115 STAT. 132 PUBLIC LAW 107-16^JUNE 7, 2001 "(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.— I f 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)— Applicability. "(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
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