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Abstract: 

ESOPs are an important planning retirement and tax planning tool for business owners who contemplate using the ESOP as a multi-faceted strategy to attract and retain employees by providing the employees a “stake” in the Company. One of the key benefits for the business owner as the seller is the tax-deferred rollover of sales proceeds under Section 1042. This benefit is not available to owners of S corporations unless they make a regular corporation election prior to the sale. Additionally, the rollover proceeds are included in the business owner’s estate. This article outlines a strategy for new and existing ESOPs that allows the business owner to achieve income and estate tax benefits with tax-free income at retirement.

Keywords: tax deferral, qualified replacement property, private placement life insurance, pooled income fund, freeze partnership

Affiliations:  1: Law Office of Gerald R. Nowotny.