Legislation Demonstrates Continuing Bipartisan Support for ESOPs

On July 19, Senator Pat Roberts (R-KS) introduced legislation designed to enhance certain tax and other benefits for S Corporation ESOPs. The legislation is a significantly bipartisan effort, with 9 Republicans and 13 Democrats comprising the bill’s 22 cosponsors.

The Promotion and Expansion of Private Employee Ownership Act of 2017 is similar to legislation introduced in the past and would amend the Internal Revenue Code to provide that S corporation owners who sell to ESOPs could benefit from deferral of capital gains taxation on the stock that they sell under the same terms and conditions that currently apply to the sellers of C corporations.

The legislation also directs the Secretary of the Treasury to establish the “S Corporation Employee Ownership Assistance Office” in order to provide education, outreach, and technical assistance regarding employee ownership of S Corporations. Finally, the bill amends the Small Business Act to protect eligibility under the Act for small businesses that adopt an ESOP.

The bill’s findings note studies indicating that employees of ESOP-owned S corporations have greater job stability than employees of comparable companies. According to the findings, “while estimates show that 40 percent of working Americans have no formal retirement account at all, every United States worker who is an employee-owner of an S corporation company through an ESOP has a valuable qualified retirement savings account.

The bill’s companion measure in the House of Representatives was introduced by Representative David Reichert (R-WA-8) in April.