26 U.S.C. § 4978: Tax on certain dispositions by employee stock ownership plans and certain cooperatives

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 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 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), The amount of the tax imposed by subsection (a) shall be equal to 10 percent of the amount realized on the disposition. 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 then from any other employer securities. 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. the employer, or the eligible worker-owned cooperative, the death of the employee, the retirement of the employee after the employee has attained 59½ years of age, the disability of the employee (within the meaning of section 72(m)(7)), or 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)). 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. 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. This section shall not apply to any disposition of qualified securities which is required under section 401(a)(28). The term “employee stock ownership plan” has the meaning given to such term by section 4975(e)(7). 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)). The term “eligible worker-owned cooperative” has the meaning given to such term by section 1042(c)(2). The term “disposition” includes any distribution. The term “employer securities” has the meaning given to such term by section 409( l ).