Watkins Ross is 100% employee owned – we believe in ESOPs – we believe that ESOP laws should be continued and expanded.
ESOP’s are in the law and Congress can take them away. It is important to keep advocating laws that encourage the creation and operation of ESOPs so that ESOP companies and their engaged, committed employee owners may continue to realize the benefits of employee ownership.
Pro-ESOP Bill, S. 1212, Introduced in Senate; May 2015 and
Pro-ESOP Bill, H.R. 2096, Introduced in House; April 2015 will:
- Permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. Operating corporations as owners of C corporations stock have done under IRS 1042 since 1984.
- Establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs.
- Provide that a small business, S or C, eligible for one of the many programs provided by the Small Business Administration to remain eligible for SBA programs if the company becomes owned 50% or more by an ESOP, and the workforce remains the same or nearly the same as before the establishment of the 50% ownership by employees through the ESOP.
Additionally, the Pro-ESOP Bill, H.R. 2096 will:
- Permit lenders to S corporations with 50% or more ownership through an ESOP to exclude 50% of the interest from the loan, if used to acquire stock for the ESOP.
Some benefits to the Seller, the ESOP and its Employee Owners include:
- The Seller defers tax liability for the company stock sold directly to the ESOP and receives income from the sale.
- The company receives benefits from the 31-100% owned ESOP, S Corporations are not subject to “UBIT” ‘Unrelated Business Income Tax’, K-1 income is not subject to federal or state, corporate or personal income tax, and employees benefit from an employer contributed retirement plan that will grow in value based on their efforts.
Single bills tend not to get considered by themselves, but if enough support is shown, they could be included in much larger tax bills, such as 2017 tax reform. What can ESOP companies do to advocate for these bills? Easiest done is to push for Representatives and Senators to co-sponsor H.R.2096 and S.1212, respectively. The most effective activity in obtaining congressional support for ESOPs is having your member of Congress visit your ESOP company and declare openly a pro-ESOP position. Since Watkins Ross believes in ESOPs and that the laws should be continued/expanded, we have taken steps in hopes of securing a congressional visit.
The ESOP Association Spring 2015 Congressional Company Visit Kit provides instructions and sample letters to use when trying to secure a congressional visit. The kit is available at www.esopassociation.org.
