In Notice 2002-2, the IRS has clarified rules under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) for ESOP dividends and S corporation ESOPs.
On September 18, the IRS issued private letter ruling 201538021, which allows limited liability companies to adopt an ESOP under certain circumstances.
On June 30, 2017, the IRS released Revenue Procedure 2017-41, which lays out revised procedures for obtaining opinion letters for preapproved plans, including ESOPs.
In Temporary Regulations 1.409(p)-1T, "Prohibited Allocation of Securities in an S Corporation," the IRS has issued comprehensive rules designed to prevent the abuse of ESOPs in S corporations.
In Announcement 2005-80, the IRS set out the details of a proposed settlement procedure for a number of improper transactions, including three abusive applications of S ESOP rules.
Several recent IRS announcements provide important guidance on the tax treatment of stock options and ESOPs. They are summarized below. For complete information, go to the IRS web site (www.IRS.gov) and search for the relevant material.
The IRS is looking into the tax status of corporate owned life insurance (COLI), which many employee ownership companies now use to handle repurchase liability.
IRS officials told the Bureau of National Affairs (BNA Pension & Benefits Reporter, Feb. 21, 2006) that they will be issuing more specific guidelines on valuation requirements to meet the rules of Section 409A of the Internal Revenue Code on deferred compensation arrangements.
