article: SECTION 1. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES. (a) In General.--Subparagraph (C) of section 664(d)(1) of the Internal Revenue Code of 1986 and subparagraph (C) of section 664(d)(2) of such Code are each amended by striking the period at the end thereof and inserting ``or, to the extent the remainder interest is in qualified employer securities (as defined in paragraph (3)(C)), is to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by paragraph (3)).'' (b) Qualified Gratuitous Transfer Defined.--Subsection (d) of section 664 of such Code is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Qualified gratuitous transfer of qualified employer securities.-- ``(A) In general.--For purposes of this section, the term `qualified gratuitous transfer' means a transfer of qualified employer securities to an employee stock ownership plan (as defined in section 4975(e)(7)) but only to the extent that-- ``(i) the securities transferred previously passed from a decedent to a trust described in paragraph (1) or (2); ``(ii) no deduction under section 404 is allowable with respect to such transfer; ``(iii) such plan provides that the securities so transferred are allocated to plan participants in a manner consistent with section 401(a)(4); ``(iv) such plan treats such securities as being attributable to employer contributions but without regard to the limitations otherwise applicable to such contributions under section 404; ``(v) such plan provides that such securities are held in a suspense account under the plan to be allocated each year, up to the limitations under section 415(c), after first allocating all other annual additions for the limitation year, up to the limitations under sections 415 (c) and (e); and ``(vi) the employer whose employees are covered by the plan described in this subparagraph files with the Secretary a verified written statement consenting to the application of sections 4978 and 4979A with respect to such employer. ``(B) Qualified employer securities.--For purposes of this section, the term `qualified employer securities' means employer securities (as defined in section 409(l)) which are issued by a domestic corporation which has no outstanding stock which is readily tradable on an established securities market. ``(C) Treatment of securities allocated by employee stock ownership plan to persons related to decedent or 5-percent shareholders.-- ``(i) In general.--If any portion of the assets of the plan attributable to securities acquired by the plan in a qualified gratuitous transfer are allocated to the account of-- ``(I) any person who is related to the decedent (within the meaning of section 267(b)), or ``(II) any person who, at the time of such allocation or at any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5-percent shareholder of the employer maintaining the plan, the plan shall be treated as having distributed (at the time of such allocation) to such person or shareholder the amount so allocated. ``(ii) 5-percent shareholder.--For purposes of clause (i), the term `5-percent shareholder' means any person who owns (directly or through the application of section 318(a)) more than 5 percent of-- ``(I) any class of outstanding stock of the corporation which issued such qualified employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of section 409(l)(4)) as such corporation, or ``(II) the total value of any class of outstanding stock of any such corporation; and For purposes of the preceding sentence, section 318(a) shall be applied without regard to the exception in paragraph (2)(B)(i) thereof. ``(iii) Cross reference.-- ``For excise tax on allocations described in clause (i), see section 4979A.'' (c) Conforming Amendments.-- (1) Section 401(a)(1) of such Code is amended by inserting ``or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(d)(3)(A)),'' after ``stock bonus plans),''. (2) Section 404(a)(9) of such Code is amended by inserting after subparagraph (B) the following new subparagraph: ``(C) A qualified gratuitous transfer (as defined in section 664(d)(3)(A)) shall have no effect on the amount or amounts otherwise deductible under paragraph (3) or (7) or under this paragraph.'' (3) Section 415(c)(6) of such Code is amended by adding at the end thereof the following new sentence: ``The amount of any qualified gratuitous transfer (as defined in section 664(d)(3)(A)) allocated to a participant for any limitation year shall not exceed the limitations imposed by this section, but such amount shall not be taken into account in determining whether any other amount exceeds the limitations imposed by this section.'' (4) Section 415(e) of such Code is amended-- (A) by redesignating paragraph (6) as paragraph (7), and (B) by inserting after paragraph (5) the following new paragraph: ``(6) Special rule for qualified gratuitous transfers.--Any qualified gratuitous transfer of qualified employer securities (as defined by section 664(d)(3)) shall not be taken into account in calculating, and shall not be subject to, the limitations provided in this subsection.'' (5) Paragraph (3) of section 644(e) of such Code is amended to read as follows: ``(3) acquired by a charitable remainder annuity trust (as defined in section 664(d)(1)) or a charitable remainder unitrust (as defined in sections 664(d) (2) and (4)), or''. (6) Subparagraph (B) of section 664(d)(1) of such Code and subparagraph (B) of section 664(d)(2) of such Code are each amended by inserting ``and other than qualified gratuitous transfers described in subparagraph (C)'' after ``subparagraph (A)''. (7) Paragraph (4) of section 674(b) of such Code is amended by inserting before the period ``or to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined in section 664(d)(3))''. (8)(A) Section 2055(a) of such Code is amended-- (i) by striking ``or'' at the end of paragraph (3), (ii) by striking the period at the end of paragraph (4) and inserting ``; or'', and (iii) by inserting after paragraph (4) the following new paragraph: ``(5) to an employee stock ownership plan if such transfer qualifies as a qualified gratuitous transfer of qualified employer securities within the meaning of section 664(d)(3).'' (B) Clause (ii) of section 2055(e)(3)(C) of such Code is amended by striking ``section 664(d)(3)'' and inserting ``section 664(d)(4)''. (9) Paragraph (8) of section 2056(b) of such Code is amended to read as follows: ``(8) Special rule for charitable remainder trusts.-- ``(A) In general.--If the surviving spouse of the decedent is the only beneficiary of a qualified charitable remainder trust who is not a charitable beneficiary nor an ESOP beneficiary, paragraph (1) shall not apply to any interest in such trust which passes or has passed from the decedent to such surviving spouse. ``(B) Definitions.--For purposes of subparagraph (A)-- ``(i) Charitable beneficiary.--The term `charitable beneficiary' means any beneficiary which is an organization described in section 170(c). ``(ii) Esop beneficiary.--The term `ESOP beneficiary' means any beneficiary which is an employee stock ownership plan (as defined in section 4975(e)(7)) that holds a remainder interest in qualified employer securities (as defined in section 664(d)(3)) to be transferred to such plan in a qualified gratuitous transfer (as defined in section 664(d)(3)). ``(iii) Qualified charitable remainder trust.--The term `qualified charitable remainder trust' means a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664).'' (10) Section 4947(b) of such Code is amended by inserting after paragraph (3) the following new paragraph: ``(4) Section 507.--The provisions of section 507(a) shall not apply to a trust which is described in subsection (a)(2) by reason of a distribution of qualified employer securities (as defined in section 664(d)(3)) to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by section 664(d)(3)).'' (11) The last sentence of section 4975(e)(7) of such Code is amended by inserting ``and section 664(d)(3)'' after ``section 409(n)'' (12) Subsection (a) of section 4978 of such Code is amended by inserting ``or acquired any qualified employer securities in a qualified gratuitous transfer to which section 664(d)(3) applied'' after ``section 1042 applied''. (13) Paragraph (2) of section 4978(b) of such Code is amended-- (A) by inserting ``or acquired in the qualified gratuitous transfer to which section 664(d)(3) applied'' after ``section 1042 applied'', and (B) by inserting ``or to which section 664(d)(3) applied'' after ``section 1042 applied'' in subparagraph (C) thereof. (14) Subsection (c) of section 4978 of such Code is amended by striking ``written statement'' and all that follows and inserting ``written statement described in section 664(d)(3)(A)(vi) or in section 1042(b)(3) (as the case may be).'' (15) Paragraph (2) of section 4978(e) of such Code is amended by striking the period and inserting ``; except that such section shall be applied without regard to subparagraph (B) thereof for purposes of applying this section and section 4979A with respect to securities acquired in a qualified gratuitous transfer (as defined in section 664(d)(3)(A)).'' (16) Subsection (a) of section 4979A of such Code is amended to read as follows: ``(a) Imposition of Tax.--If-- ``(1) there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative, or ``(2) there is an allocation described in section 663(d)(3)(C)(i), there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.'' (17) Subsection (c) of section 4979A of such Code is amended to read as follows: ``(c) Liability for Tax.--The tax imposed by this section shall be paid by-- ``(1) the employer sponsoring such plan, or ``(2) the eligible worker-owned cooperative, which made the written statement described in section 664(d)(3)(A)(vi) or in section 1042(b)(3)(B) (as the case may be).'' (18) Section 4979A of such Code is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: ``(d) Special Statute of Limitations for Tax Attributable to Certain Allocations.--The statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of-- ``(1) the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(d)(3)(A)), or ``(2) the date on which the Secretary is notified of the allocation described in subsection (a)(2).'' (d) Effective Date.--The amendments made by this section shall apply to transfers made by trusts to, or for the use of, an employee stock ownership plan after the date of the enactment of this Act.
summary: Amends the Internal Revenue Code regarding estates and trusts to provide rules for the gratuitous transfer of qualified employer securities to an employee stock ownership plan from charitable remainder trusts.