Tarheel State Congressman Gets Kudos from ESOP Group

July 12, 2004 (PLANSPONSOR.com) - The ESOP Association has thrown its backing behind a new measure by a North Carolina Republican, which the group claims will improve employee stock ownership plans (ESOP) both for workers and companies.

In a news release, the ESOP Association praised US Representative Cass Ballenger (R-North Carolina) for introducing HR 4796, the Employee Stock Ownership and Improvement Act of 2004. According to the trade group, the measure would repeal the 10% penalty tax on S corporations’ distributions from current earnings, which would allow participants to pay regular income tax on the cash received.

Other provisions of H.R. 4796 include:

  • permit S corporations’ distributions from current earnings paid on ESOP stock, both allocated and unallocated, to be used to pay ESOP debt
  • permit sellers of stock to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the 1042 treatment
  • clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax
  • permit proceeds received from a 1042 transaction to be invested in mutual funds consisting of operating US corporation securities
  • redefine what is a 25% owner for purposes of IRC 1042 to be 25% owner of voting stock, or all stock of the corporation, not 25% of any class of stock
  • permit early withdrawals from ESOP for first-time home purchases and college tuition, under limited circumstances.

Original House co-sponsors include Representatives Eric Cantor (R-Virginia), Virgil Goode, Jr. (R-Virginia), Nancy Johnson (R-Connecticut), Ron Paul (R-Texas), Todd Platts (R-Pennsylvania), and Dana Rohrabacher (R-California).

The comparable Senate version is S. 2298, the Employee Stock Ownership Plan Promotion and Improvement Act of 2004, which was introduced by Senator John Breaux (D-Louisiana).   Original co-sponsors of S. 2298 include Senators George Allen (R-Virginia), Mary Landrieu (D-Louisiana), and Blanche Lincoln (D-Arkansas).

Founded in 1978, The ESOP Association represents over 1,300 ESOP companies and 750,000 employee owners.    More information is at www.esopassociation.org .