Compliance August 30, 2006

IRS Distributes Final ESOP Redemption Rules

August 30, 2006 (PLANSPONSOR.com) - Federal officials have released final tax rules, which feature without significant changes proposed regulations governing deductions for payments to redeem employer securities held by an employee stock ownership plan (ESOP).
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The regulations from the US Treasury Department and the Internal Revenue Service (IRS) deal with whether companies are eligible to deduct applicable dividends under tax code Sections 162(k) and 404(k). The rules allow only payer corporations, rather than employer companies, to tax deductions for dividends paid for stock held in employee stock ownership plans.

According to the final rules:

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  • Payments made to reacquire stock held by an ESOP are not deductible under Section 404(k) because such payments are not applicable dividends under Section 404(k) (2).
  • Amounts paid to reacquire stock include amounts paid by a corporation to reacquire its stock from an ESOP that are then distributed by the ESOP to its participants (or their beneficiaries).

The officials said Congress did not intend to authorize yet another deduction for the full value of the shares upon their redemption.

“To allow a deduction for redemption proceeds would be to allow a second deduction that includes the present value of dividends that are paid out after the date of distribution from the ESOP, contrary to the intent of the statute,” the final regulation said. The amount of the deduction to connect to a redemption could be many times the amount that would be deducted for that year for a conventional dividend, it added.

The rules are here .

Compliance August 29, 2006

Pregnant Trucker Loses Discrimination Suit Battle

August 29, 2006 (PLANSPONSOR.com) - A woman who claims she was illegally fired as a driver for a Tennessee trucking firm after she became pregnant has lost her second legal battle.
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The 6 th US Circuit Court of Appeals agreed with US District Judge Bernice Donald of the US District Court for the Western District of Tennessee that plaintiff Amanda Reeves had not shown that Swift Transportation intended to discriminate against her because of her pregnancy.

Reeves could not produce evidence that Swift or any of its employees made disparaging comments or wanted her off the job because she was pregnant, the appellate panel said.

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The company’s policy mandated that i ts light duty positions were reserved for workers injured on the job. The court noted that a man recovering from surgery necessitated by anything other than an on-the-job injury would not have been eligible for light duty either. The appellate panel therefore reasoned Swift’s policy for light duty assignments was neutral and Reeves was actually seeking preferential, rather than equal, treatment.

According to court background, Reeves was able to lift up to 200 pounds that might need to be offloaded from a truck when she was hired in August 2002. In November, she learned she was pregnant. At that time her family doctor and her obstetrician requested from Swift that she not lift anything heavier than 20 pounds.

Reeves requested a light duty assignment and was told nothing was available for her. She was later fired.

The case is Reeves v. Swift Transportation Co.,   U.S. Court of Appeals for the 6th Circuit, No. 05-5271 (5/16/06). The ruling is here .

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