Chapter 1 ........................................................................................ Error! Bookmark not defined.
ESOPs AND CONGRESSIONAL INTENT ..................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
ESOP Defined ........................................................ Error! Bookmark not defined.
1984 Tax Act.......................................................... Error! Bookmark not defined.
Planning Points ...................................................... Error! Bookmark not defined.
1986 Tax Act.......................................................... Error! Bookmark not defined.
Thirty-Percent Test .................................... Error! Bookmark not defined.
Exclusive Benefit ....................................... Error! Bookmark not defined.
Disqualification .......................................... Error! Bookmark not defined.
Two Important Concepts........................................ Error! Bookmark not defined.
1989 Tax Act.......................................................... Error! Bookmark not defined.
1997 Tax Act.......................................................... Error! Bookmark not defined.
Reason for Change ..................................... Error! Bookmark not defined.
Explanation of Provisions .......................... Error! Bookmark not defined.
Effective Date ............................................ Error! Bookmark not defined.
2001 Tax Act.......................................................... Error! Bookmark not defined.
Summary ................................................................ Error! Bookmark not defined.
Chapter 2 ........................................................................................ Error! Bookmark not defined.
ALTERNATIVES TO AN ESOP ...................................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Sales to ESOPs....................................................... Error! Bookmark not defined.
Leveraged Recapitalization .................................... Error! Bookmark not defined.
IPOs Error! Bookmark not defined.
Sale Error! Bookmark not defined.
Estate Planning Considerations.............................. Error! Bookmark not defined.
Enhanced Estate Planning Strategies ..................... Error! Bookmark not defined.
Chapter 3 ........................................................................................ Error! Bookmark not defined.
RULES FOR SELLING STOCK TO AN ESOP WITHOUT RECOGNIZING
GAIN...................................................................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Section 1042 Rules ................................................ Error! Bookmark not defined.
Sale of Qualified Securities ................................... Error! Bookmark not defined.
Election .................................................................. Error! Bookmark not defined.
Notarized Statement ............................................... Error! Bookmark not defined.
Other Considerations ............................................. Error! Bookmark not defined.
Types of Stock Which Can be Acquired by an ESOPError! Bookmark not defined.
Chapter 4 ........................................................................................ Error! Bookmark not defined.
HOW ESOP TRANSACTIONS ARE ............................... Error! Bookmark not defined.
STRUCTURED FROM A FINANCIAL PERSPECTIVE Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Cash Flow Analysis ............................................... Error! Bookmark not defined.
Overview .................................................... Error! Bookmark not defined.
Nonleveraged ESOP .................................. Error! Bookmark not defined.
Leveraged ESOP ........................................ Error! Bookmark not defined.
Cash Flow Diagrams .............................................. Error! Bookmark not defined.
Initial Purchase of Stock ........................................ Error! Bookmark not defined.
Annual Cash Flow.................................................. Error! Bookmark not defined.
Loans Error! Bookmark not defined.
Repayments ............................................................ Error! Bookmark not defined.
Seller-Financed ...................................................... Error! Bookmark not defined.
Stock-Issuance ....................................................... Error! Bookmark not defined.
Chapter 5 ........................................................................................ Error! Bookmark not defined.
SELLER-FINANCED ESOPs AND INVESTMENT STRATEGIESError! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Seller-Financed ESOPs .......................................... Error! Bookmark not defined.
Structure ..................................................... Error! Bookmark not defined.
PLR 8644024 ......................................................... Error! Bookmark not defined.
PLR 9102017 ......................................................... Error! Bookmark not defined.
Rulings Requested ................................................. Error! Bookmark not defined.
IRS Rulings ............................................................ Error! Bookmark not defined.
Investment Strategies ............................................. Error! Bookmark not defined.
Passive Strategy ..................................................... Error! Bookmark not defined.
Active Strategy....................................................... Error! Bookmark not defined.
Example5-1: ................................... Error! Bookmark not defined.
Chapter 6 ........................................................................................ Error! Bookmark not defined.
TAX RULES LIMITING THE AMOUNT OF ANNUAL CONTRIBUTIONS TO
AN ESOP ............................................................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Tax Rules ............................................................... Error! Bookmark not defined.
Overview .................................................... Error! Bookmark not defined.
Section 409(n) ........................................................ Error! Bookmark not defined.
Deduction for Dividends Paid on C Corporation StockError! Bookmark not defined.
PLR 9821064 ......................................................... Error! Bookmark not defined.
Tax Rules Regarding the Internal Loan and ESOP Deal StructureError! Bookmark not defined.
Section 306 Treatment Issues .................... Error! Bookmark not defined.
Section 306 Stock Definition ..................... Error! Bookmark not defined.
Rev. Rul. 79-163 .................................................... Error! Bookmark not defined.
Facts Error! Bookmark not defined.
Law and Analysis ....................................... Error! Bookmark not defined.
Holding ...................................................... Error! Bookmark not defined.
Rev. Rul. 81-91 ..................................................... Error! Bookmark not defined.
Facts Error! Bookmark not defined.
Law and Analysis ....................................... Error! Bookmark not defined.
Holding ...................................................... Error! Bookmark not defined.
Rev. Rul. 66-332 .................................................... Error! Bookmark not defined.
Rev. Rul. 79-122 .................................................... Error! Bookmark not defined.
Treas. Reg. §4975 .................................................. Error! Bookmark not defined.
Example 6-1: .................................. Error! Bookmark not defined.
Planning Point: ....................................................... Error! Bookmark not defined.
DOL Regulations ................................................... Error! Bookmark not defined.
PLR 9503002 ......................................................... Error! Bookmark not defined.
Issues: Error! Bookmark not defined.
Facts: Error! Bookmark not defined.
Law and Analysis:...................................... Error! Bookmark not defined.
Characterization of Elective Contributions ............ Error! Bookmark not defined.
Use of Elective Contributions to Service Loan...... Error! Bookmark not defined.
Conclusions ............................................................ Error! Bookmark not defined.
PLR 9416043 ......................................................... Error! Bookmark not defined.
Chapter 7 ........................................................................................ Error! Bookmark not defined.
CONTROL OF THE CORPORATION AND HOW SHARES ARE
ALLOCATED........................................................ Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Control of the Corporation After an ESOP Acquires SharesError! Bookmark not defined.
Overview .................................................... Error! Bookmark not defined.
Corporate Governance ........................................... Error! Bookmark not defined.
Voting Rights ......................................................... Error! Bookmark not defined.
Right to Receive Stock........................................... Error! Bookmark not defined.
Planning Point ........................................................ Error! Bookmark not defined.
Treas. Reg. §54.4975 ............................................. Error! Bookmark not defined.
Put Option or Shares Distributed ........................... Error! Bookmark not defined.
Vesting Rules ......................................................... Error! Bookmark not defined.
Five-Year Vesting .................................................. Error! Bookmark not defined.
Three- to Seven-Year Vesting ............................... Error! Bookmark not defined.
Three-Year Vesting ........................ Error! Bookmark not defined.
Two or Six Year Vesting ............... Error! Bookmark not defined.
Section 401(a)(28) ................................................. Error! Bookmark not defined.
Right of Participants to Diversify Their ESOP AccountsError! Bookmark not defined.
Notice 88-56........................................................... Error! Bookmark not defined.
Put Option Rules .................................................... Error! Bookmark not defined.
Treas. Reg. §54.4975 ............................................. Error! Bookmark not defined.
General rule .................................... Error! Bookmark not defined.
Special rule..................................... Error! Bookmark not defined.
Other Put Option Provisions .................................. Error! Bookmark not defined.
Manner of exercise ......................... Error! Bookmark not defined.
Time excluded from duration of put optionError! Bookmark not defined.
Price Error! Bookmark not defined.
Payment terms ................................ Error! Bookmark not defined.
Payment restrictions ....................... Error! Bookmark not defined.
DOL §2550 ............................................................ Error! Bookmark not defined.
Other terms of loan ........................ Error! Bookmark not defined.
Status of plan as ESOP .................. Error! Bookmark not defined.
PLR 938002 ........................................................... Error! Bookmark not defined.
Issue Error! Bookmark not defined.
Facts Error! Bookmark not defined.
Law and Analysis ................................................... Error! Bookmark not defined.
Conclusion ............................................................. Error! Bookmark not defined.
Emerging Repurchase Liability ............................. Error! Bookmark not defined.
COI Error! Bookmark not defined.
Chapter 8 ........................................................................................ Error! Bookmark not defined.
S CORPORATION ESOPs ............................................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
S Corporation Taxation .......................................... Error! Bookmark not defined.
Section 1362........................................................... Error! Bookmark not defined.
Electing S Corporation Status ................................ Error! Bookmark not defined.
ESOPs and S Corporations .................................... Error! Bookmark not defined.
Big Tax................................................................... Error! Bookmark not defined.
Planning Point ........................................................ Error! Bookmark not defined.
Special Considerations ........................................... Error! Bookmark not defined.
Special Anti-Abuse Rules For S Corporation EsopsError! Bookmark not defined.
Definition of Prohibited AllocationError! Bookmark not defined.
Effect of a Prohibited Allocation ... Error! Bookmark not defined.
Prevention of Nonallocation Year . Error! Bookmark not defined.
Treatment of Family Members as Disqualified PersonsError! Bookmark not defined.
Determination of Number of Shares of Non-Stock-Based Synthetic EquityError! Bookmark not
S Corporations Compared to C Corporations having ESOPsError! Bookmark not defined.
as Shareholders ...................................................... Error! Bookmark not defined.
Corporate Level Taxation ...................................... Error! Bookmark not defined.
Tax on Liquidation ................................................. Error! Bookmark not defined.
Deduction of Current Losses ................................. Error! Bookmark not defined.
Basis of Stock Upon Death .................................... Error! Bookmark not defined.
Taxation at the Shareholder Level ......................... Error! Bookmark not defined.
Example 8-1: .................................. Error! Bookmark not defined.
Chapter 9 ........................................................................................ Error! Bookmark not defined.
FIDUCIARY AND ERISA ISSUES ................................. Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
ERISA §404 ........................................................... Error! Bookmark not defined.
ERISA §406 AND §408 ........................................ Error! Bookmark not defined.
ERISA §409 ........................................................... Error! Bookmark not defined.
DOL REG. §2509 .................................................. Error! Bookmark not defined.
Proposed Dol Rule ................................................. Error! Bookmark not defined.
Background ................................................ Error! Bookmark not defined.
Description of the Proposal ........................ Error! Bookmark not defined.
General Rule and Scope ............................. Error! Bookmark not defined.
Fair Market Value ...................................... Error! Bookmark not defined.
Good Faith ................................................. Error! Bookmark not defined.
Valuation Content—General ..................... Error! Bookmark not defined.
Valuation Content – Special Rule .............. Error! Bookmark not defined.
Rev. Rul. 95-57 ...................................................... Error! Bookmark not defined.
DOL §2510 ............................................................ Error! Bookmark not defined.
Fair Market Value .......................... Error! Bookmark not defined.
Good Faith ..................................... Error! Bookmark not defined.
Valuation Content .......................... Error! Bookmark not defined.
Special Rule ................................... Error! Bookmark not defined.
Summary ................................................................ Error! Bookmark not defined.
Chapter 10 ...................................................................................... Error! Bookmark not defined.
ACCOUNTING FOR ESOPs ............................................ Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Accounting Rules ................................................... Error! Bookmark not defined.
Reporting the Purchase of Shares by ESOPsError! Bookmark not defined.
Reporting the Release of ESOP Shares ..... Error! Bookmark not defined.
Reporting Redemptions of ESOP Shares ............... Error! Bookmark not defined.
Reporting of Debt and of Interest .......................... Error! Bookmark not defined.
Earnings per Share ................................................. Error! Bookmark not defined.
Common Stock Equivalents................................... Error! Bookmark not defined.
Number of Shares Outstanding .............................. Error! Bookmark not defined.
Adjustments to Earnings ........................................ Error! Bookmark not defined.
Accounting for Terminations ................................. Error! Bookmark not defined.
Reporting Redemptions of ESOP Shares ............... Error! Bookmark not defined.
Disclosures ............................................................. Error! Bookmark not defined.
EXHIBIT 10-1 ............................... Error! Bookmark not defined.
Results of Applying SOP ............... Error! Bookmark not defined.
Journal Entries ............................... Error! Bookmark not defined.
Illustration of Termination ............. Error! Bookmark not defined.
Tax and EPS Computations ........... Error! Bookmark not defined.
Tax Computations .......................... Error! Bookmark not defined.
Reconciliation of Effective Tax Rate to Provision for
Income Taxes ..................... Error! Bookmark not defined.
Illustrative Disclosure for End of Year 3Error! Bookmark not defined.
EXHIBIT 10-2 ............................... Error! Bookmark not defined.
Table 2-b ........................................ Error! Bookmark not defined.
Results of Applying SOP ............... Error! Bookmark not defined.
Journal Entries ............................... Error! Bookmark not defined.
Illustration of Termination ............. Error! Bookmark not defined.
Tax and EPS Computations ........... Error! Bookmark not defined.
Illustrative Disclosure for End of Year 3Error! Bookmark not defined.
Common Stock Non-Leveraged ESOPError! Bookmark not defined.
Journal Entries ............................... Error! Bookmark not defined.
Exhibit 10-4 ................................... Error! Bookmark not defined.
Convertible Preferred Stock Leveraged ESOP With a
Direct Loan ........................ Error! Bookmark not defined.
Journal Entries ............................... Error! Bookmark not defined.
Tax and EPS Computations ........... Error! Bookmark not defined.
Reconciliation of Effective Tax Rate to Provision for
Income Taxes ..................... Error! Bookmark not defined.
Convertible Preferred Stock Leveraged ESOP Used to
Fund 401(k) Savings Plan With Employer LoanError! Bookmark not def
Results of Applying SOP ............... Error! Bookmark not defined.
Journal Entries ............................... Error! Bookmark not defined.
Tax and EPS Computations ........... Error! Bookmark not defined.
If-Converted EPS Computation ..... Error! Bookmark not defined.
Exhibit 10-5 (Continued) ............... Error! Bookmark not defined.
Tax Computation ........................... Error! Bookmark not defined.
Reconciliation of Effective Rate to Provision for Income
Taxes .................................. Error! Bookmark not defined.
Chapter 11 ...................................................................................... Error! Bookmark not defined.
CHARITABLE TOOLS, STRATEGIES AND ESOPS .... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Charitable Remainder Trusts ................................. Error! Bookmark not defined.
Strategies and Traps to Avoid ................................ Error! Bookmark not defined.
Combining ESOPs with Public Charitable Gifts ... Error! Bookmark not defined.
Chapter 12 ...................................................................................... Error! Bookmark not defined.
Reducing ESOP Transaction Risk Using Life Insurance .. Error! Bookmark not defined.
$10 Million Business Owner Example .................. Error! Bookmark not defined.
Life Insurance and Phantom Stock Plans............... Error! Bookmark not defined.
Life Insurance for Repurchase Liability ................ Error! Bookmark not defined.
Life Insurance owned by the ESOP Plan ............... Error! Bookmark not defined.
Life Insurance Agents Role in ESOP TransactionsError! Bookmark not defined.
Chapter 13 ...................................................................................... Error! Bookmark not defined.
CASE STUDIES ................................................................ Error! Bookmark not defined.
CASE STUDIES .................................................... Error! Bookmark not defined.
Objectives .............................................................. Error! Bookmark not defined.
Introduction ............................................................ Error! Bookmark not defined.
Failure to File or Execute the Required Forms on TimeError! Bookmark not defined.
PLR 9735046 ............................................. Error! Bookmark not defined.
Law and Analysis ................................................... Error! Bookmark not defined.
PLR 9733001 ......................................................... Error! Bookmark not defined.
Applicable Law and Analysis ................................ Error! Bookmark not defined.
Conclusion ............................................................. Error! Bookmark not defined.
Query for Discussion Purposes .............................. Error! Bookmark not defined.
Deductions for Dividends Paid to the ESOP ......... Error! Bookmark not defined.
PLR 9829042 ......................................................... Error! Bookmark not defined.
Dividends Were Allowed to Be Deducted by the Corporation and Used to
Make Payments on the Internal Loan ........ Error! Bookmark not defined.
PLR 9522041 ......................................................... Error! Bookmark not defined.
Invest QRP in Real Estate ...................................... Error! Bookmark not defined.
PLR 9801053 ......................................................... Error! Bookmark not defined.
ESOP Transaction .................................................. Error! Bookmark not defined.
Post ESOP Purchase of Newco .............................. Error! Bookmark not defined.
Using an ESOP in a Tax-free Corporate ReorganizationError! Bookmark not defined.
PLR 9721022 ......................................................... Error! Bookmark not defined.
Investing the Tax-free Rollover Proceeds into Another Closely Held
Corporation ................................................ Error! Bookmark not defined.
PLR 9720026 ......................................................... Error! Bookmark not defined.
Use an ESOP as a Technique to Acquire Another CompanyError! Bookmark not defined.
PLR 9631002 ......................................................... Error! Bookmark not defined.
Facts Error! Bookmark not defined.
Applicable Law and Analysis .................... Error! Bookmark not defined.
Conclusion ............................................................. Error! Bookmark not defined.
A Company Uses its ESOP to Acquire the Business of a Target CompanyError! Bookmark not
PLR 9705004 ......................................................... Error! Bookmark not defined.
Facts Error! Bookmark not defined.
Operation of the Company A ESOP and The Merger of the Company A
ESOP Into the Company B ESOP ............. Error! Bookmark not defined.
Conversion of Company A Shares Into Company B Shares and
Subsequent Events ..................................... Error! Bookmark not defined.
Law and Analysis ................................................... Error! Bookmark not defined.
ISSUE 1 ......................................... Error! Bookmark not defined.
ISSUE 2 ......................................... Error! Bookmark not defined.
ISSUE 3 ......................................... Error! Bookmark not defined.
ISSUE 4 ......................................... Error! Bookmark not defined.
ISSUE 5 ......................................... Error! Bookmark not defined.
ISSUE 6 ......................................... Error! Bookmark not defined.
ISSUE 7 ......................................... Error! Bookmark not defined.
ISSUE 8 ......................................... Error! Bookmark not defined.
Conclusions ............................................................ Error! Bookmark not defined.
An Estate Where the Decedent Could Have, but Did Not, Elect 1042
Treatment During His Lifetime ................. Error! Bookmark not defined.
PLR 9644024 ......................................................... Error! Bookmark not defined.
Refinance the Internal Loan ................................... Error! Bookmark not defined.
PLR 9704030 ......................................................... Error! Bookmark not defined.
Extend the Length of the Internal Loan Because the Company Ran into
Difficult Financial Times ........................... Error! Bookmark not defined.
PLR 9645023 ......................................................... Error! Bookmark not defined.
Exchanging the Stock Owned by the ESOP for Another Stock Using a
Tax-free Exchange ..................................... Error! Bookmark not defined.
PLR 9610026 ......................................................... Error! Bookmark not defined.
How ESOPs Are Used to Spin off on Subsidiaries of Large Corporations
to Their Management and Employees ....... Error! Bookmark not defined.
PLR 9552043 ......................................................... Error! Bookmark not defined.
Charitable Cases..................................................... Error! Bookmark not defined.
PLR 9547002 ............................................. Error! Bookmark not defined.
PLR 9721035 ......................................................... Error! Bookmark not defined.