GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.

SEC. 1530. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES. (a) In General.—Subparagraph (C) of section 664(d)(1) and subparagraph (C) of section 664(d)(2) are each amended by striking the period at the end thereof and inserting “or, to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4)), all or part of such securities are to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by subsection (g)).”. (b) Qualified Gratuitous Transfer Defined.—Section 664 is amended by adding at the end the following new subsection: “(g) Qualified Gratuitous Transfer of Qualified Employer Securities.—111 STAT. 1076 “(1) In general.—For purposes of this section, the term ‘qualified gratuitous transfer’ means a transfer of qualified employer securities to an employee stock ownership plan (as defined in section 4975(e)(7)) but only to the extent that— “(A) the securities transferred previously passed from a decedent dying before January 1, 1999, to a trust described in paragraph (1) or (2) of subsection (d), “(B) no deduction under section 404 is allowable with respect to such transfer, “(C) such plan contains the provisions required by paragraph (3), “(D) such plan treats such securities as being attributable to employer contributions but without regard to the limitations otherwise applicable to such contributions under section 404, and “(E) the employer whose employees are covered by the plan described in this paragraph files with the Secretary a verified written statement consenting to the application of sections 4978 and 4979A with respect to such employer. “(2) Exception.—The term ‘qualified gratuitous transfer’ shall not include a transfer of qualified employer securities to an employee stock ownership plan unless— “(A) such plan was in existence on August 1, 1996, “(B) at the time of the transfer, the decedent and members of the decedent’s family (within the meaning of section 2032A(e)(2)) own (directly or through the application of section 318(a)) no more than 10 percent of the value of the stock of the corporation referred to in paragraph (4), and “(C) immediately after the transfer, such plan owns (after the application of section 318(a)(4)) at least 60 percent of the value of the outstanding stock of the corporation. “(3) Plan requirements.—A plan contains the provisions required by this paragraph if such plan provides that— “(A) the qualified employer securities so transferred are allocated to plan participants in a manner consistent with section 401(a)(4), “(B) plan participants are entitled to direct the plan as to the manner in which such securities which are entitled to vote and are allocated to the account of such participant are to be voted, “(C) an independent trustee votes the securities so transferred which are not allocated to plan participants, “(D) each participant who is entitled to a distribution from the plan has the rights described in subparagraphs (A) and (B) of section 409(h)(1), “(E) such securities are held in a suspense account under the plan to be allocated each year, up to the limitations under section 415(c), after first allocating all other annual additions for the limitation year, up to the limitations under sections 415 (c) and (e), and “(F) on termination of the plan, all securities so transferred which are not allocated to plan participants as of such termination are to be transferred to, or for the use of, an organization described in section 170(c).111 STAT. 1077 For purposes of the preceding sentence, the term ‘independent trustee’ means any trustee who is not a member of the family (within the meaning of section 2032A(e)(2)) of the decedent or a 5-percent shareholder. A plan shall not fail to be treated as meeting the requirements of section 401(a) by reason of meeting the requirements of this subsection. “(4) Qualified employer securities.—For purposes of this section, the term ‘qualified employer securities’ means employer securities (as defined in section 409(1)) which are issued by a domestic corporation— “(A) which has no outstanding stock which is readily tradable on an established securities market, and “(B) which has only 1 class of stock. “(5) Treatment of securities allocated by employee stock ownership plan to persons related to decedent or 5-percent shareholders.— “(A) In general.—If any portion of the assets of the plan attributable to securities acquired by the plan in a qualified gratuitous transfer are allocated to the account of— “(i) any person who is related to the decedent (within the meaning of section 267(b)) or a member of the decedent’s family (within the meaning of section 2032A(e)(2)), or “(ii) any person who, at the time of such allocation or at any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5-percent shareholder of the employer maintaining the plan, the plan shall be treated as having distributed (at the time of such allocation) to such person or shareholder the amount so allocated. “(B) 5-percent shareholder.—For purposes of subparagraph (A), the term ‘5-percent shareholder’ means any person who owns (directly or through the application of section 318(a)) more than 5 percent of the outstanding stock of the corporation which issued such qualified employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of section 409(l)(4)) as such corporation. For purposes of the preceding sentence, section 318(a) shall be applied without regard to the exception in paragraph (2)(B)(i) thereof. “(C) Cross reference.— “For excise tax on allocations described in subparagraph (A), see section 4979A. “(6) Tax on failure to transfer unallocated securities to charity on termination of plan.—If the requirements of paragraph (3)(F) are not met with respect to any securities, there is hereby imposed a tax on the employer maintaining the plan in an amount equal to the sum of— “(A) the amount of the increase in the tax which would be imposed by chapter 11 if such securities were not transferred as described in paragraph (1), and “(B) interest on such amount at the underpayment rate under section 6621 (and compounded daily) from the 111 STAT. 1078due date for filing the return of the tax imposed by chapter 11.”. (c) Conforming Amendments.— (1) Section 401(a)(1) is amended by inserting “or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)),” after “stock bonus plans),”. (2) Section 404(a)(9) is amended by inserting after subparagraph (B) the following new subparagraph: “(C) A qualified gratuitous transfer (as defined in section 664(g)(1)) shall have no effect on the amount or amounts otherwise deductible under paragraph (3) or (7) or under this paragraph.”. (3) Section 415(c)(6) is amended by adding at the end thereof the following new sentence: “The amount of any qualified gratuitous transfer (as defined in section 664(g)(1)) allocated to a participant for any limitation year shall not exceed the limitations imposed by this section, but such amount shall not be taken into account in determining whether any other amount exceeds the limitations imposed by this section.”. (4) Section 415(e) is amended— (A) by redesignating paragraph (6) as paragraph (7), and (B) by inserting after paragraph (5) the following new paragraph: “(6) Special rule for qualified gratuitous transfers.—Any qualified gratuitous transfer of qualified employer securities (as defined by section 664(g)) shall not be taken into account in calculating, and shall not be subject to, the limitations provided in this subsection.”. (5) Subparagraph (B) of section 664(d)(1) and subparagraph (B) of section 664(d)(2) are each amended by inserting “and other than qualified gratuitous transfers described in subparagraph (C)” after “subparagraph (A)”. (6) Paragraph (4) of section 674(b) is amended by inserting before the period “or to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined in section 664(g)(1))”. (7) Section 2055(a) is amended— (i) by striking “or” at the end of paragraph (3), (ii) by striking the period at the end of paragraph (4) and inserting or”, and (iii) by inserting after paragraph (4) the following new paragraph: “(5) to an employee stock ownership plan if such transfer qualifies as a qualified gratuitous transfer of qualified employer securities within the meaning of section 664(g).”. (8) Paragraph (8) of section 2056(b) is amended to read as follows: “(8) Special rule for charitable remainder trusts.— “(A) In general.—If the surviving spouse of the decedent is the only beneficiary of a qualified charitable remainder trust who is not a charitable beneficiary nor an ESOP beneficiary, paragraph (1) shall not apply to any interest in such trust which passes or has passed from the decedent to such surviving spouse.111 STAT. 1079 “(B) Definitions.—For purposes of subparagraph (A)— “(i) Charitable beneficiary.—The term ‘charitable beneficiary’ means any beneficiary which is an organization described in section 170(c). “(ii) ESOP beneficiary.—The term ‘ESOP beneficiary’ means any beneficiary which is an employee stock ownership plan (as defined in section 4975(e)(7)) that holds a remainder interest in qualified employer securities (as defined in section 664(g)(4)) to be transferred to such plan in a qualified gratuitous transfer (as defined in section 664(g)(1)). “(iii) Qualified charitable remainder trust.—The term ‘qualified charitable remainder trust’ means a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664).”. (9) Section 4947(b) is amended by inserting after paragraph (3) the following new paragraph: “(4) Section 507.—The provisions of section 507(a) shall not apply to a trust which is described in subsection (a)(2) by reason of a distribution of qualified employer securities (as defined in section 664(g)(4)) to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by section 664(g)).”. (10) The last sentence of section 4975(e)(7) is amended by inserting “and section 664(g)” after “section 409(n)”. (11) Subsection (a) of section 4978 is amended— (A) by inserting “or acquired any qualified employer securities in a qualified gratuitous transfer to which section 664(g) applied” after “section 1042 applied”, and (B) by inserting before the comma at the end of paragraph (2) “60 percent of the total value of all employer securities as of such disposition in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied)”. (12) Paragraph (2) of section 4978(b) is amended— (A) by inserting “or acquired in the qualified gratuitous transfer to which section 664(g) applied” after “section 1042 applied”, and (B) by inserting “or to which section 664(g) applied” after “section 1042 applied” in subparagraph (A) thereof. (13) Subsection (c) of section 4978 is amended by striking “written statement” and all that follows and inserting “written statement described in section 664(g)(1)(E) or in section 1042(b)(3) (as the case may be).”. (14) Paragraph (2) of section 4978(e) is amended by striking the period and inserting “; except that such section shall be applied without regard to subparagraph (B) thereof for purposes of applying this section and section 4979A with respect to securities acquired in a qualified gratuitous transfer (as defined in section 664(g)(1)).”. (15) Subsection (a) of section 4979A is amended to read as follows: “(a) Imposition of Tax.—If— “(1) there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative, or “(2) there is an allocation described in section 664(g)(5)(A), 111 STAT. 1080there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.”. (16) Subsection (c) of section 4979A is amended to read as follows: “(c) Liability for Tax.—The tax imposed by this section shall be paid by— “(1) the employer sponsoring such plan, or “(2) the eligible worker-owned cooperative, which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be).”. (17) Section 4979A is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Special Statute of Limitations for Tax Attributable to Certain Allocations.—The statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of— “(1) the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(g)(1)), or “(2) the date on which the Secretary is notified of the allocation described in subsection (a)(2).”. (d) Effective Date.—The amendments made by this section shall apply to transfers made by trusts to, or for the use of, an employee stock ownership plan after the date of the enactment of this Act.