Senator Patrick Leahy of Vermont has co-signed a new bill that will help to broaden ownership of businesses in the United States.
The "Employee Stock Option Plan Promotion and Improvement Act of 2009" (S.1612) was introduced on August 6, 2009 by Senator Blanche L. Lincoln (D-AR). It has four sections, including a proposal to remove a 35-year bias against ESOP companies by the Small Business Administration. The legislation would:
- Repeal the punative 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings 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.
- Improve the 1042 ESOP tax deferred rollover provisions by (a.) 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; (b.) permitting proceeds received from a 1042 transaction to be reinvested in mutual funds consisting of operating U.S. corporation securities; and (c.) redefining what is a 25% owner, for purposes of IRC 1042, as a 25% owner or more of voting stock, or 25% owner or more of all stock of the corporation, instead of current law definition that owning of 25% of any class of stock is a 25% owner for purposes of IRC 1042.
- Eliminate a bias against minority 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.)