Employee Stock Ownership Plan Promotion and Improvement Act of 2005 - Amends the Internal Revenue Code to: (1) exempt certain distributions, including dividends, by S corporations to an employee stock ownership plan (ESOP) from the penalty tax for premature employee benefit plan withdrawals; (2) exempt deductions for ESOP dividends from corporate alternative minimum tax adjustments based on adjusted earnings and profits; (3) allow deferral of the recognition of gain for certain sales to ESOPs sponsored by any domestic corporation, including S corporations; (4) allow reinvestment of ESOP stock proceeds eligible for nonrecognition of gain in certain mutual funds; (5) modify certain ESOP stock ownership rules; (6) allow early distributions from an ESOP for higher education expenses and first-time homebuyer purchases without penalty; and (7) allow a de minimis exception from pension plan diversification requirements for ESOP accounts with balances of $2,500 or less.