Sponsors (28)
The bill expands and supports S‑corporation ESOPs—protecting employee retirement benefits, SBA access, and providing technical help and a federal advocate—while creating new federal costs, administrative burdens, potential favoritism toward one ownership model, and a significant tax loss for sellers who lose a §1042(h) deferral.
Small-business owners can keep SBA small-business status when majority ownership is held by an ESOP, preserving access to SBA loans, set-asides, and other small-business preferences.
Employees of S‑corporations that adopt ESOPs retain or gain access to qualified retirement accounts and wealth-building through employee ownership, improving retirement readiness and potentially job stability for millions of workers.
Owners and taxpayers get clearer timing and transition rules (tying the SECURE 2.0 expiration to this Act and limiting repeal to post-enactment sales), allowing advance tax and transaction planning for stock sales.
Sellers of employer stock who planned to use the §1042(h) tax deferral will lose that deferral for sales after enactment, increasing immediate taxable income and potential tax bills for those sellers.
Changing how ESOP ownership counts and treating participants as direct owners can unpredictably shift which firms qualify as small businesses—either expanding eligibility (raising program costs) or aggregating ownership so firms lose small-business status and associated benefits.
The bill increases administrative and compliance burdens for federal agencies (IRS guidance, SBA tracking of ESOP participants and pro rata shares) which could raise costs, slow approvals, and create transitional uncertainty for applicants and advisors.
Based on analysis of 6 sections of legislative text.
Makes tax-deferral timing for S‑ESOP sales contingent on this Act, repeals a SECURE 2.0 subsection for post-enactment sales, creates Treasury and DOL offices to promote ESOPs, and changes SBA small-business ownership tests so ESOP participants count as proportionate owners.
Official title: 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 July 24, 2025 by Steve Daines · Last progress July 24, 2025
Creates several new federal supports to expand employee ownership of S corporations through ESOPs: it makes a SECURE 2.0 tax deferral rule permanent as tied to this Act, repeals a later SECURE 2.0 subsection affecting certain tax-deferral sales, requires Treasury to open an S Corporation Employee Ownership Assistance Office, changes SBA rules so ESOP participants count as owners when testing small-business eligibility, and establishes an Advocate for Employee Ownership at the Department of Labor. Some provisions take effect on enactment and the SBA rule change takes effect January 1 of the calendar year after enactment.