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Compliance March 2, 2004
IRS Issues Stock Rollover Rules
March 2, 2004 (PLANSPONSOR.com) - The US Internal
Revenue Service (IRS) has issued guidelines under which a
corporation's subchapter S election will not be terminated
when an employee stock ownership plan (ESOP) distributes
company stock to a participant's individual retirement
account (IRA) in a direct rollover.
Reported by Fred Schneyer
The guidelines set out in IRS Rev. Proc. 2004-14 include, according to CCH:
- the terms of the ESOP must require that the S corporation repurchase its stock immediately upon the ESOP’s distribution to the IRA
- pursuant to the terms of the ESOP, (a) the S corporation must actually repurchase its stock contemporaneously with, and effective on the same day as, the distribution, or (b) the ESOP must be permitted to assume the rights and obligations of the S corporation to repurchase the stock immediately upon the distribution to an IRA and the ESOP actually repurchases the stock contemporaneously with, and effective on the same day as, the distribution.
- no income, loss, deduction, or credit attributable to the distributed S corporation stock under Code Sec. 1366 can be allocated to the participant’s IRA.
>For more information, go to http://www.irs.gov/irb/2004-07_IRB/ar14.html .