
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC4978]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                 Subtitle D--Miscellaneous Excise Taxes
 
               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
 
Sec. 4978. Tax on certain dispositions by employee stock 
        ownership plans and certain cooperatives
        

(a) Tax on dispositions of securities to which section 1042 applies 
        before close of minimum holding period

    If, during the 3-year period after the date on which the employee 
stock ownership plan or eligible worker-owned cooperative acquired any 
qualified securities in a sale to which section 1042 applied or acquired 
any qualified employer securities in a qualified gratuitous transfer to 
which section 664(g) applied, such plan or cooperative disposes of any 
qualified securities and--
        (1) the total number of shares held by such plan or cooperative 
    after such disposition is less than the total number of employer 
    securities held immediately after such sale, or
        (2) except to the extent provided in regulations, the value of 
    qualified securities held by such plan or cooperative after such 
    disposition is less than 30 percent of the total value of all 
    employer securities as of such disposition 60 \1\ percent of the 
    total value of all employer securities as of such disposition in the 
    case of any qualified employer securities acquired in a qualified 
    gratuitous transfer to which section 664(g) applied),
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    \1\ So in original. Probably should be preceded by an open 
parenthesis.

there is hereby imposed a tax on the disposition equal to the amount 
determined under subsection (b).

(b) Amount of tax

                           (1) In general

        The amount of the tax imposed by subsection (a) shall be equal 
    to 10 percent of the amount realized on the disposition.

                           (2) Limitation

        The amount realized taken into account under paragraph (1) shall 
    not exceed that portion allocable to qualified securities acquired 
    in the sale to which section 1042 applied or acquired in the 
    qualified gratuitous transfer to which section 664(g) applied 
    determined as if such securities were disposed of--
            (A) first from qualified securities to which section 1042 
        applied or to which section 664(g) applied acquired during the 
        3-year period ending on the date of the disposition, beginning 
        with the securities first so acquired, and
            (B) then from any other employer securities.

    If subsection (d) applies to a disposition, the disposition shall be 
    treated as made from employer securities in the opposite order of 
    the preceding sentence.

                   (3) Distributions to employees

        The amount realized on any distribution to an employee for less 
    than fair market value shall be determined as if the qualified 
    security had been sold to the employee at fair market value.

(c) Liability for payment of taxes

    The tax imposed by this subsection shall be paid by--
        (1) the employer, or
        (2) the eligible worker-owned cooperative,

that made the written statement described in section 664(g)(1)(E) or in 
section 1042(b)(3) (as the case may be).

(d) Section not to apply to certain dispositions

               (1) Certain distributions to employees

        This section shall not apply with respect to any distribution of 
    qualified securities (or sale of such securities) which is made by 
    reason of--
            (A) the death of the employee,
            (B) the retirement of the employee after the employee has 
        attained 59\1/2\ years of age,
            (C) the disability of the employee (within the meaning of 
        section 72(m)(7)), or
            (D) the separation of the employee from service for any 
        period which results in a 1-year break in service (within the 
        meaning of section 411(a)(6)(A)).

                     (2) Certain reorganizations

        In the case of any exchange of qualified securities in any 
    reorganization described in section 368(a)(1) for stock of another 
    corporation, such exchange shall not be treated as a disposition for 
    purposes of this section.

           (3) Liquidation of corporation into cooperative

        In the case of any exchange of qualified securities pursuant to 
    the liquidation of the corporation issuing qualified securities into 
    the eligible worker-owned cooperative in a transaction which meets 
    the requirements of section 332 (determined by substituting ``100 
    percent'' for ``80 percent'' each place it appears in section 
    332(b)(1)), such exchange shall not be treated as a disposition for 
    purposes of this section.

        (4) Dispositions to meet diversification requirements

        This section shall not apply to any disposition of qualified 
    securities which is required under section 401(a)(28).

(e) Definitions and special rules

    For purposes of this section--

                  (1) Employee stock ownership plan

        The term ``employee stock ownership plan'' has the meaning given 
    to such term by section 4975(e)(7).

                      (2) Qualified securities

        The term ``qualified securities'' has the meaning given to such 
    term by section 1042(c)(1); 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(g)(1)).

                (3) Eligible worker-owned cooperative

        The term ``eligible worker-owned cooperative'' has the meaning 
    given to such term by section 1042(c)(2).

                           (4) Disposition

        The term ``disposition'' includes any distribution.

                       (5) Employer securities

        The term ``employer securities'' has the meaning given to such 
    term by section 409(l).

(Added Pub. L. 98-369, div. A, title V, Sec. 545(a), July 18, 1984, 98 
Stat. 894; amended Pub. L. 99-514, title XVIII, Sec. 1854(e), Oct. 22, 
1986, 100 Stat. 2880; Pub., L. 100-203, title X, Sec. 10413(b)(1), Dec. 
22, 1987, 101 Stat. 1330-438; Pub. L. 100-647, title I, 
Sec. 1011B(j)(4), Nov. 10, 1988, 102 Stat. 3492; Pub. L. 101-239, title 
VII, Sec. 7304(a)(2)(C)(ii), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 104-
188, title I, Sec. 1602(b)(4), Aug. 20, 1996, 110 Stat. 1834; Pub. L. 
105-34, title XV, Sec. 1530(c)(11)-(14), Aug. 5, 1997, 111 Stat. 1079.)


                               Amendments

    1997--Subsec. (a). Pub. L. 105-34, Sec. 1530(c)(11)(A), inserted 
``or acquired any qualified employer securities in a qualified 
gratuitous transfer to which section 664(g) applied'' after ``section 
1042 applied'' in introductory provisions.
    Subsec. (a)(2). Pub. L. 105-34, Sec. 1530(c)(11)(B), inserted before 
comma at end ``60 percent of the total value of all employer securities 
as of such disposition in the case of any qualified employer securities 
acquired in a qualified gratuitous transfer to which section 664(g) 
applied)''.
    Subsec. (b)(2). Pub. L. 105-34, Sec. 1530(c)(12)(A), inserted ``or 
acquired in the qualified gratuitous transfer to which section 664(g) 
applied'' after ``section 1042 applied'' in introductory provisions.
    Subsec. (b)(2)(A). Pub. L. 105-34, Sec. 1530(c)(12)(B), inserted 
``or to which section 664(g) applied'' after ``section 1042 applied''.
    Subsec. (c). Pub. L. 105-34, Sec. 1530(c)(13), substituted ``written 
statement described in section 664(g)(1)(E) or in section 1042(b)(3) (as 
the case may be)'' for ``written statement described in section 
1042(b)(3)''.
    Subsec. (e)(2). Pub. L. 105-34, Sec. 1530(c)(14), inserted before 
period at end ``; 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(g)(1))''.
    1996--Subsec. (b)(2). Pub. L. 104-188 added subpars. (A) and (B) and 
closing provisions and struck out former subpars. (A) to (D) and closing 
provisions which read as follows:
        ``(A) first, from section 133 securities (as defined in section 
    4978B(e)(2)) acquired during the 3-year period ending on the date of 
    such disposition, beginning with the securities first so acquired.
        ``(B) second, from section 133 securities (as so defined) 
    acquired before such 3-year period unless such securities (or 
    proceeds from the disposition) have been allocated to accounts of 
    participants or beneficiaries.
        ``(C) third, from qualified securities to which section 1042 
    applied acquired during the 3-year period ending on the date of the 
    disposition, beginning with the securities first so acquired, and
        ``(D) then from any other employer securities.
If subsection (d) or section 4978B(d) applies to a disposition, the 
disposition shall be treated as made from employer securities in the 
opposite order of the preceding sentence.''
    1989--Subsec. (b)(2). Pub. L. 101-239 substituted ``determined as if 
such securities were disposed of--'', subpars. (A) to (D), and 
concluding provision for ``(determined as if such securities were 
disposed of in the order described in section 4978A(e))''.
    1988--Subsec. (d)(4). Pub. L. 100-647 added par. (4).
    1987--Subsec. (b)(2). Pub. L. 100-203 substituted ``(determined as 
if such securities were disposed of in the order described in section 
4978A(e))'' for ``(determined as if such securities were disposed of 
before any other securities)''.
    1986--Subsec. (a)(1). Pub. L. 99-514, Sec. 1854(e)(1), substituted 
``than'' for ``then''.
    Subsec. (b)(1). Pub. L. 99-514, Sec. 1854(e)(2), substituted 
``subsection (a)'' for ``paragraph (1)''.
    Subsec. (c). Pub. L. 99-514, Sec. 1854(e)(3), substituted ``section 
1042(b)(3)'' for ``section 1042(a)(2)(B)''.
    Subsec. (d)(1)(C). Pub. L. 99-514, Sec. 1854(e)(4), substituted 
``section 72(m)(7)'' for ``section 72(m)(5)''.
    Subsec. (d)(3). Pub. L. 99-514, Sec. 1854(e)(7), added par. (3).
    Subsec. (e)(2). Pub. L. 99-514, Sec. 1854(e)(5), substituted 
``section 1042(c)(1)'' for ``section 1042(b)(1)''.
    Subsec. (e)(3). Pub. L. 99-514, Sec. 1854(e)(6), substituted 
``section 1042(c)(2)'' for ``section 1042(b)(1)''.


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to transfers made by trusts 
to, or for the use of, an employee stock ownership plan after Aug. 5, 
1997, see section 1530(d) of Pub. L. 105-34, set out as a note under 
section 401 of this title.


                    Effective Date of 1996 Amendment

    Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to 
loans made after Aug. 20, 1996, with exception and provisions relating 
to certain refinancings, see section 1602(c) of Pub. L. 104-188, set out 
as an Effective Date of Repeal note under former section 133 of this 
title.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-239 applicable to estates of decedents 
dying after Dec. 19, 1989, see section 7304(a)(3) of Pub. L. 101-239, 
set out as a note under section 409 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 1987 Amendment

    Section 10413(c) of Pub. L. 100-203 provided that: ``The amendments 
made by this section [enacting section 4978A of this title and amending 
this section] shall apply to taxable events (within the meaning of 
section 4978A(c) of the Internal Revenue Code of 1986) occurring after 
February 26, 1987.''


                    Effective Date of 1986 Amendment

    Amendment by 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.


                             Effective Date

    Section 545(c) of Pub. L. 98-369 provided that: ``The amendments 
made by this section [enacting this section] shall apply to taxable 
years beginning after the date of enactment of this Act [July 18, 
1984].''


           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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 664, 1042, 4979A of this 
title.
