Washington, DC (June 30, 2005) – The ESOP Promotion and Improvement Act of 2005 was introduced on June 28, 2005 by Senator Blanche L. Lincoln (D-AR) in the Senate and by Representative Nancy L. Johnson (R-CT) in the House on June 30, 2005. Representative Johnson was joined by Representatives Jim McCrery (R-LA) and William J. Jefferson (D-LA). These Members of Congress all serve on the respective tax committees of Congress. All provisions of the proposed Act, H.R. 3111 and S. 1319, fall within the jurisdiction of the House Committee on Ways and Means and the Senate Committee on Finance.
“H.R. 3111 and S. 1319 contain 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.
In summary, the proposed ESOP package would permit S corporations to pay dividends to employee owners without the imposition of a 10% penalty tax; permit sellers of S stock to an ESOP to defer the capital gains tax on the proceeds under certain circumstances; permit the reinvestment into mutual funds of sellers’ proceeds on which capital gains tax is deferred; clarify what persons are not eligible to participate in an ESOP because of owning more than 25% of the company’s secondary class of stock; clarify that the corporate alternative minimum tax does not apply to C corporation dividends paid on ESOP stock; permit ESOP participants to make partial withdrawals from their ESOPs for first time home purchases and college tuition; and provide for an increase in the 1985 de minimus amount exempt from mandatory ESOP diversification from $500 to $2,500 per account.
“In his Inaugural Address, President Bush said that our nation should become an ownership society in order to be more prosperous, more just, and more equal,” Keeling noted, “and what Members of Congress Lincoln, Johnson, McCrery, and Jefferson have done is to put on the table specifics that will help create that more prosperous, more just, and more equal society through employee ownership.”
Founded in 1978, The ESOP Association represents over 1,300 ESOP companies and 750,000 employee owners who believe that employee ownership will improve American competitiveness, increase productivity through greater employee participation and strengthen our free enterprise economy.