ESOP Promotion and Improvement Act of 2007 (S.1322)

Explanation of “Employee stock Ownership Plan Promotion and Improvement Act of 2007

These provisions are included in the 2007 pro-ESOP legislation S. 1322 in 2007. When new pro-ESOP legislation is introduced in the House of Representatives, it is anticipated that the House legislation will include provisions such as those in S. 1322, as set forth below.

• Repeal the punitive 10% penalty tax on S corporations’ distributions from current earnings, also referred to as dividends, paid on ESOP stock 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.
• (a) Permit sellers of stock to the ESOP of a S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the 1042 treatment. (b) Permit proceeds received form a 1042 transaction to be invested in mutual funds consisting of operating US corporation securities. (c) Redefine what is a 25% or more owners for purpose of IRC 1042 to be 25% or more ownership of voting stock, or 25% or more ownership of all stock of the corporation, not 25% of any class of stock.
• Increase the de minimums amount eligible for diversification from ESOP stock balances over $500 to balances over ESOP stock $2,500.