text: SECTION 1. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.
  
      (a) In General.--Subparagraph (C) of section 664(d)(1) of the 
  Internal Revenue Code of 1986 and subparagraph (C) of section 664(d)(2) 
  of such Code are each amended by striking the period at the end thereof 
  and inserting ``or, to the extent the remainder interest is in 
  qualified employer securities (as defined in paragraph (3)(C)), is to 
  be transferred to an employee stock ownership plan (as defined in 
  section 4975(e)(7)) in a qualified gratuitous transfer (as defined by 
  paragraph (3)).''
      (b) Qualified Gratuitous Transfer Defined.--Subsection (d) of 
  section 664 of such Code is amended by redesignating paragraph (3) as 
  paragraph (4) and by inserting after paragraph (2) the following new 
  paragraph:
              ``(3) Qualified gratuitous transfer of qualified employer 
          securities.--
                      ``(A) In general.--For purposes of this section, 
                  the term `qualified gratuitous transfer' means a 
                  transfer of qualified employer securities to an 
                  employee stock ownership plan (as defined in section 
                  4975(e)(7)) but only to the extent that--
                              ``(i) the securities transferred previously 
                          passed from a decedent to a trust described in 
                          paragraph (1) or (2);
                              ``(ii) no deduction under section 404 is 
                          allowable with respect to such transfer;
                              ``(iii) such plan provides that the 
                          securities so transferred are allocated to plan 
                          participants in a manner consistent with 
                          section 401(a)(4);
                              ``(iv) such plan treats such securities as 
                          being attributable to employer contributions 
                          but without regard to the limitations otherwise 
                          applicable to such contributions under section 
                          404;
                              ``(v) such plan provides that such 
                          securities are held in a suspense account under 
                          the plan to be allocated each year, up to the 
                          limitations under section 415(c), after first 
                          allocating all other annual additions for the 
                          limitation year, up to the limitations under 
                          sections 415 (c) and (e); and
                              ``(vi) the employer whose employees are 
                          covered by the plan described in this 
                          subparagraph files with the Secretary a 
                          verified written statement consenting to the 
                          application of sections 4978 and 4979A with 
                          respect to such employer.
                      ``(B) Qualified employer securities.--For purposes 
                  of this section, the term `qualified employer 
                  securities' means employer securities (as defined in 
                  section 409(l)) which are issued by a domestic 
                  corporation which has no outstanding stock which is 
                  readily tradable on an established securities market.
                      ``(C) Treatment of securities allocated by employee 
                  stock ownership plan to persons related to decedent or 
                  5-percent shareholders.--
                              ``(i) In general.--If any portion of the 
                          assets of the plan attributable to securities 
                          acquired by the plan in a qualified gratuitous 
                          transfer are allocated to the account of--
                                      ``(I) any person who is related to 
                                  the decedent (within the meaning of 
                                  section 267(b)), or
                                      ``(II) any person who, at the time 
                                  of such allocation or at any time 
                                  during the 1-year period ending on the 
                                  date of the acquisition of qualified 
                                  employer securities by the plan, is a 
                                  5-percent shareholder of the employer 
                                  maintaining the plan,
                          the plan shall be treated as having distributed 
                          (at the time of such allocation) to such person 
                          or shareholder the amount so allocated.
                              ``(ii) 5-percent shareholder.--For purposes 
                          of clause (i), the term `5-percent shareholder' 
                          means any person who owns (directly or through 
                          the application of section 318(a)) more than 5 
                          percent of--
                                      ``(I) any class of outstanding 
                                  stock of the corporation which issued 
                                  such qualified employer securities or 
                                  of any corporation which is a member of 
                                  the same controlled group of 
                                  corporations (within the meaning of 
                                  section 409(l)(4)) as such corporation, 
                                  or
                                      ``(II) the total value of any class 
                                  of outstanding stock of any such 
                                  corporation; and
                          For purposes of the preceding sentence, section 
                          318(a) shall be applied without regard to the 
                          exception in paragraph (2)(B)(i) thereof.
                              ``(iii) Cross reference.--
  
                                  ``For excise tax on allocations 
  described in clause (i), see section 4979A.''
      (c) Conforming Amendments.--
              (1) Section 401(a)(1) of such Code is amended by inserting 
          ``or by a charitable remainder trust pursuant to a qualified 
          gratuitous transfer (as defined in section 664(d)(3)(A)),'' 
          after ``stock bonus plans),''.
              (2) Section 404(a)(9) of such Code is amended by inserting 
          after subparagraph (B) the following new subparagraph:
                      ``(C) A qualified gratuitous transfer (as defined 
                  in section 664(d)(3)(A)) shall have no effect on the 
                  amount or amounts otherwise deductible under paragraph 
                  (3) or (7) or under this paragraph.''
              (3) Section 415(c)(6) of such Code is amended by adding at 
          the end thereof the following new sentence:
          ``The amount of any qualified gratuitous transfer (as defined 
          in section 664(d)(3)(A)) allocated to a participant for any 
          limitation year shall not exceed the limitations imposed by 
          this section, but such amount shall not be taken into account 
          in determining whether any other amount exceeds the limitations 
          imposed by this section.''
              (4) Section 415(e) of such Code is amended--
                      (A) by redesignating paragraph (6) as paragraph 
                  (7), and
                      (B) by inserting after paragraph (5) the following 
                  new paragraph:
              ``(6) Special rule for qualified gratuitous transfers.--Any 
          qualified gratuitous transfer of qualified employer securities 
          (as defined by section 664(d)(3)) shall not be taken into 
          account in calculating, and shall not be subject to, the 
          limitations provided in this subsection.''
              (5) Paragraph (3) of section 644(e) of such Code is amended 
          to read as follows:
              ``(3) acquired by a charitable remainder annuity trust (as 
          defined in section 664(d)(1)) or a charitable remainder 
          unitrust (as defined in sections 664(d) (2) and (4)), or''.
              (6) Subparagraph (B) of section 664(d)(1) of such Code and 
          subparagraph (B) of section 664(d)(2) of such Code are each 
          amended by inserting ``and other than qualified gratuitous 
          transfers described in subparagraph (C)'' after ``subparagraph 
          (A)''.
              (7) Paragraph (4) of section 674(b) of such Code is amended 
          by inserting before the period ``or to an employee stock 
          ownership plan (as defined in section 4975(e)(7)) in a 
          qualified gratuitous transfer (as defined in section 
          664(d)(3))''.
              (8)(A) Section 2055(a) of such Code is amended--
                      (i) by striking ``or'' at the end of paragraph (3),
                      (ii) by striking the period at the end of paragraph 
                  (4) and inserting ``; or'', and
                      (iii) by inserting after paragraph (4) the 
                  following new paragraph:
              ``(5) to an employee stock ownership plan if such transfer 
          qualifies as a qualified gratuitous transfer of qualified 
          employer securities within the meaning of section 664(d)(3).''
              (B) Clause (ii) of section 2055(e)(3)(C) of such Code is 
          amended by striking ``section 664(d)(3)'' and inserting 
          ``section 664(d)(4)''.
              (9) Paragraph (8) of section 2056(b) of such Code is 
          amended to read as follows:
              ``(8) Special rule for charitable remainder trusts.--
                      ``(A) In general.--If the surviving spouse of the 
                  decedent is the only beneficiary of a qualified 
                  charitable remainder trust who is not a charitable 
                  beneficiary nor an ESOP beneficiary, paragraph (1) 
                  shall not apply to any interest in such trust which 
                  passes or has passed from the decedent to such 
                  surviving spouse.
                      ``(B) Definitions.--For purposes of subparagraph 
                  (A)--
                              ``(i) Charitable beneficiary.--The term 
                          `charitable beneficiary' means any beneficiary 
                          which is an organization described in section 
                          170(c).
                              ``(ii) Esop beneficiary.--The term `ESOP 
                          beneficiary' means any beneficiary which is an 
                          employee stock ownership plan (as defined in 
                          section 4975(e)(7)) that holds a remainder 
                          interest in qualified employer securities (as 
                          defined in section 664(d)(3)) to be transferred 
                          to such plan in a qualified gratuitous transfer 
                          (as defined in section 664(d)(3)).
                              ``(iii) Qualified charitable remainder 
                          trust.--The term `qualified charitable 
                          remainder trust' means a charitable remainder 
                          annuity trust or a charitable remainder 
                          unitrust (described in section 664).''
              (10) Section 4947(b) of such Code is amended by inserting 
          after paragraph (3) the following new paragraph:
              ``(4) Section 507.--The provisions of section 507(a) shall 
          not apply to a trust which is described in subsection (a)(2) by 
          reason of a distribution of qualified employer securities (as 
          defined in section 664(d)(3)) to an employee stock ownership 
          plan (as defined in section 4975(e)(7)) in a qualified 
          gratuitous transfer (as defined by section 664(d)(3)).''
              (11) The last sentence of section 4975(e)(7) of such Code 
          is amended by inserting ``and section 664(d)(3)'' after 
          ``section 409(n)''
              (12) Subsection (a) of section 4978 of such Code is amended 
          by inserting ``or acquired any qualified employer securities in 
          a qualified gratuitous transfer to which section 664(d)(3) 
          applied'' after ``section 1042 applied''.
              (13) Paragraph (2) of section 4978(b) of such Code is 
          amended--
                      (A) by inserting ``or acquired in the qualified 
                  gratuitous transfer to which section 664(d)(3) 
                  applied'' after ``section 1042 applied'', and
                      (B) by inserting ``or to which section 664(d)(3) 
                  applied'' after ``section 1042 applied'' in 
                  subparagraph (C) thereof.
              (14) Subsection (c) of section 4978 of such Code is amended 
          by striking ``written statement'' and all that follows and 
          inserting ``written statement described in section 
          664(d)(3)(A)(vi) or in section 1042(b)(3) (as the case may 
          be).''
              (15) Paragraph (2) of section 4978(e) of such Code is 
          amended by striking the period and inserting ``; except that 
          such section shall be applied without regard to subparagraph 
          (B) thereof for purposes of applying this section and section 
          4979A with respect to securities acquired in a qualified 
          gratuitous transfer (as defined in section 664(d)(3)(A)).''
              (16) Subsection (a) of section 4979A of such Code is 
          amended to read as follows:
      ``(a) Imposition of Tax.--If--
              ``(1) there is a prohibited allocation of qualified 
          securities by any employee stock ownership plan or eligible 
          worker-owned cooperative, or
              ``(2) there is an allocation described in section 
          663(d)(3)(C)(i),
  there is hereby imposed a tax on such allocation equal to 50 percent of 
  the amount involved.''
              (17) Subsection (c) of section 4979A of such Code is 
          amended to read as follows:
      ``(c) Liability for Tax.--The tax imposed by this section shall be 
  paid by--
              ``(1) the employer sponsoring such plan, or
              ``(2) the eligible worker-owned cooperative,
  which made the written statement described in section 664(d)(3)(A)(vi) 
  or in section 1042(b)(3)(B) (as the case may be).''
              (18) Section 4979A of such Code is amended by redesignating 
          subsection (d) as subsection (e) and by inserting after 
          subsection (c) the following new subsection:
      ``(d) Special Statute of Limitations for Tax Attributable to 
  Certain Allocations.--The statutory period for the assessment of any 
  tax imposed by this section on an allocation described in subsection 
  (a)(2) of qualified employer securities shall not expire before the 
  date which is 3 years from the later of--
              ``(1) the 1st allocation of such securities in connection 
          with a qualified gratuitous transfer (as defined in section 
          664(d)(3)(A)), or
              ``(2) the date on which the Secretary is notified of the 
          allocation described in subsection (a)(2).''
      (d) Effective Date.--The amendments made by this section shall 
  apply to transfers made by trusts to, or for the use of, an employee 
  stock ownership plan after the date of the enactment of this Act.
target: Amends the Internal Revenue Code regarding estates and trusts to provide rules for the gratuitous transfer of qualified employer securities to an employee stock ownership plan from charitable remainder trusts.
feat_title: To amend the Internal Revenue Code of 1986 to provide special rules for certain gratuitous transfers of employer securities for the benefit of employees.