A. "Tax-Free" Rollover Of Stock Sold To The
ESOP
Shareholders of closely-held C corporations may sell their
stock to the ESOP and under certain circumstances, pay no tax provided that the proceeds are reinvested in the securities of other
operating, domestic, public or private corporations within twelve months
after (or three months before) the sale to the ESOP. The stock must be held
for a three-year period prior to the sale to the ESOP.
B. Tax Deductible Loan Payments
Loan principal is tax deductible to the
corporation when the corporation makes ESOP contributions that are used to
repay ESOP debt.
C. Tax Free S
Corporation Income
Stock owned by an S corporation ESOP is not subject to
federal income tax. Code Section 409(p) prohibits ESOPs from allocating
shares to a "disqualified person". (These changes generally apply
to very small corporations with approximately 15 or fewer employees.)
D. Tax Deductible Dividends When Paid Through The ESOP
Dividends on C corporation ESOP stock "passed
through" the ESOP participants, or used to pay ESOP loans, may be tax-deductible to the corporation. These dividends are not counted in the
normal contribution limit of 25% of payroll.
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