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H.R. 1294 (116th): Employee Profit-Sharing Encouragement Act of 2019

The text of the bill below is as of Feb 14, 2019 (Introduced). The bill was not enacted into law.



1st Session

H. R. 1294


February 14, 2019

introduced the following bill; which was referred to the Committee on Ways and Means


To amend the Internal Revenue Code of 1986 to deny the deduction for executive compensation unless the employer maintains profit-sharing distributions for employees.


Short title

This Act may be cited as the Employee Profit-Sharing Encouragement Act of 2019.


Denial of deduction for executive compensation unless employer maintains profit-sharing distributions


In general

Section 162 of the Internal Revenue Code of 1986 is amended by redesignating subsection (s) as subsection (t) and by inserting after subsection (r) the following new subsection:


Executive compensation paid by employers who do not maintain profit-Sharing distributions


In general

In the case of a specified employer, no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any highly compensated individual (within the meaning of section 105(h)) for any taxable year unless qualified profit-sharing distributions are made during such taxable year.


Qualified profit-sharing distributions

For purposes of this subsection—


In general

The term qualified profit-sharing distributions means a cash distribution made pursuant to a written plan of the employer under which—


employees (including part-time employees) who have been employed for at least 1 year as of the date of the distribution have a right to such distribution, and


the amount of such distributions are defined under such plan on the basis of a measure of the receipts, profit, revenues, or earnings of such employer.


Minimum distribution requirements

Such term shall not include any distributions made pursuant to such plan during the taxable year if the aggregate distributions made pursuant to such plan during such taxable year are less than 5 percent of the employer’s net income for the taxable year as determined pursuant to the employer’s books and records prepared in accordance with the employer’s accounting procedures.



Such term shall not include any distributions made pursuant to such plan during the taxable year unless such plan satisfies requirements similar to the requirements of section 401(k)(3)(A)(ii) applied by treating the distributions made pursuant to the plan as though such distributions were contributions paid over to the trust referred to in such section.


Exception if distributions would jeopardize the business

An employer shall not fail to be treated as making qualified profit-sharing distributions during the taxable year to the extent that such employer establishes to the satisfaction of the Secretary by clear and convincing evidence that making such distributions would jeopardize the ability of the employer to continue as a going concern.


Specified employer

For purposes of this subsection—


In general

The term specified employer means, with respect to any taxable year, any employer which meets the gross receipts test of section 448(c) (determined without regard to paragraph (4) thereof) for such taxable year.


Application of gross receipts test to individuals, etc

For purposes of subparagraph (A), in the case of any employer which is not a corporation or a partnership, the gross receipts test referred to in such subparagraph shall be applied in the same manner as if each trade or business of such employer were a corporation or partnership.


Applicable employee remuneration

For purposes of this subsection, the term applicable employee remuneration has the meaning given such term by subsection (m)(4), determined without regard to subparagraph (B) thereof.


Controlled groups

For purposes of this subsection, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one employer.



Rules similar to the rules of subparagraphs (D) and (E) of subsection (m)(4) shall apply for purposes of this subsection.


Authority to address abuse

The Secretary shall have the authority to address any abuses by employers under this subsection, including, but not limited to, a reduction in employee compensation or benefits in conjunction with the payment of qualified profit-sharing distributions.



Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.