Washington (Jan. 30, 2004) --A new revenue ruling by the Internal Revenue Service takes aim at abusive transactions involving S corporation ESOPs by making them “listed transactions” for tax shelter disclosure purposes.

Employee stock ownership plans, or “ESOPs,” are a type of retirement plan that invest primarily in employer stock. Congress has allowed an S corp to be owned by an ESOP, but only if the ESOP gives rank-and-file employees a meaningful stake in the S corporation.  When an ESOP owns an S corp, the profits of that corporation generally are not taxed until the ESOP makes distributions to the company’s employees when they retire or leave the job.  The tax break allows the company to reinvest profits on a tax-deferred basis for the ultimate benefit of employees who are ESOP participants.

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