Sponsors
Updated 5 hours ago
Last progress July 4, 2025 (7 months ago)
Treats certain purchases of voting company stock that a business buys back from an employee stock ownership plan (ESOP) as disregarded when computing a private foundation’s excess business holdings tax. Stock that is not readily tradable and is held as treasury stock, cancelled, or retired after being bought from an ESOP on or after Jan 1, 2020, will be ignored for purposes of the excess holdings rules; the change applies to taxable years ending after enactment.
Adds a new clause (v) to 26 U.S.C. § 4943(c)(4)(A) saying that, for purposes of the rules about excess business holdings, certain voting stock is disregarded when all of the following are true: (I) the stock is not readily tradable on an established securities market; (II) the stock is purchased by the business enterprise on or after January 1, 2020, from an employee stock ownership plan (ESOP) in connection with a distribution from that plan; and (III) the stock is held by the business enterprise as treasury stock, cancelled, or retired.
Adds a new clause (vi) stating that clause (ii) shall not apply with respect to any decrease in the percentage of holdings in a business enterprise that results from applying the new clause (v).
Sets the effective timing: the amendment applies to taxable years ending after the date of enactment of the Act.
Who is affected and how:
Private foundations: Most directly affected. A foundation that holds shares in a company will have certain reductions in its percentage ownership ignored if those reductions resulted from a company purchasing voting stock from an ESOP that is not readily tradable and is then held as treasury stock, cancelled, or retired. This reduces the risk that the foundation will exceed the excess business holdings limits or incur excise taxes or forced‑divestiture consequences from these specific transactions.
Companies with ESOPs (employers): Gain certainty and potentially greater flexibility when repurchasing voting stock from their ESOPs. Companies may be more willing to buy back ESOP shares if that transaction will not cause a foundation stakeholder to be treated as holding an excessive percentage of the business.
ESOP participants / employees: Indirectly affected because the rule governs how company buybacks of ESOP shares are treated for foundation ownership calculations. It does not change employees’ ownership rights directly but affects the legal and tax context for buybacks.
Tax administration and IRS: Will need to interpret and administer the amendment, including defining/documenting when stock is “not readily tradable” and verifying treasury/cancellation/retirement status. This may require guidance and could raise modest administrative workload.
Taxpayers and revenue: The change narrows the application of the excess business holdings rules for a specific class of transactions. The revenue impact is likely small and concentrated, since it applies only when the specific conditions are met. Critics might view it as a narrow tax‑code relief/clarification for foundations and companies using ESOPs; proponents will view it as closing an unintended technical mismatch between ESOP buybacks and the foundation rules.
Overall effect: targeted legal clarification that reduces compliance risk for foundations and clarity for businesses conducting ESOP share repurchases; limited breadth and fiscal impact but meaningful for affected foundations and ESOP transactions.
Read twice and referred to the Committee on Finance.
Last progress April 10, 2025 (10 months ago)
Introduced on April 10, 2025 by Richard Lynn Scott
Updated 5 hours ago
Last progress March 10, 2025 (11 months ago)