Reduction of Excess Business Holding Accrual Act
Reduction of Excess Business Holding Accrual Act
Plain Language Summary
# Summary of HR 2014: Reduction of Excess Business Holding Accrual Act **What the Bill Does:** This bill modifies tax rules for private foundations that own stock in corporations. Specifically, it would allow private foundations to exclude certain stock that corporations buy back from employee stock ownership plans (ESOPs) when calculating how much of a company they own. Currently, federal law taxes private foundations that own more than 20% of a company's voting stock. This bill would make it easier for foundations to stay under that threshold by not counting repurchased ESOP stock toward their holdings. **Who It Affects:** The bill primarily affects private foundations (charitable organizations funded by individuals or families) that hold significant stakes in corporations, particularly those with employee stock ownership plans.
It could also indirectly impact employees who own stock through ESOPs, as it may encourage corporations to repurchase their shares. The changes would only apply to stock that isn't easily traded on public markets. **Current Status:** The bill is currently in committee and has not yet been voted on by the full House of Representatives. As of now, it remains in the early stages of the legislative process.
CRS Official Summary
Reduction of Excess Business Holding Accrual ActThis bill treats certain stock repurchased by a corporation from an employee stock ownership plan (ESOP) as outstanding voting stock for purposes of the federal excise tax imposed on a private foundation’s excess business holdings. Thus, a private foundation may exclude such stock in calculating present holdings in a corporation and liability for the excise tax. (Exceptions apply.)As background, a federal excise tax is imposed on a private foundation that owns more than 20% of the voting stock in a corporation, reduced by the percentage of voting stock held by all disqualified persons (excess business holdings). However, a private foundation with excess business holdings on May 26, 1969 (grandfathered private foundation) may own a greater percentage of voting stock in certain circumstances. Under the bill, stock is treated as outstanding voting stock if such stock isnot readily tradable on an established securities market;repurchased from an ESOP on or after January 1, 2020; andheld by the corporation as treasury stock, cancelled, or retired.However, such stock is not treated as outstanding voting stock if it is repurchased within the first 10 years of establishing the ESOP or, as a result of the repurchase, the permitted holdings of the private foundation would exceed 49% of the voting stock in the corporation.Finally, under the bill, such stock does not reduce the percentage of voting stock a grandfathered private foundation may own.
Latest Action
Referred to the House Committee on Ways and Means.