Sponsors (65)
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
The bill expands federal support, outreach, and legal protection for ESOPs—helping workers build retirement savings and keeping ESOP firms eligible for small‑business programs—while imposing new federal costs, adding administrative complexity, and removing a key tax deferral that will raise immediate tax bills for sellers and could shift program resources toward ESOP firms.
Millions of employees who participate in ESOPs keep qualified retirement accounts and may gain greater retirement savings and job stability through expanded employee‑ownership opportunities.
Small S‑corporation owners that adopt ESOPs can preserve small‑business status for SBA size tests and remain eligible for SBA loans, set‑aside contracts, and other small‑business preferences.
The Act creates federal education, technical assistance, and a coordinated point‑person/office to help S‑corporations explore and implement ESOP conversions, lowering barriers to employee ownership and succession planning.
Owners selling qualified securities to ESOPs or worker cooperatives lose the §1042 nonrecognition tax deferral after enactment, causing immediate capital‑gains tax bills and likely discouraging some owner sales to employee‑ownership structures.
Treating ESOP shares as ownership for size tests may allow many firms to retain small‑business status, diverting SBA set‑aside contracts and program resources toward ESOP firms and away from non‑ESOP small businesses (and enabling strategic use of ESOPs to preserve status).
Determining and administering ESOP ownership attribution, adjusting cross‑references, and responding to rule changes will increase administrative complexity, compliance costs, and workload for SBA, Treasury/IRS, and taxpayers.
Based on analysis of 6 sections of legislative text.
Repeals a tax nonrecognition rule for some sales to ESOPs, creates Treasury and DOL offices, and treats ESOP participants as direct owners for SBA preferences to expand S-corporation employee ownership.
Creates federal offices and legal changes to encourage employee ownership of S corporations through employee stock ownership plans (ESOPs). It repeals a recent nonrecognition rule for certain sales to ESOPs, requires the Treasury to stand up an S Corporation Employee Ownership Assistance Office, amends the Small Business Act to treat ESOP participants as direct owners for small-business preferences, and establishes an ERISA Advocate for Employee Ownership at the Department of Labor to coordinate education, technical assistance, and regulatory input.