Sponsors (57)
The bill expands and supports employee ownership—preserving ESOP-related small-business benefits, increasing employee retirement and ownership opportunities, and creating federal outreach—while raising tax and administrative trade-offs (including loss of a capital-gains deferral), increasing government costs and complexity, and potentially advantaging ESOP firms at the expense of other small businesses.
Small S-corporation owners that use ESOPs retain small-business status and continued eligibility for SBA loans, set-aside contracts, and other small-business preferences because ESOP shares count toward size tests.
Employees who participate in or acquire ESOP ownership keep qualified retirement accounts and gain broader access to employee ownership, which can increase retirement savings, household wealth, and job stability.
Small-business owners and prospective employee-owners get new federal education, technical assistance, and a Treasury point-person to lower barriers to forming ESOPs or worker cooperatives and to improve access to capital and policy guidance.
Owners selling qualified securities to ESOPs or worker cooperatives after enactment lose the §1042 nonrecognition capital-gains deferral, which will increase immediate tax liabilities for sellers and may discourage ownership transfers to employee-owned structures.
Counting ESOP shares to preserve small-business status could allow firms with many employee-owners to retain set-asides and other preferences, reducing available SBA program resources and contract opportunities for non‑ESOP small businesses and competitors.
The bill increases administrative and compliance complexity for SBA, the Treasury, and taxpayers—complicating size determinations, tax administration, and planning which raises costs for businesses and the federal government.
Based on analysis of 6 sections of legislative text.
Repeals a specific tax nonrecognition rule for sales to ESOPs, creates Treasury and DOL offices to promote ESOPs, and treats ESOP participants as direct owners for SBA program eligibility.
Official title: To amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans in S corporations, and for other purposes.
Introduced April 30, 2025 by Mike Kelly · Last progress April 30, 2025
Creates new federal supports and legal changes to promote employee ownership of S corporations through employee stock ownership plans (ESOPs). The bill removes a specific nonrecognition rule in the tax code, directs Treasury to create an S Corporation Employee Ownership Assistance Office, changes how ESOP ownership counts for Small Business Act programs, and creates an Advocate for Employee Ownership at the Department of Labor to provide education, coordination, and regulatory input. The measure affects tax treatment of certain sales to ESOPs, SBA small-business eligibility rules (treating ESOP participants as direct owners for program qualification), requires Treasury and Labor offices to provide outreach and technical assistance, and authorizes appropriation of sums as necessary to set pay for the Labor Advocate.