HR2014-119

What This Bill Does

The Reduction of Excess Business Holding Accrual Act changes how the private foundation excess business holdings tax treats certain employee-owned stock transactions. Section 4943 generally limits private foundations' holdings in business enterprises. This bill says that, for specified accrual and permitted-holding calculations, voting stock that is not readily tradable on an established securities market is disregarded if the business enterprise purchased it on or after January 1, 2020 from an employee stock ownership plan in which the business's employees participate, the purchase was connected to a distribution from that ESOP, and the shares are held as treasury stock, cancelled, or retired. It also prevents a related decrease in percentage holdings from triggering a separate rule and applies to taxable years ending after enactment and qualifying purchases in taxable years beginning after December 31, 2019.

Who Benefits and How

Employee-owned businesses benefit because buying back ESOP-distributed nonpublic shares does not worsen specified foundation excess-holding calculations. Private foundations holding business interests benefit from more favorable treatment when ESOP shares are retired, cancelled, or held as treasury stock. ESOP participants benefit if businesses can repurchase distributed shares without creating unintended foundation tax pressure. Tax advisers for employee-owned firms benefit from a clearer statutory rule for post-2019 stock repurchases.

Who Bears the Burden and How

The IRS must administer a narrower excess-business-holdings calculation for qualifying ESOP stock purchases. Private foundations and businesses must document that shares were nonpublic, ESOP-related, purchased after January 1, 2020, and retired, cancelled, or held as treasury stock. Federal taxpayers may bear revenue loss if fewer foundation holdings accrue toward excise tax exposure. Foundation compliance officers must update section 4943 tracking for retroactive qualifying purchases.

Key Provisions

• Amends section 4943 excess business holding rules for certain ESOP-related stock repurchases.
• Excludes nonpublic voting stock purchased from an ESOP after January 1, 2020 when held as treasury stock, cancelled, or retired.
• Blocks a related decrease in holdings percentage from triggering the referenced accrual rule.
• Applies to taxable years ending after enactment and purchases in taxable years beginning after December 31, 2019.