26 USC 4978 - Tax on certain dispositions by employee stock ownership plans and certain cooperatives

U.S Code last checked for updates: Nov 22, 2024

§ 4978.

Tax on certain dispositions by employee stock ownership plans and certain cooperatives

(a)

Tax on dispositions of securities to which section 1042 applies before close of minimum holding period

If, during the 3-year period after the date on which the employee stock ownership plan or eligible worker-owned cooperative acquired any qualified securities in a sale to which section 1042 applied or acquired any qualified employer securities in a qualified gratuitous transfer to which section 664(g) applied, such plan or cooperative disposes of any qualified securities and—

(1)

the total number of shares held by such plan or cooperative after such disposition is less than the total number of employer securities held immediately after such sale, or

(2)

except to the extent provided in regulations, the value of qualified securities held by such plan or cooperative after such disposition is less than 30 percent of the total value of all employer securities as of such disposition (60 percent of the total value of all employer securities as of such disposition in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied),

there is hereby imposed a tax on the disposition equal to the amount determined under subsection (b).

(b)

Amount of tax

(1)

In general

(2)

Limitation

The amount realized taken into account under paragraph (1) shall not exceed that portion allocable to qualified securities acquired in the sale to which section 1042 applied or acquired in the qualified gratuitous transfer to which section 664(g) applied determined as if such securities were disposed of—

(A)

first from qualified securities to which section 1042 applied or to which section 664(g) applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and

(B)

then from any other employer securities.

If subsection (d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.

(3)

Distributions to employees

(c)

Liability for payment of taxes

The tax imposed by this subsection shall be paid by—

(1)

the employer, or

(2)

the eligible worker-owned cooperative,

that made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3) (as the case may be).

(d)

Section not to apply to certain dispositions

(1)

Certain distributions to employees

This section shall not apply with respect to any distribution of qualified securities (or sale of such securities) which is made by reason of—

(A)

the death of the employee,

(B)

the retirement of the employee after the employee has attained 59½ years of age,

(C)

the disability of the employee (within the meaning of section 72(m)(7)), or

(D)

the separation of the employee from service for any period which results in a 1-year break in service (within the meaning of section 411(a)(6)(A)).

(2)

Certain reorganizations

(3)

Liquidation of corporation into cooperative

(4)

Dispositions to meet diversification requirements

(e)

Definitions and special rules

For purposes of this section—

(1)

Employee stock ownership plan

(2)

Qualified securities

(3)

Eligible worker-owned cooperative

(4)

Disposition

(5)

Employer securities

(Added Pub. L. 98–369, div. A, title V, § 545(a), July 18, 1984, 98 Stat. 894; amended Pub. L. 99–514, title XVIII, § 1854(e), Oct. 22, 1986, 100 Stat. 2880; Pub., L. 100–203, title X, § 10413(b)(1), Dec. 22, 1987, 101 Stat. 1330–438; Pub. L. 100–647, title I, § 1011B(j)(4), Nov. 10, 1988, 102 Stat. 3492; Pub. L. 101–239, title VII, § 7304(a)(2)(C)(ii), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 104–188, title I, § 1602(b)(4), Aug. 20, 1996, 110 Stat. 1834; Pub. L. 105–34, title XV, § 1530(c)(11)–(14), Aug. 5, 1997, 111 Stat. 1079; Pub. L. 108–311, title IV, § 408(a)(23), Oct. 4, 2004, 118 Stat. 1192.)

cite as: 26 USC 4978