Can an S corporation adopt an ESOP?
Yes. Effective January 1, 1998 it became advantageous for an ESOP to be a shareholder of an S corporation under the federal tax laws. To the extent that the S corporation is owned by an ESOP, no federal income taxes on corporate income are payable by either the shareholder or the company. This can create a significant competitive advantage for S corporations which are substantially ESOP owned. However, S corporation ESOPs are subject to certain limitations and restrictions described in detail in Question 33.
Yes. Effective January 1, 1998 it became advantageous for an ESOP to be a shareholder of an S corporation under the federal tax laws. To the extent that the S corporation is owned by an ESOP, no federal income taxes on corporate income are payable by either the shareholder or the company. This can create a significant competitive advantage for S corporations which are substantially ESOP owned. However, S corporation ESOPs are subject to certain limitations and restrictions described in detail in Question 33. Return to the top of the page. 13. How do I set up an ESOP? The first step in the process is determining the company’s value, since the ESOP cannot pay more than fair market value for the stock it purchases. Both the IRS and the U.S. Department of Labor (“DOL”) have issued guidelines governing the valuation of company stock in ESOP transactions. The next step is a feasibility study to analyze the overall framework for the transaction. Among the issues the study should address are:
Related Questions
- Announcement 2005-80 states that Management S Corporation ESOP transactions are eligible for settlement under the initiative. What abuse was involved in those transactions?
- Doesn the clearing corporation adopt an enormous risk by giving out credit guarantees to all brokerage firms?
- Can an S corporation adopt an ESOP?
