On May 5, 2010, Congressman Charles W. Boustany, Jr. (R-LA-7) and Congressman Earl Pomeroy (D-ND-ATL) and introduced H.R. 5207 the ESOP Promotion and Improvement Act of 2010. The legislation is the House counterpart to S. 1612, the Senate version of the ESOP Promotion and Improvement Act of 2009 which was introduced by Senator Blanche L. Lincoln (D-AR) on August 6, 2009.

One, H.R. 5207 improves the 1042 ESOP tax deferred rollover provisions by 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. The bill also makes needed clarifications and technical amendments to the section 1042 provision related to how proceeds from a sale to an ESOP may be reinvested, and who are not permitted to participate in a 1042 ESOP.

Two, H.R. 5207 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.

Three, H.R. 5207 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, that are passed through to ESOP participants in cash.

And, four, H.R. 5207 would eliminate a bias against majority 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.)

Congressman Charles W. Boustany, Jr. represents the 7th district in the state of Louisiana. He is a member of the House Ways and Means Committee.

Congressman Earl Pomeroy is the representative from the state of North Dakota. He is a member of the House Ways and Means Committee which has jurisdiction over ESOPs.

“As members of the House Ways and Means Committee, there could be no better proponents in Congress for equitable ownership polices for all working Americans than Congressman Boustany and Congressman Pomeroy,” stated J. Michael Keeling, president of The ESOP Association. “The ESOP community appreciates their recognition of employee stock ownership plans and the need to make them stronger for employee owners across America.”