S. 1416 — Reduction of Excess Business Holding Accrual Act

This section modifies the rules for calculating outstanding voting stock held by private foundations for purposes of the excess business holdings tax under IRC §4943(c)(4)(A) by adding two new clauses. Clause (v) treats non-publicly traded voting stock—purchased by the business enterprise on or after January 1, 2020, from an employee stock ownership plan (ESOP) in which its employees participate, in connection with a distribution, and held as treasury stock, cancelled, or retired—as outstanding voting stock for purposes of clause (i), subparagraph (D), and paragraph (2), but only to the extent such treatment does not result in permitted holdings exceeding 49% (determined without regard to this clause); this treatment does not apply during the 10-year period beginning on the date the ESOP is established. (Thus, such repurchases generally do not increase the foundation's percentage ownership, avoiding potential excess holdings taxes.) Clause (vi) excludes decreases in the foundation's percentage holdings resulting from clause (v) from the reduction rule of clause (ii). The changes apply to taxable years ending after the date of enactment.