Internal Revenue Code:Sec. 409. Qualifications for tax credit employee stock ownership plans

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter D - Deferred Compensation, Etc.
         PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
          Subpart A - General Rule
        

Statute

    Sec. 409. Qualifications for tax credit employee stock ownership
        plans
 
    (a) Tax credit employee stock ownership plan defined
      Except as otherwise provided in this title, for purposes of this
    title, the term ''tax credit employee stock ownership plan'' means
    a defined contribution plan which -
        (1) meets the requirements of section 401(a),
        (2) is designed to invest primarily in employer securities, and
        (3) meets the requirements of subsections (b), (c), (d), (e),
      (f), (g), (h), and (o) of this section.
    (b) Required allocation of employer securities
      (1) In general
        A plan meets the requirements of this subsection if -
          (A) the plan provides for the allocation for the plan year of
        all employer securities transferred to it or purchased by it
        (because of the requirements of section 41(c)(1)(B)) (FOOTNOTE
        1) to the accounts of all participants who are entitled to
        share in such allocation, and
       (FOOTNOTE 1) See References in Text note below.
          (B) for the plan year the allocation to each participant so
        entitled is an amount which bears substantially the same
        proportion to the amount of all such securities allocated to
        all such participants in the plan for that year as the amount
        of compensation paid to such participant during that year bears
        to the compensation paid to all such participants during that
        year.
      (2) Compensation in excess of $100,000 disregarded
        For purposes of paragraph (1), compensation of any participant
      in excess of the first $100,000 per year shall be disregarded.
      (3) Determination of compensation
        For purposes of this subsection, the amount of compensation
      paid to a participant for any period is the amount of such
      participant's compensation (within the meaning of section
      415(c)(3)) for such period.
      (4) Suspension of allocation in certain cases
        Notwithstanding paragraph (1), the allocation to the account of
      any participant which is attributable to the basic employee plan
      credit or the credit allowed under section 41 (FOOTNOTE 1)
      (relating to the employee stock ownership credit) may be extended
      over whatever period may be necessary to comply with the
      requirements of section 415.
    (c) Participants must have nonforfeitable rights
      A plan meets the requirements of this subsection only if it
    provides that each participant has a nonforfeitable right to any
    employer security allocated to his account.
    (d) Employer securities must stay in the plan
      A plan meets the requirements of this subsection only if it
    provides that no employer security allocated to a participant's
    account under subsection (b) (or allocated to a participant's
    account in connection with matched employer and employee
    contributions) may be distributed from that account before the end
    of the 84th month beginning after the month in which the security
    is allocated to the account.  To the extent provided in the plan,
    the preceding sentence shall not apply in the case of -
        (1) death, disability, separation from service, or termination
      of the plan;
        (2) a transfer of a participant to the employment of an
      acquiring employer from the employment of the selling corporation
      in the case of a sale to the acquiring corporation of
      substantially all of the assets used by the selling corporation
      in a trade or business conducted by the selling corporation, or
        (3) with respect to the stock of a selling corporation, a
      disposition of such selling corporation's interest in a
      subsidiary when the participant continues employment with such
      subsidiary.
    This subsection shall not apply to any distribution required under
    section 401(a)(9) or to any distribution or reinvestment required
    under section 401(a)(28).
    (e) Voting rights
      (1) In general
        A plan meets the requirements of this subsection if it meets
      the requirements of paragraph (2) or (3), whichever is
      applicable.
      (2) Requirements where employer has a registration-type class of
          securities
        If the employer has a registration-type class of securities,
      the plan meets the requirements of this paragraph only if each
      participant or beneficiary in the plan is entitled to direct the
      plan as to the manner in which securities of the employer which
      are entitled to vote and are allocated to the account of such
      participant or beneficiary are to be voted.
      (3) Requirement for other employers
        If the employer does not have a registration-type class of
      securities, the plan meets the requirements of this paragraph
      only if each participant or beneficiary in the plan is entitled
      to direct the plan as to the manner in which voting rights under
      securities of the employer which are allocated to the account of
      such participant or beneficiary are to be exercised with respect
      to any corporate matter which involves the voting of such shares
      with respect to the approval or disapproval of any corporate
      merger or consolidation, recapitalization, reclassification,
      liquidation, dissolution, sale of substantially all assets of a
      trade or business, or such similar transaction as the Secretary
      may prescribe in regulations.
      (4) Registration-type class of securities defined
        For purposes of this subsection, the term, ''registration-type
      class of securities'' means -
          (A) a class of securities required to be registered under
        section 12 of the Securities Exchange Act of 1934, and
          (B) a class of securities which would be required to be so
        registered except for the exemption from registration provided
        in subsection (g)(2)(H) of such section 12.
      (5) 1 vote per participant
        A plan meets the requirements of paragraph (3) with respect to
      an issue if -
          (A) the plan permits each participant 1 vote with respect to
        such issue, and
          (B) the trustee votes the shares held by the plan in the
        proportion determined after application of subparagraph (A).
    (f) Plan must be established before employer's due date
      (1) In general
        A plan meets the requirements of this subsection only if it is
      established on or before the due date (including any extension of
      such date) for the filing of the employer's tax return for the
      first taxable year of the employer for which an employee plan
      credit is claimed by the employer with respect to the plan.
      (2) Special rule for first year
        A plan which otherwise meets the requirements of this section
      shall not be considered to have failed to meet the requirements
      of section 401(a) merely because it was not established by the
      close of the first taxable year of the employer for which an
      employee plan credit is claimed by the employer with respect to
      the plan.
    (g) Transferred amounts must stay in plan even though investment
        credit is redetermined or recaptured
      A plan meets the requirement of this subsection only if it
    provides that amounts which are transferred to the plan (because of
    the requirements of section 48(n)(1) or 41(c)(1)(B)) (FOOTNOTE 2)
    shall remain in the plan (and, if allocated under the plan, shall
    remain so allocated) even though part or all of the employee plan
    credit or the credit allowed under section 41 (FOOTNOTE 2)
    (relating to employee stock ownership credit) is recaptured or
    redetermined.  For purposes of the preceding sentence, the
    references to section 48(n)(1) (FOOTNOTE 2) and the employee plan
    credit shall refer to such section and credit as in effect before
    the enactment of the Tax Reform Act of 1984.
       (FOOTNOTE 2) See References in Text note below.
    (h) Right to demand employer securities; put option
      (1) In general
        A plan meets the requirements of this subsection if a
      participant who is entitled to a distribution from the plan -
          (A) has a right to demand that his benefits be distributed in
        the form of employer securities, and
          (B) if the employer securities are not readily tradable on an
        established market, has a right to require that the employer
        repurchase employer securities under a fair valuation formula.
      (2) Plan may distribute cash in certain cases
        (A) In general
          A plan which otherwise meets the requirements of this
        subsection or of section 4975(e)(7) shall not be considered to
        have failed to meet the requirements of section 401(a) merely
        because under the plan the benefits may be distributed in cash
        or in the form of employer securities.
        (B) Exception for certain plans restricted from distributing
            securities
          (i) In general
            A plan to which this subparagraph applies shall not be
          treated as failing to meet the requirements of this
          subsection or section 401(a) merely because it does not
          permit a participant to exercise the right described in
          paragraph (1)(A) if such plan provides that the participant
          entitled to a distribution has a right to receive the
          distribution in cash, except that such plan may distribute
          employer securities subject to a requirement that such
          securities may be resold to the employer under terms which
          meet the requirements of paragraph (1)(B).
          (ii) Applicable plans
            This subparagraph shall apply to a plan which otherwise
          meets the requirements of this subsection or section
          4975(e)(7) and which is established and maintained by -
              (I) an employer whose charter or bylaws restrict the
            ownership of substantially all outstanding employer
            securities to employees or to a trust described in section
            401(a), or
              (II) an S corporation.
      (3) Special rule for banks
        In the case of a plan established and maintained by a bank (as
      defined in section 581) which is prohibited by law from redeeming
      or purchasing its own securities, the requirements of paragraph
      (1)(B) shall not apply if the plan provides that participants
      entitled to a distribution from the plan shall have a right to
      receive a distribution in cash.
      (4) Put option period
        An employer shall be deemed to satisfy the requirements of
      paragraph (1)(B) if it provides a put option for a period of at
      least 60 days following the date of distribution of stock of the
      employer and, if the put option is not exercised within such
      60-day period, for an additional period of at least 60 days in
      the following plan year (as provided in regulations promulgated
      by the Secretary).
      (5) Payment requirement for total distribution
        If an employer is required to repurchase employer securities
      which are distributed to the employee as part of a total
      distribution, the requirements of paragraph (1)(B) shall be
      treated as met if -
          (A) the amount to be paid for the employer securities is paid
        in substantially equal periodic payments (not less frequently
        than annually) over a period beginning not later than 30 days
        after the exercise of the put option described in paragraph (4)
        and not exceeding 5 years, and
          (B) there is adequate security provided and reasonable
        interest paid on the unpaid amounts referred to in subparagraph
        (A).
      For purposes of this paragraph, the term ''total distribution''
      means the distribution within 1 taxable year to the recipient of
      the balance to the credit of the recipient's account.
      (6) Payment requirement for installment distributions
        If an employer is required to repurchase employer securities as
      part of an installment distribution, the requirements of
      paragraph (1)(B) shall be treated as met if the amount to be paid
      for the employer securities is paid not later than 30 days after
      the exercise of the put option described in paragraph (4).
      (7) Exception where employee elected diversification
        Paragraph (1)(A) shall not apply with respect to the portion of
      the participant's account which the employee elected to have
      reinvested under section 401(a)(28)(B) or subparagraph (B) or (C) 
      of section 401(a)(35).
    (i) Reimbursement for expenses of establishing and administering
        plan
      A plan which otherwise meets the requirements of this section
    shall not be treated as failing to meet such requirements merely
    because it provides that -
      (1) Expenses of establishing plan
        As reimbursement for the expenses of establishing the plan, the
      employer may withhold from amounts due the plan for the taxable
      year for which the plan is established (or the plan may pay) so
      much of the amounts paid or incurred in connection with the
      establishment of the plan as does not exceed the sum of -
          (A) 10 percent of the first $100,000 which the employer is
        required to transfer to the plan for that taxable year under
        section 41(c)(1)(B), (FOOTNOTE 3) and
       (FOOTNOTE 3) See References in Text note below.
          (B) 5 percent of any amount so required to be transferred in
        excess of the first $100,000; and
      (2) Administrative expenses
        As reimbursement for the expenses of administering the plan,
      the employer may withhold from amounts due the plan (or the plan
      may pay) so much of the amounts paid or incurred during the
      taxable year as expenses of administering the plan as does not
      exceed the lesser of -
          (A) the sum of -
            (i) 10 percent of the first $100,000 of the dividends paid
          to the plan with respect to stock of the employer during the
          plan year ending with or within the employer's taxable year,
          and
            (ii) 5 percent of the amount of such dividends in excess of
          $100,000 or
          (B) $100,000.
    (j) Conditional contributions to the plan
      A plan which otherwise meets the requirements of this section
    shall not be treated as failing to satisfy such requirements (or as
    failing to satisfy the requirements of section 401(a) of this title
    or of section 403(c)(1) of the Employee Retirement Income Security
    Act of 1974) merely because of the return of a contribution (or a
    provision permitting such a return) if -
        (1) the contribution to the plan is conditioned on a
      determination by the Secretary that such plan meets the
      requirements of this section,
        (2) the application for a determination described in paragraph
      (1) is filed with the Secretary not later than 90 days after the
      date on which an employee plan credit is claimed, and
        (3) the contribution is returned within 1 year after the date
      on which the Secretary issues notice to the employer that such
      plan does not satisfy the requirements of this section.
    (k) Requirements relating to certain withdrawals
      Notwithstanding any other law or rule of law -
        (1) the withdrawal from a plan which otherwise meets the
      requirements of this section by the employer of an amount
      contributed for purposes of the matching employee plan credit
      shall not be considered to make the benefits forfeitable, and
        (2) the plan shall not, by reason of such withdrawal, fail to
      be for the exclusive benefit of participants or their
      beneficiaries,
    if the withdrawn amounts were not matched by employee contributions
    or were in excess of the limitations of section 415. Any withdrawal
    described in the preceding sentence shall not be considered to
    violate the provisions of section 403(c)(1) of the Employee
    Retirement Income Security Act of 1974. For purposes of this
    subsection, the reference to the matching employee plan credit
    shall refer to such credit as in effect before the enactment of the
    Tax Reform Act of 1984.
    (l) Employer securities defined
      For purposes of this section -
      (1) In general
        The term ''employer securities'' means common stock issued by
      the employer (or by a corporation which is a member of the same
      controlled group) which is readily tradable on an established
      securities market.
      (2) Special rule where there is no readily tradable common stock
        If there is no common stock which meets the requirements of
      paragraph (1), the term ''employer securities'' means common
      stock issued by the employer (or by a corporation which is a
      member of the same controlled group) having a combination of
      voting power and dividend rights equal to or in excess of -
          (A) that class of common stock of the employer (or of any
        other such corporation) having the greatest voting power, and
          (B) that class of common stock of the employer (or of any
        other such corporation) having the greatest dividend rights.
      (3) Preferred stock may be issued in certain cases
        Noncallable preferred stock shall be treated as employer
      securities if such stock is convertible at any time into stock
      which meets the requirements of paragraph (1) or (2) (whichever
      is applicable) and if such conversion is at a conversion price
      which (as of the date of the acquisition by the tax credit
      employee stock ownership plan) is reasonable.  For purposes of
      the preceding sentence, under regulations prescribed by the
      Secretary, preferred stock shall be treated as noncallable if
      after the call there will be a reasonable opportunity for a
      conversion which meets the requirements of the preceding
      sentence.
      (4) Application to controlled group of corporations
        (A) In general
          For purposes of this subsection, the term ''controlled group
        of corporations'' has the meaning given to such term by section
        1563(a) (determined without regard to subsections (a)(4) and
        (e)(3)(C) of section 1563).
        (B) Where common parent owns at least 50 percent of first tier
            subsidiary
          For purposes of subparagraph (A), if the common parent owns
        directly stock possessing at least 50 percent of the voting
        power of all classes of stock and at least 50 percent of each
        class of nonvoting stock in a first tier subsidiary, such
        subsidiary (and all other corporations below it in the chain
        which would meet the 80 percent test of section 1563(a) if the
        first tier subsidiary were the common parent) shall be treated
        as includible corporations.
        (C) Where common parent owns 100 percent of first tier
            subsidiary
          For purposes of subparagraph (A), if the common parent owns
        directly stock possessing all of the voting power of all
        classes of stock and all of the nonvoting stock, in a first
        tier subsidiary, and if the first tier subsidiary owns directly
        stock possessing at least 50 percent of the voting power of all
        classes of stock, and at least 50 percent of each class of
        nonvoting stock, in a second tier subsidiary of the common
        parent, such second tier subsidiary (and all other corporations
        below it in the chain which would meet the 80 percent test of
        section 1563(a) if the second tier subsidiary were the common
        parent) shall be treated as includible corporations.
      (5) Nonvoting common stock may be acquired in certain cases
        Nonvoting common stock of an employer described in the second
      sentence of section 401(a)(22) shall be treated as employer
      securities if an employer has a class of nonvoting common stock
      outstanding and the specific shares that the plan acquires have
      been issued and outstanding for at least 24 months.
    (m) Nonrecognition of gain or loss on contribution of employer
        securities to tax credit employee stock ownership plan
      No gain or loss shall be recognized to the taxpayer with respect
    to the transfer of employer securities to a tax credit employee
    stock ownership plan maintained by the taxpayer to the extent that
    such transfer is required under section 41(c)(1)(B), (FOOTNOTE 4)
    or subparagraph (A) or (B) of section 48(n)(1). (FOOTNOTE 4)
       (FOOTNOTE 4) See References in Text note below.
    (n) Securities received in certain transactions
      (1) In general
        A plan to which section 1042 applies and an eligible
      worker-owned cooperative (within the meaning of section 1042(c))
      shall provide that no portion of the assets of the plan or
      cooperative attributable to (or allocable in lieu of) employer
      securities acquired by the plan or cooperative in a sale to which
      section 1042 applies may accrue (or be allocated directly or
      indirectly under any plan of the employer meeting the
      requirements of section 401(a)) -
          (A) during the nonallocation period, for the benefit of -
            (i) any taxpayer who makes an election under section
          1042(a) with respect to employer securities,,, (FOOTNOTE 5)
       (FOOTNOTE 5) So in original.
            (ii) any individual who is related to the taxpayer (within
          the meaning of section 267(b)), or
          (B) for the benefit of any other person who owns (after
        application of section 318(a)) more than 25 percent of -
            (i) any class of outstanding stock of the corporation which
          issued such employer securities or of any corporation which
          is a member of the same controlled group of corporations
          (within the meaning of subsection (l)(4)) as such
          corporation, or
            (ii) the total value of any class of outstanding stock of
          any such corporation.
      For purposes of subparagraph (B), section 318(a) shall be applied
      without regard to the employee trust exception in paragraph
      (2)(B)(i).
      (2) Failure to meet requirements
        If a plan fails to meet the requirements of paragraph (1) -
          (A) the plan shall be treated as having distributed to the
        person described in paragraph (1) the amount allocated to the
        account of such person in violation of paragraph (1) at the
        time of such allocation,
          (B) the provisions of section 4979A shall apply, and
          (C) the statutory period for the assessment of any tax
        imposed by section 4979A shall not expire before the date which
        is 3 years from the later of -
            (i) the 1st allocation of employer securities in connection
          with a sale to the plan to which section 1042 applies, or
            (ii) the date on which the Secretary is notified of such
          failure.
      (3) Definitions and special rules
        For purposes of this subsection -
        (A) Lineal descendants
          Paragraph (1)(A)(ii) shall not apply to any individual if -
            (i) such individual is a lineal descendant of the taxpayer,
          and
            (ii) the aggregate amount allocated to the benefit of all
          such lineal descendants during the nonallocation period does
          not exceed more than 5 percent of the employer securities (or
          amounts allocated in lieu thereof) held by the plan which are
          attributable to a sale to the plan by any person related to
          such descendants (within the meaning of section 267(c)(4)) in
          a transaction to which section 1042 applied.
        (B) 25-percent shareholders
          A person shall be treated as failing to meet the stock
        ownership limitation under paragraph (1)(B) if such person
        fails such limitation -
            (i) at any time during the 1-year period ending on the date
          of sale of qualified securities to the plan or cooperative,
          or
            (ii) on the date as of which qualified securities are
          allocated to participants in the plan or cooperative.
        (C) Nonallocation period
          The term ''nonallocation period'' means the period beginning
        on the date of the sale of the qualified securities and ending
        on the later of -
            (i) the date which is 10 years after the date of sale, or
            (ii) the date of the plan allocation attributable to the
          final payment of acquisition indebtedness incurred in
          connection with such sale.
    (o) Distribution and payment requirements
      A plan meets the requirements of this subsection if -
      (1) Distribution requirement
        (A) In general
          The plan provides that, if the participant and, if applicable
        pursuant to sections 401(a)(11) and 417, with the consent of
        the participant's spouse elects, the distribution of the
        participant's account balance in the plan will commence not
        later than 1 year after the close of the plan year -
            (i) in which the participant separates from service by
          reason of the attainment of normal retirement age under the
          plan, disability, or death, or
            (ii) which is the 5th plan year following the plan year in
          which the participant otherwise separates from service,
          except that this clause shall not apply if the participant is
          reemployed by the employer before distribution is required to
          begin under this clause.
        (B) Exception for certain financed securities
          For purposes of this subsection, the account balance of a
        participant shall not include any employer securities acquired
        with the proceeds of the loan described in section 404(a)(9)
        until the close of the plan year in which such loan is repaid
        in full.
        (C) Limited distribution period
          The plan provides that, unless the participant elects
        otherwise, the distribution of the participant's account
        balance will be in substantially equal periodic payments (not
        less frequently than annually) over a period not longer than
        the greater of -
            (i) 5 years, or
            (ii) in the case of a participant with an account balance
          in excess of $800,000, 5 years plus 1 additional year (but
          not more than 5 additional years) for each $160,000 or
          fraction thereof by which such balance exceeds $800,000.
      (2) Cost-of-living adjustment
        The Secretary shall adjust the dollar amounts under paragraph
      (1)(C) at the same time and in the same manner as under section
      415(d).
    (p) Prohibited allocations of securities in an S corporation
      (1) In general
        An employee stock ownership plan holding employer securities
      consisting of stock in an S corporation shall provide that no
      portion of the assets of the plan attributable to (or allocable
      in lieu of) such employer securities may, during a nonallocation
      year, accrue (or be allocated directly or indirectly under any
      plan of the employer meeting the requirements of section 401(a))
      for the benefit of any disqualified person.
      (2) Failure to meet requirements
        (A) In general
          If a plan fails to meet the requirements of paragraph (1),
        the plan shall be treated as having distributed to any
        disqualified person the amount allocated to the account of such
        person in violation of paragraph (1) at the time of such
        allocation.
        (B) Cross reference
          For excise tax relating to violations of paragraph (1) and
        ownership of synthetic equity, see section 4979A.
      (3) Nonallocation year
        For purposes of this subsection -
        (A) In general
          The term ''nonallocation year'' means any plan year of an
        employee stock ownership plan if, at any time during such plan
        year -
            (i) such plan holds employer securities consisting of stock
          in an S corporation, and
            (ii) disqualified persons own at least 50 percent of the
          number of shares of stock in the S corporation.
        (B) Attribution rules
          For purposes of subparagraph (A) -
          (i) In general
            The rules of section 318(a) shall apply for purposes of
          determining ownership, except that -
              (I) in applying paragraph (1) thereof, the members of an
            individual's family shall include members of the family
            described in paragraph (4)(D), and
              (II) paragraph (4) thereof shall not apply.
          (ii) Deemed-owned shares
            Notwithstanding the employee trust exception in section
          318(a)(2)(B)(i), an individual shall be treated as owning
          deemed-owned shares of the individual.
        Solely for purposes of applying paragraph (5), this
        subparagraph shall be applied after the attribution rules of
        paragraph (5) have been applied.
      (4) Disqualified person
        For purposes of this subsection -
        (A) In general
          The term ''disqualified person'' means any person if -
            (i) the aggregate number of deemed-owned shares of such
          person and the members of such person's family is at least 20
          percent of the number of deemed-owned shares of stock in the
          S corporation, or
            (ii) in the case of a person not described in clause (i),
          the number of deemed-owned shares of such person is at least
          10 percent of the number of deemed-owned shares of stock in
          such corporation.
        (B) Treatment of family members
          In the case of a disqualified person described in
        subparagraph (A)(i), any member of such person's family with
        deemed-owned shares shall be treated as a disqualified person
        if not otherwise treated as a disqualified person under
        subparagraph (A).
        (C) Deemed-owned shares
          (i) In general
            The term ''deemed-owned shares'' means, with respect to any
          person -
              (I) the stock in the S corporation constituting employer
            securities of an employee stock ownership plan which is
            allocated to such person under the plan, and
              (II) such person's share of the stock in such corporation
            which is held by such plan but which is not allocated under
            the plan to participants.
          (ii) Person's share of unallocated stock
            For purposes of clause (i)(II), a person's share of
          unallocated S corporation stock held by such plan is the
          amount of the unallocated stock which would be allocated to
          such person if the unallocated stock were allocated to all
          participants in the same proportions as the most recent stock
          allocation under the plan.
        (D) Member of family
          For purposes of this paragraph, the term ''member of the
        family'' means, with respect to any individual -
            (i) the spouse of the individual,
            (ii) an ancestor or lineal descendant of the individual or
          the individual's spouse,
            (iii) a brother or sister of the individual or the
          individual's spouse and any lineal descendant of the brother
          or sister, and
            (iv) the spouse of any individual described in clause (ii)
          or (iii).
        A spouse of an individual who is legally separated from such
        individual under a decree of divorce or separate maintenance
        shall not be treated as such individual's spouse for purposes
        of this subparagraph.
      (5) Treatment of synthetic equity
        For purposes of paragraphs (3) and (4), in the case of a person
      who owns synthetic equity in the S corporation, except to the
      extent provided in regulations, the shares of stock in such
      corporation on which such synthetic equity is based shall be
      treated as outstanding stock in such corporation and deemed-owned
      shares of such person if such treatment of synthetic equity of 1
      or more such persons results in -
          (A) the treatment of any person as a disqualified person, or
          (B) the treatment of any year as a nonallocation year.
      For purposes of this paragraph, synthetic equity shall be treated
      as owned by a person in the same manner as stock is treated as
      owned by a person under the rules of paragraphs (2) and (3) of
      section 318(a). If, without regard to this paragraph, a person is
      treated as a disqualified person or a year is treated as a
      nonallocation year, this paragraph shall not be construed to
      result in the person or year not being so treated.
      (6) Definitions
        For purposes of this subsection -
        (A) Employee stock ownership plan
          The term ''employee stock ownership plan'' has the meaning
        given such term by section 4975(e)(7).
        (B) Employer securities
          The term ''employer security'' has the meaning given such
        term by section 409(l).
        (C) Synthetic equity
          The term ''synthetic equity'' means any stock option,
        warrant, restricted stock, deferred issuance stock right, or
        similar interest or right that gives the holder the right to
        acquire or receive stock of the S corporation in the future.
        Except to the extent provided in regulations, synthetic equity
        also includes a stock appreciation right, phantom stock unit,
        or similar right to a future cash payment based on the value of
        such stock or appreciation in such value.
      (7) Regulations and guidance
        (A) In general
          The Secretary shall prescribe such regulations as may be
        necessary to carry out the purposes of this subsection.
        (B) Avoidance or evasion
          The Secretary may, by regulation or other guidance of general
        applicability, provide that a nonallocation year occurs in any
        case in which the principal purpose of the ownership structure
        of an S corporation constitutes an avoidance or evasion of this
        subsection.
    (q) Cross references
          (1) For requirements for allowance of employee plan credit,
        see section 48(n). (FOOTNOTE 6)
       (FOOTNOTE 6) See References in Text note below.
          (2) For assessable penalties for failure to meet requirements
        of this section, or for failure to make contributions required
        with respect to the allowance of an employee plan credit or
        employee stock ownership credit, see section 6699. (FOOTNOTE 6)
          (3) For requirements for allowance of an employee stock
        ownership credit, see section 41. (FOOTNOTE 6)
 

Sources

    (Added Pub. L. 95-600, title I, Sec. 141(a), Nov. 6, 1978, 92 Stat.
    2787, Sec. 409A; amended Pub. L. 96-222, title I, Sec.
    101(a)(7)(D)-(F), (I), (J), (L)(i)(VI), (ii)(I), (II), (iii)(V),
    (v)(VI), (VII), Apr. 1, 1980, 94 Stat. 198-200; Pub. L. 96-605,
    title II, Sec. 224(a), Dec. 28, 1980, 94 Stat. 3528; Pub. L. 97-34,
    title III, Sec. 331(c)(1), 334, 336, 337(a), Aug. 13, 1981, 95
    Stat. 293, 297, 298; Pub. L. 97-448, title I, Sec. 103(h), (i),
    Jan. 12, 1983, 96 Stat. 2379; renumbered Sec. 409 and amended Pub.
    L. 98-369, div.  A, title IV, Sec. 474(r)(15), 491(e)(1), July 18,
    1984, 98 Stat. 843, 852; Pub. L. 99-514, title XI, Sec. 1172(b)(1),
    1174(a)(1), (b)(1), (2), (c)(1)(A), 1176(b), title XVIII, Sec.
    1852(a)(4)(B), 1854(a)(3)(A), (f)(1), (3)(C), 1899A(11), Oct. 22,
    1986, 100 Stat. 2514, 2516, 2517, 2520, 2865, 2873, 2881, 2882,
    2958; Pub. L. 100-647, title I, Sec. 1011B(g)(1), (2), (i)(1), (3),
    (j)(3), (5), (k)(3), 1018(t)(4)(B), (C), (H), Nov. 10, 1988, 102
    Stat. 3490, 3492, 3493, 3588, 3589; Pub. L. 101-239, title VII,
    Sec. 7304(a)(2)(A), (B), 7811(h)(1), Dec. 19, 1989, 103 Stat. 2352,
    2353, 2409; Pub. L. 105-34, title XV, Sec. 1506(a), Aug. 5, 1997,
    111 Stat. 1064; Pub. L. 107-16, title VI, Sec. 656(a), June 7,
    2001, 115 Stat. 131.)
 

Amendment of Section

                            AMENDMENT OF SECTION
        For termination of amendment by section 901 of Pub. L. 107-16,
      see Effective and Termination Dates of 2001 Amendment note below.
 

References in Text

                             REFERENCES IN TEXT
      Section 41, referred to in subsecs. (b)(1)(A), (4), (g),
    (i)(1)(A), (m), and (p), which related to employee stock ownership
    credit, was repealed by Pub. L. 99-514, title XI, Sec. 1171(a),
    Oct. 22, 1986, 100 Stat. 2513. Section 30 of this title, relating
    to credit for increasing research activities, was renumbered
    section 41.
      Section 12 of the Securities Exchange Act of 1934, referred to in
    subsec. (e)(4), is classified to section 78l of Title 15, Commerce
    and Trade.
      Section 403(c)(1) of the Employee Retirement Income Security Act
    of 1974, referred to in subsecs. (j) and (k), is classified to
    section 1103(c)(1) of Title 29, Labor.
      The enactment of the Tax Reform Act of 1984, referred to in
    subsecs. (g) and (k), means the enactment of div.  A of Pub. L.
    98-369, which was approved July 18, 1984.
      Subsec. (n) of section 48, referred to in subsecs. (g), (m), and
    (p)(1), was repealed by section 474(o)(15) of Pub. L. 98-369.
      Section 6699, referred to in subsec. (p)(2), was repealed by Pub.
    L. 99-514, title XI, Sec. 1171(b)(7)(A), Oct. 22, 1986, 100 Stat.
    2513.
 

Miscellaneous

                              PRIOR PROVISIONS
      A prior section 409, added Pub. L. 93-406, title II, Sec.
    2002(c), Sept. 2, 1974, 88 Stat. 964; amended Pub. L. 94-455, title
    XV, Sec. 1501(b)(6), title XIX, Sec. 1901(a)(60), 1906(b)(13)(A),
    Oct. 4, 1976, 90 Stat. 1736, 1774, 1834; Pub. L. 95-600, title I,
    Sec. 156(c)(2), (3), 157(e)(1)(B), Nov. 6, 1978, 92 Stat. 2803,
    2806; Pub. L. 96-222, title I, Sec. 101(a)(14)(B), Apr. 1, 1980, 94
    Stat. 204; Pub. L. 97-34, title III, Sec. 311(g)(1)(D), (3), Aug.
    13, 1981, 95 Stat. 281; Pub. L. 97-248, title II, Sec.
    243(b)(1)(B), title III, Sec. 335(a)(2), Sept. 3, 1982, 96 Stat.
    523, 628; Pub. L. 97-452, Sec. 2(c)(1), Jan. 12, 1983, 96 Stat.
    2478; Pub. L. 98-369, div.  A, title I, Sec. 42(a)(7), title V,
    Sec. 522(d)(13), July 18, 1984, 98 Stat. 557, 871, related to
    retirement bonds, prior to repeal by Pub. L. 98-369, div.  A, title
    IV, Sec. 491(b), (f)(1), July 18, 1984, 98 Stat. 848, 853,
    applicable to obligations issued after Dec. 31, 1983.
                                 AMENDMENTS

      2002 - Subsec. (o)(1)(C)(ii).  Pub. L. 107-147, Sec. 411(j)(2):
        Section 409(o)(1)(C)(ii) is amended--
           - by striking ``$500,000'' both places it appears 
             and inserting ``$800,000'', and
           - by striking ``$100,000'' and inserting ``$160,000''.

      2001 - Subsecs. (p), (q). Pub. L. 107-16, Sec. 656(a), 901,
    temporarily added subsec. (p) and redesignated former subsec. (p)
    as (q). See Effective and Termination Dates of 2001 Amendment note
    below.
      1997 - Subsec. (h)(2). Pub. L. 105-34 designated existing
    provisions as subpar. (A), inserted subpar. heading, struck out
    ''In the case of an employer whose charter or bylaws restrict the
    ownership of substantially all outstanding employer securities to
    employees or to a trust described in section 401(a), a plan which
    otherwise meets the requirements of this subsection or section
    4975(e)(7) shall not be considered to have failed to meet the
    requirements of this subsection or of section 401(a) merely because
    it does not permit a participant to exercise the right described in
    paragraph (1)(A) if such plan provides that participants entitled
    to a distribution from the plan shall have a right to receive such
    distribution in cash, except that such plan may distribute employer
    securities subject to a requirement that such securities may be
    resold to the employer under terms which meet the requirements of
    paragraph (1)(B).'' after ''employer securities.'', and added
    subpar. (B).
      1989 - Subsec. (l)(5). Pub. L. 101-239, Sec. 7811(h)(1),
    substituted ''the second sentence'' for ''the last sentence''.
      Subsec. (n)(1). Pub. L. 101-239, Sec. 7304(a)(2)(A)(i), struck
    out ''or section 2057'' after ''section 1042'' in two places in
    introductory provisions.
      Subsec. (n)(1)(A)(i). Pub. L. 101-239, Sec. 7304(a)(2)(A)(ii),
    struck out ''or any decedent if the executor of the estate of such
    decedent makes a qualified sale to which section 2057 applies''
    after ''employer securities,''.
      Subsec. (n)(1)(A)(ii). Pub. L. 101-239, Sec. 7304(a)(2)(A)(iii),
    struck out ''or the decedent'' after ''the taxpayer''.
      Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 101-239, Sec.
    7304(a)(2)(B), struck out ''or section 2057'' after ''section
    1042''.
      1988 - Subsec. (d). Pub. L. 100-647, Sec. 1011B(j)(3), inserted
    ''or to any distribution or reinvestment required under section
    401(a)(28)'' after ''under section 401(a)(9)''.
      Subsec. (e)(5). Pub. L. 100-647, Sec. 1018(t)(4)(H), substituted
    ''paragraph (3)'' for ''paragraph (2) or (3)''.
      Subsec. (h)(2). Pub. L. 100-647, Sec. 1018(t)(4)(B), substituted
    ''paragraph (1)(B)'' for ''section 409(o)''.
      Subsec. (h)(7). Pub. L. 100-647, Sec. 1011B(j)(5), added par.
    (7).
      Subsec. (l)(4), (5). Pub. L. 100-647, Sec. 1011B(k)(3),
    redesignated par. (4), relating to nonvoting common stock may be
    acquired in certain cases, as (5).
      Subsec. (n)(1). Pub. L. 100-647, Sec. 1011B(g)(1), made technical
    amendment to directory language of Pub. L. 99-514, Sec. 1172(b)(1).
    See 1986 Amendment note below.
      Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 100-647, Sec.
    1011B(g)(2), inserted ''or section 2057'' after ''which section
    1042''.
      Subsec. (n)(3)(C). Pub. L. 100-647, Sec. 1018(t)(4)(C), amended
    subpar. (C) generally.  Prior to amendment, subpar. (C) read as
    follows: ''The term 'nonallocation period' means the 10-year period
    beginning on the later of -
        ''(i) the date of the sale of the qualified securities, or
        ''(ii) the date of the plan allocation attributable to the
      final payment of acquisition indebtedness incurred in connection
      with such sale.''
      Subsec. (o)(1)(A). Pub. L. 100-647, Sec. 1011B(i)(3), substituted
    ''if the participant and, if applicable pursuant to sections
    401(a)(11) and 417, with the consent of the participant's spouse
    elects'' for ''unless the participant otherwise elects''.
      Subsec. (o)(1)(A)(ii). Pub. L. 100-647, Sec. 1011B(i)(1),
    substituted ''distribution is required to begin under this clause''
    for ''such year''.
      1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1174(b)(2), inserted
    reference to subsec. (o).
      Subsec. (d). Pub. L. 99-514, Sec. 1899A(11), substituted
    ''participant's'' for ''participants's''.
      Pub. L. 99-514, Sec. 1852(a)(4)(B), inserted at end ''This
    subsection shall not apply to any distribution required under
    section 401(a)(9).''
      Subsec. (d)(1). Pub. L. 99-514, Sec. 1174(a)(1), substituted
    ''separation from service, or termination of the plan'' for ''or
    separation from service''.
      Subsec. (e)(2). Pub. L. 99-514, Sec. 1854(f)(1)(C), (D), inserted
    ''or beneficiary'' after ''participant'' in two places and
    substituted ''securities of the employer'' for ''employer
    securities''.
      Subsec. (e)(3). Pub. L. 99-514, Sec. 1854(f)(1)(B)-(D), inserted
    ''or beneficiary'' after ''participant'' in two places and
    substituted ''securities of the employer'' for ''employer
    securities'' and ''any corporate matter which involves the voting
    of such shares with respect to the approval or disapproval of any
    corporate merger or consolidation, recapitalization,
    reclassification, liquidation, dissolution, sale of substantially
    all assets of a trade or business, or such similar transaction as
    the Secretary may prescribe in regulations'' for ''a corporate
    matter which (by law or charter) must be decided by more than a
    majority vote of outstanding common shares voted''.
      Subsec. (e)(5). Pub. L. 99-514, Sec. 1854(f)(1)(A), added par.
    (5).
      Subsec. (h)(2). Pub. L. 99-514, Sec. 1854(f)(3)(C), inserted '',
    except that such plan may distribute employer securities subject to
    a requirement that such securities may be resold to the employer
    under terms which meet the requirements of section 409(o)''.
      Subsec. (h)(5), (6). Pub. L. 99-514, Sec. 1174(c)(1)(A), added
    pars. (5) and (6).
      Subsec. (l)(4). Pub. L. 99-514, Sec. 1176(b), added par. (4)
    relating to acquisition of nonvoting common stock.
      Subsec. (n). Pub. L. 99-514, Sec. 1854(a)(3)(A), added subsec.
    (n). Former subsec. (n) redesignated (o).
      Subsec. (n)(1). Pub. L. 99-514, Sec. 1172(b)(1), as amended by
    Pub. L. 100-647, Sec. 1011B(g)(1), inserted ''or section 2057'' in
    two places in introductory provisions, ''or any decedent if the
    executor of the estate of such decedent makes a qualified sale to
    which section 2057 applies,'' in subpar. (A)(i), and ''or the
    decedent'' in subpar. (A)(ii).
      Subsec. (o). Pub. L. 99-514, Sec. 1174(b)(1), added subsec. (o).
    Former subsec. (o) redesignated (p).
      Pub. L. 99-514, Sec. 1854(a)(3)(A), redesignated former subsec.
    (n) as (o).
      Subsec. (p). Pub. L. 99-514, Sec. 1174(b)(1), redesignated former
    subsec. (o) as (p).
      1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A),
    (B), substituted ''41'' for ''44G'' and struck out ''48(n)(1)(A)
    or'' after ''requirements of section''.
      Subsec. (b)(4). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted
    ''41'' for ''44G''.
      Subsec. (g). Pub. L. 98-369, Sec. 474(r)(15)(A), (C), substituted
    ''41'' for ''44G'' in two places, and inserted provision directing
    that, for purposes of the preceding sentence, the references to
    section 48(n)(1) and the employee plan credit shall refer to such
    section and credit as in effect before the enactment of the Tax
    Reform Act of 1984.
      Subsec. (i)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A), (D),
    substituted ''41'' for ''44G'', and struck out ''48(n)(1) or''
    after ''taxable year under section''.
      Subsec. (k). Pub. L. 98-369, Sec. 474(r)(15)(E), inserted
    provision requiring that, for purposes of this subsection, the
    reference to the matching employee plan credit refer to such credit
    as in effect before the enactment of the Tax Reform Act of 1984.
      Subsec. (m). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted
    ''41'' for ''44G''.
      Subsec. (n)(3). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted
    ''41'' for ''44G''.
      1983 - Subsec. (d)(2). Pub. L. 97-448, Sec. 103(i), struck out
    provisions covering the sale of substantially all of the stock of a
    subsidiary of the employer.
      Subsec. (h)(2). Pub. L. 97-448, Sec. 103(h), substituted ''the
    requirements of this subsection or of section 401(a)'' for ''the
    requirements of section 401(a)''.
      1981 - Subsec. (b). Pub. L. 97-34, Sec. 331(c)(1)(A), (B),
    inserted in par. (1)(A) reference to section 44G(c)(1)(B), and
    inserted in par. (4) ''or the credit allowed under section 44G
    (relating to the employee stock ownership credit)'' after ''basic
    employee plan credit''.
      Subsec. (d). Pub. L. 97-34, Sec. 337, designated provision
    relating to death, disability, or separation from service as par.
    (1) and added pars. (2) and (3).
      Subsec. (g). Pub. L. 97-34, Sec. 331(c)(1)(C), (D), inserted
    reference to section 44G(c)(1)(B) and inserted ''or the credit
    allowed under section 44G (relating to employee stock ownership
    credit)'' after ''employee plan credit''.
      Subsec. (h)(2). Pub. L. 97-34, Sec. 334, substituted ''this
    subsection'' for ''this section'' and inserted provision respecting
    receipt of distributions in cash where employer's charter or bylaws
    restrict ownership of substantially all outstanding employer
    securities to employees or to a section 401(a) trust where a
    participant is not permitted to exercise the right described in
    par. (1)(A).
      Subsec. (h)(3), (4). Pub. L. 97-34, Sec. 336, added pars. (3) and
    (4).
      Subsec. (i)(1)(A). Pub. L. 97-34, Sec. 331(c)(1)(E), inserted
    reference to section 44G(c)(1)(B).
      Subsec. (m). Pub. L. 97-34, Sec. 331(c)(1)(F), inserted reference
    to section 44G(c)(1)(B).
      Subsec. (n)(2), (3). Pub. L. 97-34, Sec. 331(c)(1)(G), (H),
    inserted ''or employee stock ownership credit'' after ''employee
    plan credit'' in par. (2) and added par. (3).
      1980 - Pub. L. 96-222, Sec. 101(a)(7)(L)(v)(VII), substituted
    ''tax credit employee stock ownership plans'' for ''ESOPS'' in
    section catchline.
      Subsec. (a). Pub. L. 96-222, Sec. 101(a)(7)(L)(ii)(I), (v)(VI),
    substituted in heading and in text ''tax credit employee stock
    ownership plan'' for ''ESOP''.
      Subsec. (b)(4). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
    substituted ''employee plan credit'' for ''ESOP credit''.
      Subsec. (d). Pub. L. 96-222, Sec. 101(a)(7)(F), inserted ''(or
    allocated to a participant's account in connection with matched
    employer and employee contributions)'' after ''under subsection
    (b)''.
      Subsec. (f)(1). Pub. L. 96-222, Sec. 101(a)(7)(I)(i), substituted
    ''only if it is established on or before the due date (including
    any extension of such date) for the filing of the employer's tax
    return for the first taxable year of the employer for which an
    employee plan credit is claimed by the employer with respect to the
    plan'' for ''for a plan year only if it is established on or before
    the due date for the filing of the employer's tax return for the
    taxable year (including any extension of such date) in which or
    with which the plan year ends''.
      Subsec. (f)(2). Pub. L. 96-222, Sec. 101(a)(7)(I)(ii),
    (L)(v)(VII), substituted ''employee plan'' for ''ESOP'' and
    inserted ''with respect to the plan'' after ''by the employer''.
      Subsec. (g). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
    substituted ''employee plan credit'' for ''ESOP credit''.
      Subsec. (h)(2). Pub. L. 96-222, Sec. 101(a)(7)(E), inserted ''or
    of section 4975(e)(7)'' after ''the requirements of this section''.
      Subsecs. (j)(2), (k)(1). Pub. L. 96-222, Sec.
    101(a)(7)(L)(iii)(V), substituted ''employee plan credit'' for
    ''ESOP credit''.
      Subsec. (l)(2)(B). Pub. L. 96-222, Sec. 101(a)(7)(J)(i),
    substituted ''class of common stock'' for ''class of stock''.
      Subsec. (l)(3). Pub. L. 96-222, Sec. 101(a)(7)(J)(ii),
    (L)(ii)(II), substituted ''as employer securities'' for ''as
    meeting the requirements of paragraph (1)'', ''paragraph (1) or
    (2)'' for ''paragraph (2)'', and ''tax credit employee stock
    ownership plan'' for ''ESOP'' and inserted provisions requiring
    preferred stock to be treated as noncallable if after the call
    there will be a reasonable opportunity for a conversion which meets
    the requirements of the preceding sentence.
      Subsec. (l)(4). Pub. L. 96-605 substituted in heading
    ''Application to controlled group of corporations'' for
    ''Controlled group of corporations defined'' and in subpar. (B)
    heading ''Where common parent owns at least'' for ''Common parent
    may own only'' and added subpar. (C).
      Subsec. (m). Pub. L. 96-222, Sec. 101(a)(7)(D), (L)(i),
    substituted provisions relating to nonrecognition of gain or loss
    on contribution of employer securities to a tax credit employee
    stock ownership plan for provisions relating to contributions of
    stock of a controlling corporation.
      Subsec. (n). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
    substituted ''employee plan credit'' for ''ESOP credit'' in pars.
    (1) and (2).
             EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
      Pub. L. 107-16, title VI, Sec. 656(d), June 7, 2001, 115 Stat.
    135, provided that:
      ''(1) In general. - The amendments made by this section (amending
    this section and sections 4975 and 4979A of this title) shall apply
    to plan years beginning after December 31, 2004.
      ''(2) Exception for certain plans. - In the case of any -
        ''(A) employee stock ownership plan established after March 14,
      2001, or
        ''(B) employee stock ownership plan established on or before
      such date if employer securities held by the plan consist of
      stock in a corporation with respect to which an election under
      section 1362(a) of the Internal Revenue Code of 1986 is not in
      effect on such date,
    the amendments made by this section shall apply to plan years
    ending after March 14, 2001.''
      Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
    limitation years beginning after Dec. 31, 2010, and the Internal
    Revenue Code of 1986 to be applied and administered to such years
    as if such amendment had never been enacted, see section 901 of
    Pub. L. 107-16, set out as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Section 1506(c) of Pub. L. 105-34 provided that: ''The amendments
    made by this section (amending this section, section 4975 of this
    title, and section 1108 of Title 29, Labor) shall apply to taxable
    years beginning after December 31, 1997.''
                      EFFECTIVE DATE OF 1989 AMENDMENT
      Section 7304(a)(3) of Pub. L. 101-239 provided that: ''The
    amendments made by this subsection (amending this section and
    sections 4978 and 4979A of this title and repealing sections 2057
    and 4978A of this title) shall apply to the estates of decedents
    dying after the date of the enactment of this Act (Dec. 19,
    1989).''
      Amendment by section 7811(h)(1) of Pub. L. 101-239 effective,
    except as otherwise provided, as if included in the provision of
    the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
    100-647, to which such amendment relates, see section 7817 of Pub.
    L. 101-239, set out as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Amendment by Pub. L. 100-647 effective, except as otherwise
    provided, as if included in the provision of the Tax Reform Act of
    1986, Pub. L. 99-514, to which such amendment relates, see section
    1019(a) of Pub. L. 100-647, set out as a note under section 1 of
    this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Section 1172(c) of Pub. L. 99-514 provided that: ''The amendments
    made by this section (enacting section 2057 of this title and
    amending this section and section 4979A of this title) shall apply
    to sales after the date of the enactment of this Act (Oct. 22,
    1986) with respect to which an election is made by the executor of
    an estate who is required to file the return of the tax imposed by
    the Internal Revenue Code of 1986 on a date (including extensions)
    after the date of the enactment of this Act.''
      Section 1174(a)(2) of Pub. L. 99-514, as amended by Pub. L.
    100-647, title I, Sec. 1011B(i)(2), Nov. 10, 1988, 102 Stat. 3492,
    provided that: ''The amendment made by this subsection (amending
    this section) shall apply to distributions after December 31,
    1984.''
      Section 1174(b)(3) of Pub. L. 99-514 provided that: ''The
    amendments made by this subsection (amending this section) shall
    apply to distributions attributable to stock acquired after
    December 31, 1986.''
      Section 1174(c)(1)(B) of Pub. L. 99-514 provided that: ''The
    amendment made by this paragraph (amending this section) shall
    apply to distributions attributable to stock acquired after
    December 31, 1986, except that a plan may elect to have such
    amendment apply to all distributions after the date of the
    enactment of this Act (Oct. 22, 1986).''
      Amendment by section 1176(b) of Pub. L. 99-514 applicable to
    acquisitions of securities after Dec. 31, 1986, see section 1176(c)
    of Pub. L. 99-514, set out as a note under section 401 of this
    title.
      Amendment by section 1852(a)(4)(B) of Pub. L. 99-514 effective,
    except as otherwise provided, as if included in the provisions of
    the Tax Reform Act of 1984, Pub. L. 98-369, div.  A, to which such
    amendment relates, see section 1881 of Pub. L. 99-514, set out as a
    note under section 48 of this title.
      Section 1854(a)(3)(C) of Pub. L. 99-514, as amended by Pub. L.
    100-647, title I, Sec. 1018(t)(4)(G), Nov. 10, 1988, 102 Stat.
    3588, provided that:
      ''(i) Except as provided in clause (ii), the amendments made by
    this paragraph (amending this section and section 1042 of this
    title) shall apply to sales of securities after the date of the
    enactment of this Act (Oct. 22, 1986).
      ''(ii) A taxpayer or executor may elect to have section
    1042(b)(3) of the Internal Revenue Code of 1954 (as in effect
    before the amendment made by subparagraph (B)) apply to sales
    before the date of the enactment of this Act as if such section
    included the last sentence of section 409(n)(1) of the Internal
    Revenue Code of 1986 (as added by subparagraph (A)).''
      Section 1854(f)(4)(A), (B) of Pub. L. 99-514 provided that:
      ''(A) The amendments made by paragraph (1)(A) and (3) (amending
    this section and sections 1042 and 4975 of this title) shall take
    effect on the date of the enactment of this Act (Oct. 22, 1986).''
      ''(B) The amendments made by subparagraphs (B), (C), and (D) of
    paragraph (1) (amending this section) shall apply after December
    31, 1986, to stock acquired after December 31, 1979.''
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by section 474(r)(15) of Pub. L. 98-369 applicable to
    taxable years beginning after Dec. 31, 1983, and to carrybacks from
    such years, see section 475(a) of Pub. L. 98-369, set out as a note
    under section 21 of this title.
      Redesignation of section 409A as 409 by section 491(e)(1) of Pub.
    L. 98-369 effective Jan. 1, 1984, see section 491(f)(3) of Pub. L.
    98-369, set out as a note under section 401 of this title.
                      EFFECTIVE DATE OF 1983 AMENDMENT
      Amendment by Pub. L. 97-448 effective, except as otherwise
    provided, as if it had been included in the provision of the
    Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
    amendment relates, see section 109 of Pub. L. 97-448, set out as a
    note under section 1 of this title.
                      EFFECTIVE DATE OF 1981 AMENDMENT
      Amendment by section 331(c)(1) of Pub. L. 97-34 applicable to
    taxable years ending after Dec. 31, 1982, see section 331(f)(2) of
    Pub. L. 97-34, set out as a note under section 404 of this title.
      Section 337(b) of Pub. L. 97-34, as amended by Pub. L. 99-514,
    Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
    amendments made by this section (amending this section) shall apply
    to distributions described in section 409A(d) of the Internal
    Revenue Code of 1986 (formerly I.R.C. 1954) (or any corresponding
    provision of prior law) made after March 29, 1975.''
      Amendment by sections 334 and 336 of Pub. L. 97-34 applicable to
    taxable years beginning after Dec. 31, 1981, see section 339 of
    Pub. L. 97-34, set out as a note under section 401 of this title.
                     EFFECTIVE DATE OF 1980 AMENDMENTS
      Section 224(b) of Pub. L. 96-605 provided that: ''The amendment
    made by subsection (a) (amending this section) shall apply with
    respect to qualified investment for taxable years beginning after
    December 31, 1978.''
      Amendment by Pub. L. 96-222 effective, except as otherwise
    provided, as if it had been included in the provisions of the
    Revenue Act of 1978, Pub. L. 95-600, to which such amendment
    relates, see section 201 of Pub. L. 96-222, set out as a note under
    section 32 of this title.
                               EFFECTIVE DATE
      Section 141(g) of Pub. L. 95-600, as added by Pub. L. 96-222,
    title I, Sec. 101(a)(7)(B), Apr. 1, 1980, 94 Stat. 197; amended by
    Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
    that:
      ''(1) In general. - Except as otherwise provided in this
    subsection and subsection (h) (set out as an Effective Date of 1978
    Amendment note under section 4975 of this title), the amendments
    made by this section (enacting sections 409A (now 409) and 6699 of
    this title and amending sections 46, 48, 56, 401, 404, 415, 805,
    1504, and 4975 of this title) shall apply with respect to qualified
    investment for taxable years beginning after December 31, 1978.
      ''(2) Election to have amendments apply during 1978. - At the
    election of the taxpayer, paragraph (1) shall be applied by
    substituting 'December 31, 1977' for 'December 31, 1978'; except
    that in the case of a plan in existence before December 31, 1978,
    any such election shall not affect the required allocation of
    employer securities attributable to qualified investment for
    taxable years beginning before January 1, 1979. An election under
    the preceding sentence shall be made at such time and in such
    manner as the Secretary of the Treasury or his delegate shall
    prescribe.  Such an election, once made, shall be irrevocable.
      ''(3) Voting right provisions. - Section 409A(e) of the Internal
    Revenue Code of 1986 (formerly I.R.C. 1954) (as added by subsection
    (a)) (now section 409) shall apply to plans to which section 409A
    of such Code applies, beginning with the first day of such
    application.
      ''(4) Right to demand employer securities, etc. - Paragraphs
    (1)(A) and (2) of section 409A(h) of the Internal Revenue Code of
    1986 (as added by subsection (a)) (now section 409) shall apply to
    distributions after December 31, 1978, made by a plan to which
    section 409A of such Code applies.
      ''(5) Subsection (f)(7). - The amendment made by subsection
    (f)(7) (amending section 415 of this title) shall apply to years
    beginning after December 31, 1978.
      ''(6) Retroactive application of amendment made by subsection
    (d). - In determining the regular tax deduction under section 56(c)
    of the Internal Revenue Code of 1986 for any taxable year beginning
    before January 1, 1979, the amount of the credit allowable under
    section 38 of such Code shall be determined without regard to
    section 46(a)(2)(B) of such Code (as in effect before the enactment
    of the Energy Tax Act of 1978 (Nov. 9, 1978)).''
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 401, 404, 411, 414, 415,
    512, 664, 1042, 4975, 4978, 4979A, 4980 of this title; title 28
    section 3010; title 29 sections 1054, 1055.
 

Personal tools