On August 7th, Senator Blanche Lincoln (D-AR) introduced S.1612, the “ESOP Promotion and Improvement Act of 2009.”

This Act would make several changes to the laws regarding employee stock ownership plans.

  • It repeals the 10% penalty tax on distributions by S corporations to participants from current earnings;
  • It clarifies that dividends paid by C corporations on ESOP stock are not a preference item in calculating corporate alternative minimum tax;
  • It permits sellers of stock to an ESOP maintained by an S corporation to make use of tax deferred re-investment under Section 1042 of the Code;
  • It clarifies ownership rules for determining who is a 25% or more owner for purposes of Section 1042;
  • It allows the proceeds of a 1042 transaction to be invested in mutual funds consisting of U.S. operating company securities; and
  • It clarifies that an entity is eligible for certification as a small business by the SBA if it is acquired by an ESOP.

Although this bill is a long way from passage, its introduction by an influential Senator from the majority party (in addition, the bill is co-sponsored by Senator Mary Landrieu (D-LA)) shows that the ESOP community continues to have influence in Washington. We will keep you posted on the progress of this bill.