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Investment in Employee Stock Ownership Plans Clarified Through Recent Developments  

Author:  Gregory K. Brown.; Jeffrey M. Johns.

Source: Volume 20, Number 04, Summer 2003 , pp.315-326(12)

Journal of Taxation of Investments

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An employee stock ownership plan (“ESOP”) is a defined contribution retirement plan designed to invest primarily in stock of the sponsoring employer (or an affiliated employer) that finances the purchase of such stock through a loan from, or guaranteed by, the sponsoring employer. In accordance with applicable regulations (the “Exempt Loan” rules), a leveraged ESOP holds the employer securities acquired with an ESOP loan in a “suspense account.” As the ESOP repays the loan over time, shares are released from the suspense account and allocated to participant accounts according to a specified formula. The operation of an ESOP involves a variety of fiduciary and tax issues and situations, such as whether or when to sell employer stock and what to do about outstanding debt when employer stock is sold, and how the S Corporation rules integrate with the operation of an ESOP. The following explores some recent developments with respect to the clarification of such issues and situations.


Affiliations:  1: Gardner Carton & Douglas, LLC; 2: Shook Hardy & Bacon.

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