8/17/2009
Vernon P. Saper
On August 6, Senator Blanche Lincoln (D-AR) introduced Senate Bill S 1612, the "Employee Stock Ownership Plan Promotion and Improvement Act of 2009."
The bill is similar to legislation Senator Lincoln introduced in 2007, but was never reported out of the Senate Finance Committee. If enacted, the legislation would:
Repeal the 10% early distribution tax which currently applies if S corporation "dividends" are passed through the ESOP to the plan participants who are under age 59-1/2.
Clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.
Allow a shareholder who sells stock to an ESOP sponsored by an S corporation to use the tax deferred rollover of capital gain pursuant to Section 1042 of the Code.
Permit proceeds received by a shareholder from a 1042 sale of stock to the ESOP to be invested in mutual funds which invest in U.S. operating corporations.
Redefine who is a "25% shareholder" for purposes of prohibiting allocations of 1042 stock by an ESOP, to include a shareholder of 25% or more of voting stock or 25% of all stock of the corporation, but not just 25% of any class of stock.
Clarify that a small business certified by the Small Business Administration for SBA loans and programs will still be eligible for SBA status, even if 50% or more is owned by an ESOP.
Senator Lincoln is a senior member of the Senate Finance Committee and Chair of the Committee's Social Security, Pension and Family Policy Subcommittee. The bill is co-sponsored by Senator Mary Landrieu (D-LA), who is Chair of the Senate Committee on Small Business and Entrepreneurship.
The changes made by the bill have been sought by ESOP proponents for many years. They would bring equity to ESOPs maintained by S Corporations and C Corporations. The revisions would improve the tax deferral provisions of Section 1042 by allowing investment in certain mutual funds, which would allow better investment diversification for shareholders selling to an ESOP.
If you would like to learn more about ESOPs, please contact Vern Saper at 616.752.2116 or at , or Justin Stemple at 616.752.2375 or at .
