H.R. 3105 — Promotion and Expansion of Private Employee Ownership Act of 2025

This section states congressional findings on the history and benefits of employee stock ownership plans (ESOPs) in S corporations—including their authorization for such corporations on January 1, 1998, under the Small Business Job Protection Act of 1996; incentives provided by the Taxpayer Relief Act of 1997; prevalence across thousands of companies employing millions of workers nationwide; superior job stability and retirement savings compared to non-ESOP firms; and the fact that 40% of working Americans lack formal retirement accounts—while noting that under the Small Business Act, a small business concern loses such status if an ESOP acquires more than 49% ownership despite unchanged employee count, revenue, or other eligibility criteria.

This section (1) accelerates from December 31, 2027, to the date of enactment of this Act the applicability date for nonrecognition of capital gains under IRC §1042 (sale of qualified employer securities to an ESOP with reinvestment in replacement property) on sales of S corporation stock to an S corporation-sponsored ESOP, and (2) repeals limitations on such nonrecognition in §1042(h) for sales after enactment. (As background, SECURE 2.0 temporarily expanded §1042 to S corporations subject to those limitations and delayed applicability.)

This section requires the Secretary of the Treasury to establish, within 90 days of enactment, the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations. The office shall provide (1) education and outreach to inform companies and individuals about the possibilities and benefits of employee ownership of S corporations and (2) technical assistance to assist S corporations in sponsoring employee stock ownership plans.

This section establishes a new section 49 of the Small Business Act to preserve small business concern status under the act's loans, preferences, and other programs (e.g., 7(a) loans, contracting set-asides) for an ESOP business concern—defined as a business eligible as small before an employee stock ownership plan (ESOP) acquired more than 49% ownership. It requires treating each ESOP participant as directly owning his or her proportionate share of ESOP-held stock for size determinations. The amendments take effect January 1 of the first calendar year after enactment.

This section establishes an Advocate for Employee Ownership within the Department of Labor's Employee Ownership Initiative, as required under the SECURE 2.0 Act of 2022. The Advocate, appointed without regard to competitive service or Senior Executive Service requirements and compensated at Executive Schedule level V, must (1) consult with the Initiative head; (2) serve as a liaison among the Department of Labor, stakeholders, and employee stock ownership plan (ESOP) sponsors and participants; (3) provide public education and assistance to promote employee ownership, including ESOPs; (4) help resolve ESOP-related disputes with the Department; (5) recommend legislative and administrative changes to expand employee ownership, in consultation with Treasury's S Corporation Employee Ownership Assistance Office; and (6) coordinate outreach with other federal agencies, states, and localities. The Secretary of Labor must consult the Advocate on ESOP-related regulations; the Advocate must submit annual reports to specified congressional committees (with public availability) detailing activities, problems, recommendations, and progress on employee ownership; and the section authorizes appropriations for the Advocate's compensation. (ESOPs, as defined under IRC §4975(e)(7), are ERISA-qualified retirement plans that invest primarily in employer securities to promote employee ownership.)