H.R. 2014 — Reduction of Excess Business Holding Accrual Act

This section modifies the excess business holdings rules applicable to private foundations by adding two new clauses to IRC §4943(c)(4)(A). (1) New clause (v) treats as outstanding voting stock of a non-public business enterprise any such stock purchased on or after January 1, 2020, from an employee stock ownership plan (ESOP, as defined in IRC §4975(e)(7)) in which the enterprise's employees participate—in connection with a distribution from the ESOP and subsequently held as treasury stock, cancelled, or retired—but only to the extent such treatment does not cause permitted holdings to exceed 49% (determined without regard to the clause) and only if the purchase is not within 10 years of the ESOP's establishment. (2) New clause (vi) provides that IRC §4943(c)(4)(A)(ii)—which disregards certain stock issuances in determining the percentage of holdings—does not apply to any decrease in a foundation's percentage holdings resulting from clause (v). (As background, the excess business holdings rules generally tax private foundations on ownership exceeding 20% of a business enterprise's voting stock, or 35% if disqualified persons hold less than 20%.) The amendments apply to taxable years ending after enactment and to such stock purchases in taxable years beginning after December 31, 2019.