Our friends at the Employee-Owned S Corporations of America (or ESCA) have reported that they've had constructive dialogue with the IRS regarding their recent press release on ESOPs. Our understanding is that the press release was intended as just that-- a press release and not an official notice of any sort. This press release was meant to alert interested parties generally and the employee ownership community more specifically that they've identified what they've termed a "questionable transaction."
The transaction or transactions in question appear to be related to a very small number of promoters and practitioners and one specific type of ESOP use case which they believe was leveraged primarily as a tax avoidance scheme. That said, the IRS appears to have sufficient tools to deal with this transaction structure
According to ESCA, which has been in touch with Capitol Hill supporters of the ESOP community, the press release does not reflect an official change in their stance on ESOPs. It also doesn't mean they will be pursuing any actions or additional audits of ESOP structures.
As a 501(c)(6) advocacy organization, ESCA is the national voice for employee-owned S corporations. ESCA’s mission is to advance and protect S corporation ESOPs and the benefits they provide to the employees who own them. We're grateful to them for their work on this and look forward to more open dialogue with the IRS in the future.