# Plain Language Summary: Employee Stock Ownership and Private Foundation Tax Rules

This bill makes a technical change to how the government taxes private foundations that own stock in businesses. Specifically, it deals with a situation where a company sets up an employee stock ownership plan (ESOP)—a retirement benefit where workers own shares of the company they work for. The bill says that when a business buys back employee-owned stock through an ESOP, that stock should be counted as "outstanding" for tax purposes.

Here's why this matters: Private foundations (charitable organizations with large endowments) sometimes own significant stakes in businesses. The tax code has rules that penalize foundations if they hold too much stock in any single company, because Congress wanted to prevent foundations from having too much control over businesses. However, these rules can create problems when a company is trying to help its employees build wealth through an ESOP. When the company buys back shares from the ESOP, the current tax rules might count those shares in a way that makes it look like the foundation owns more of the company than it actually does, triggering unnecessary penalties.

This bill fixes that problem by clarifying that repurchased employee shares should be counted properly, so foundations won't face tax penalties just because a company is supporting employee ownership. It's a narrow fix aimed at making sure the tax system doesn't accidentally discourage companies from offering ESOPs to their workers. The change primarily affects private foundations that happen to own stock in companies with employee ownership plans, and it removes a technical barrier that could otherwise make those arrangements more expensive or complicated.

A bill to amend the Internal Revenue Code of 1986 for purposes of the tax on private foundation excess business holdings to treat as outstanding any employee-owned stock purchased by a business enterprise pursuant to certain employee stock ownership retirement plans.

Stabenow, Debbie

 <p>This bill excludes certain purchases of employee-owned stock from being considered as outstanding voting stock for the purpose of the excise tax on excess business holdings of a private foundation in a business enterprise. </p> <p>The bill applies to any voting stock that is (1) not readily tradable on an established securities market; (2) purchased by the business enterprise on or after January 1, 2005, from an employee stock ownership plan in which employees of the business enterprise participate, in connection with a distribution from the plan; and (3) held by the business enterprise as treasury stock, cancelled, or retired.</p>