October 27, 2020, Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX), both ESOP Champions, introduced the Securing a Strong Retirement Act of 2020. This bipartisan legislation seeks to help Americans successfully save for a secure retirement.
Of special note is Section 106 of the legislation which refers directly to S-Corp Employee Stock Ownership Plans (ESOPs).
Section 106 reads:
“Deferral of tax for certain sales of employer stock to employee stock ownership plan (ESOP) sponsored by S corporations. The bill would extend Code Section 1042 to sales of employer stock to S corporation ESOPs (it currently only applies to C corporation ESOPs). Under section 1042, an individual owner of stock in a non-publicly traded C corporation that sponsors an ESOP may elect to defer the recognition of gain from the sale of such stock to the ESOP if the seller reinvests the sales proceeds into “qualified replacement property,” i.e., stock or other securities issued by a U.S. operating corporation. After the sale, the ESOP must own at least 30 percent of the employer corporation’s stock. The legislation would extend section 1042 to S corporations as well.”
The legislation also addresses 401(k) plans and IRA withdrawals, among other things. The full section by section breakdown can be found here.