESOP. (a) In General.--Section 409 of the Internal Revenue Code of 1986 (relating to qualifications for tax credit employee stock ownership plans) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection: ``(p) Prohibited Allocations of Securities in an S Corporation.-- ``(1) In general.--An employee stock ownership plan holding employer securities consisting of stock in an S corporation shall provide that no portion of the assets of the plan attributable to (or allocable in lieu of) such employer securities may, during a nonallocation year, accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a)) for the benefit of any disqualified person. ``(2) Failure to meet requirements.-- ``(A) In general.--If a plan fails to meet the requirements of paragraph (1), the plan shall be treated as having distributed to any disqualified person the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation. ``(B) Cross reference.-- ``For excise tax relating to violations of paragraph (1) and ownership of synthetic equity, see section 4979A. ``(3) Nonallocation year.--For purposes of this subsection-- ``(A) In general.--The term `nonallocation year' means any plan year of an employee stock ownership plan if, at any time during such plan year-- ``(i) such plan holds employer securities consisting of stock in an S corporation, and ``(ii) disqualified persons own at least 50 percent of the number of shares of stock in the S corporation. ``(B) Attribution rules.--For purposes of subparagraph (A)-- ``(i) In general.--The rules of section 318(a) shall apply for purposes of determining ownership, except that-- ``(I) in applying paragraph (1) thereof, the members of an individual's family shall include members of the family described in paragraph (4)(D), and ``(II) paragraph (4) thereof shall not apply. ``(ii) Deemed-owned shares.-- Notwithstanding the employee trust exception in section 318(a)(2)(B)(i), for purposes of determining whether an individual is a disqualified person, such individual shall be treated as owning deemed-owned shares. ``(4) Disqualified person.--For purposes of this subsection-- ``(A) In general.--The term `disqualified person' means any person if-- ``(i) the aggregate number of deemed-owned shares of such person and the members of such person's family is at least 20 percent of the number of deemed-owned shares of stock in the S corporation, or ``(ii) in the case of a person not described in clause (i), the number of deemed- owned shares of such person is at least 10 percent of the number of deemed-owned shares of stock in such corporation. ``(B) Treatment of family members.--In the case of a disqualified person described in subparagraph (A)(i), any member of such person's family with deemed-owned shares shall be treated as a disqualified person if not otherwise treated as a disqualified person under subparagraph (A). ``(C) Deemed-owned shares.--For purposes of this paragraph-- ``(i) In general.--The term `deemed-owned shares' means, with respect to any person-- ``(I) the stock in the S corporation constituting employer securities of an employee stock ownership plan which is allocated to such person under the plan, and ``(II) such person's share of the stock in such corporation which is held by such plan but which is not allocated under the plan to participants. ``(ii) Person's share of unallocated stock.--For purposes of clause (i)(II), a person's share of unallocated S corporation stock held by such plan is the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as the most recent stock allocation under the plan. ``(D) Member of family.--For purposes of this paragraph, the term `member of the family' means, with respect to any individual-- ``(i) the spouse of the individual, ``(ii) an ancestor or lineal descendant of the individual or the individual's spouse, ``(iii) a brother or sister of the individual or the individual's spouse and any lineal descendant of the brother or sister, and ``(iv) the spouse of any individual described in clause (ii) or (iii). A spouse of an individual who is legally separated from such individual under a decree of divorce or separate maintenance shall not be treated as such individual's spouse for purposes of this subparagraph. ``(5) Treatment of synthetic equity.--For purposes of paragraphs (3) and (4), in the case of a person who owns synthetic equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such synthetic equity is based shall be treated as outstanding stock in such corporation and deemed- owned shares of such person if such treatment of synthetic equity of 1 or more such persons results in-- ``(A) the treatment of any person as a disqualified person, or ``(B) the treatment of any year as a nonallocation year. For purposes of this paragraph, synthetic equity shall be treated as owned by a person in the same manner as stock is treated as owned by a person under the rules of paragraphs (2) and (3) of section 318(a). ``(6) Definitions.--For purposes of this subsection-- ``(A) Employee stock ownership plan.--The term `employee stock ownership plan' has the meaning given such term by section 4975(e)(7). ``(B) Employer securities.--The term `employer security' has the meaning given such term by section 409(l). ``(C) Synthetic equity.--The term `synthetic equity' means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom stock unit, or similar right to a future cash payment based on the value of such stock or appreciation in such value. ``(7) Regulations.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.'' (b) Coordination With Section 4975(e)(7).--The last sentence of section 4975(e)(7) of such Code (defining employee stock ownership plan) is amended by inserting ``, section 409(p),'' after ``409(n)''. (c) Excise Tax.-- (1) Application of tax.--Subsection (a) of section 4979A of such Code (relating to tax on certain prohibited allocations of employer securities) is amended-- (A) by striking ``or'' at the end of paragraph (1), (B) by striking the period at the end of paragraph (2) and inserting a comma, and (C) by striking all that follows paragraph (2) and inserting the following: ``(3) there is any allocation of employer securities which violates the provisions of section 409(p), or ``(4) any synthetic equity is owned by a disqualified person in any nonallocation year, there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.'' (2) Liability.--Section 4979A(c) of such Code (defining liability for tax) is amended to read as follows: ``(c) Liability for Tax.--The tax imposed by this section shall be paid-- ``(1) in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by-- ``(A) the employer sponsoring such plan, or ``(B) the eligible worker-owned cooperative, which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), and ``(2) in the case of an allocation or ownership referred to in paragraph (3) or (4) of subsection (a), by the S corporation the stock in which was so allocated or owned.'' (3) Definitions.--Section 4979A(e) of such Code (relating to definitions) is amended to read as follows: ``(e) Definitions and Special Rules.--For purposes of this section-- ``(1) Definitions.--Except as provided in paragraph (2), terms used in this section have the same respective meanings as when used in sections 409 and 4978. ``(2) Special rules relating to tax imposed by reason of paragraph (3) or (4) of subsection (a).-- ``(A) Prohibited allocations.--The amount involved with respect to any tax imposed by reason of subsection (a)(3) is the amount allocated to the account of any person in violation of section 408(p)(1). ``(B) Synthetic equity.--The amount involved with respect to any tax imposed by reason of subsection (a)(4) is the value of the shares on which the synthetic equity is based. ``(C) Special rule for prohibited allocation during first nonallocation year.--For purposes of subparagraph (A), the amount involved for the first nonallocation year of any employee stock ownership plan shall be determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan. ``(D) Statute of limitations.--The statutory period for the assessment of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of-- ``(i) the allocation or ownership referred to in such paragraph giving rise to such tax, or ``(ii) the date on which the Secretary is notified of such allocation or ownership.'' (d) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to plan years beginning after December 31, 2000. (2) Exception for certain plans.--In the case of any-- (A) employee stock ownership plan established after July 14, 1999, or (B) employee stock ownership plan established on or before such date if employer securities held by the plan consist of stock in a corporation with respect to which an election under section 1362(a) of the Internal Revenue Code of 1986 is not in effect on such date, the amendments made by this section shall apply to plan years ending after July 14, 1999. <all>