MODIFICATIONS OF ESTATE TAX DEDUCTION FOR SALE OF EMPLOYER SECURITIES.

SEC. 10412. MODIFICATIONS OF ESTATE TAX DEDUCTION FOR SALE OF EMPLOYER SECURITIES. (a) In General.— Section 2057 (relating to estate tax deduction for sales of employer securities to employee stock ownership plans or worker-owned cooperatives) is amended to read as follows: “SEC. 2057. SALES OF EMPLOYER SECURITIES TO EMPLOYEE STOCK OWNERSHIP PLANS OR WORKER-OWNED COOPERATIVES. “(a) General Rule.— For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate an amount equal to 50 percent of the proceeds of any sale of any qualified employer securities to— “(1) an employee stock ownership plan, or “(2) an eligible worker-owned cooperative. “(b) Limitations.— “(1) Maximum reduction in tax liability.— The amount allowable as a deduction under subsection (a) shall not exceed the amount which would result in an aggregate reduction in the tax imposed by section 2001 (determined without regard to any credit allowable against such tax) equal to $750,000. “(2) Deduction shall not exceed 50 percent of taxable estate.— The amount of the deduction allowable under subsection (a) shall not exceed 50 percent of the taxable estate (determined without regard to this section). “(c) Limitations on Proceeds Which May Be Taken Into Account.— “(1) Dispositions by plan or cooperative within i year of sale.— “(A) In general.— Proceeds from a sale which are taken into account under subsection (a) shall be reduced (but not below zero) by the net sale amount. “(B) Net sale amount.— For purposes of subparagraph (A), the term ‘net sale amount’ means the excess (if any) of— “(i) the proceeds of the plan or cooperative from the disposition of employer securities during the 1-year period immediately preceding such sale, over “(ii) the cost of employer securities purchased by such plan or cooperative during such 1-year period. “(C) Exceptions.— For purposes of subparagraph (B)(i), there shall not be taken into account any proceeds of a plan or cooperative from a disposition described in section 4978A(e). “(D) Aggregation rules.— For purposes of this paragraph, all employee stock ownership plans maintained by an employer snail be treated as 1 plan. “(2) Securities must be acquired by plan from assets which are not transferred assets.— “(A) In general.— Proceeds from a sale shall not be taken into account under subsection (a) to the extent that such proceeds (as reduced under paragraph (1)) are attributable to transferred assets. For purposes of the preceding sentence, all assets of a plan or cooperative (other than 101 STAT. 1330–434qualified employer securities) shall be treated as first acquired out of transferred assets. “(B) Transferred assets.— For purposes of subparagraph (A)— “(i) In general.— The term ‘transferred assets’ means assets of an employee stock ownership plan which— “(I) are attributable to assets held by a plan exempt from tax under section 501(a) and meeting the requirements of section 401(a) (other than an employee stock ownership plan of the employer), or “(II) were held by the plan when it was not an employee stock ownership plan. “(ii) Exception for assets held on february 26, 1987.— The term ‘transferred assets’ shall not include any asset held by the employee stock ownership plan on February 26, 1987. “(iii) Secretarial authority to waive treatment as transferred asset.— The Secretary may provide that assets or a class of assets shall not be treated as transferred assets if the Secretary finds such treatment is not necessary to carry out the purposes of this paragraph. “(3) Other proceeds.— The following proceeds shall not be taken into account under subsection (a): “(A) Proceeds from sale after due date for return.— Any proceeds from a sale which occurs after the date on which the return of the tax imposed by section 2001 is required to be filed (determined by taking into account any extension of time for filing). “(B) Proceeds from sale of certain securities.— Any proceeds from a sale of employer securities which were received by the decedent— “(i) in a distribution from a plan exempt from tax under section 501(a) and meeting the requirements of section 401(a), or “(ii) as a transfer pursuant to an option or other right to acquire stock to which section 83, 422, 422A, 423, or 424 applies. Any employer security the basis of which is determined by reference to any employer security described in the preceding sentence shall be treated as an employer security to which this subparagraph applies. “(d) Qualified Employer Securities.— “(1) In general.— The term ‘qualified employer securities’ means employer securities— “(A) which are issued by a domestic corporation which has no stock outstanding which is readily tradable on an established securities market, “(B) which are includible in the gross estate of the decedent, “(C) which would have been includible in the gross estate of the decedent if the decedent had died at any time during the shorter of— “(i) the 5-year period ending on the date of death, or “(ii) the period beginning on October 22, 1986, and ending on the date of death, and 101 STAT. 1330–435 “(D) with respect to which the executor elects the application of this section. Subparagraph (C) shall not apply if the decedent died on or before October 22, 1986. “(2) Certain assets held by spouse.— For purposes of paragraph (1)(C), any employer security which would have been includible in the gross estate of the spouse of a decedent during any period if the spouse had died during such period shall be treated as includible in the gross estate of the decedent during such period. “(3) Periods during which decedent not at risk.— For purposes of paragraph (1)(C), employer securities shall not be treated as includible in the gross estate of the decedent during any period described in section 246(c)(4). “(e) Written Statement Required.— “(1) In general.— No deduction shall be allowed under subsection (a) unless the executor of the estate of the decedent files with the Secretary the statement described in paragraph (2). “(2) Statement.— A statement is described in this paragraph if it is a verified written statement— “(A) which is made by— “(i) the employer whose employees are covered by the employee stock ownership plan, or “(ii) any authorized officer of the eligible worker-owned cooperative, and “(B) which— “(i) acknowledges that the sale of employer securities to the plan or cooperative is a sale to which sections 4978A and 4979A apply, and “(ii) certifies— “(I) the net sale amount for purposes of subsection (c)(1), and “(II) the amount of assets which are not transferred assets for purposes of subsection (c)(2). “(f) Other Definitions and Special Rules.— For purposes of this section— “(1) Employer securities.— The term ‘employer securities’ has the meaning given such term by section 409(1). “(2) Employee stock ownership plan.— The term ‘employee stock ownership plan’ means— “(A) a tax credit employee stock ownership plan (within the meaning of section 409(a)), or “(B) a plan described in section 4975(e)(7). “(3) Eligible worker-owned cooperative.— The term ‘eligible worker-owned cooperative’ has the meaning given such term by section 1042(c). “(4) Employer.— Except to the extent provided in regulations, the term ‘employer’ includes any person treated as an employer under subsections (b), (c), (m), and (o) of section 414. “(g) Termination.— This section shall not apply to any sale after December 31, 1991.” (b) Effective Dates.— (1) In general.— Except as provided in this subsection, the note, amendments made by this section shall apply to sales after February 26, 1987. 101 STAT. 1330–436 (2) Provisions taking effect as if included in the tax reform act of 1986.— The following provisions shall take effect as if included in the amendments made by section 1172 of the Tax Reform Act of 1986: (A) Section 2057(f)(2) of the Internal Revenue Code of 1986, as added by this section. (B) The repeal of the requirement that a sale be made by the executor of an estate to qualify for purposes of section 2057 of such Code. (3) Direct ownership requirement.— If the requirements of section 2057(d)(1)(B) of such Code (as modified by section 2057(d)(2) of such Code), as in effect after the amendments made by this section, are met with respect to any employer securities sold after October 22, 1986, and before February 27, 1987, such securities shall be treated as having been directly owned by the decedent for purposes of section 2057 of such Code, as in effect before such amendments. (4) Reduction for sales on or before February 26, 1987.— In applying the limitations of subsection (b) of section 2057 of such Code to sales after February 26, 1987, there shall be taken into account sales on or before February 26, 1987, to which section 2057 of such Code applied.