This bill changes how the IRS counts certain company shares when checking if a private foundation owns “too much” of a business. If a company buys back stock from its employee stock ownership plan (ESOP) and then holds, cancels, or retires those shares, the shares will still be treated as if they exist (are “outstanding”) when figuring the foundation’s ownership share. This helps keep a foundation’s percentage from jumping up just because the total number of shares went down. This only applies to non-public stock, and only up to a cap so that “permitted holdings” do not exceed 49%. It does not apply to stock bought from a plan during the first 10 years after the plan is created.

Key points:

• Who is affected: Private foundations with business holdings, companies with ESOPs, and workers who are ESOP participants.
• What changes: Certain ESOP shares a company buys back still count as outstanding when calculating a foundation’s ownership percentage, with a 49% limit and a 10-year ESOP start-up exception.
• When: Applies to tax years ending after the bill becomes law, and covers qualifying stock purchases made in tax years starting after December 31, 2019.