Budget Reconciliation Bill Passed; Section 133 Dropped

As reported earlier, the Senate eliminated section 133 of the Internal Revenue Code. Section 133 allows lenders to ESOPs that own more than 50% of a company's shares and pass through full voting rights to exclude 50% of the interest income on ESOP loans from taxable earnings. The House did not have a comparable provision in its budget reconciliation bill, but House conferees have accepted the Senate proposal. The bill will now be vetoed by the President. If an agreement can be reached on the many issues in the budget bill, it is likely that section 133 will be eliminated. The Administration appears unlikely to take a strong position one way or another on the issue.