TAX 9873 Lecture Notes - Lecture 9: S Corporation, Investment, Tax Deferral
Document Summary
Esop: must satisfy eligibility and coverage testing, nondiscrimination testing, vesting, and other qualified plan rules. Esop trust is a tax exempt entity- special ubit exemption applies to esop. S corporation earnings not taxed to the extent of esop ownership participants taxed. Money used to purchase the owners stock is either borrowed by the company and then lent to the. Esop or borrowed directly by the esop from a third-party lender. In either case, since the company can deduct principal repayments on the loan, the cost of financing such purchase is less than a traditional leveraged recapitalization. Tax deferral to apply (3 year /30% rule) Must have held stock for at least three years prior to sale. After sale, esop must own at least 30% of company stock. Options to purchase company stock treated as if they had been exercised. Seller must file a written stmt w/ irs electing tax deferral treatment and.
