Morgan Lewis on ESOPs: Special Edition
November 2004

In this Issue:

• Morgan Lewis Welcomes New ESOP Team
• New Tax Law Authorizes S Corporation ESOPs to Apply Distributions to Repay Loans:
  The newly-enacted American Jobs Creation Act contains a provision of great importance for ESOP-owned S corporations, relating to the use by ESOPs of S corporation earnings distributions to pay off ESOP loans. Prior to the enactment of this law, the IRS had taken the position that distributions by an S corporation on stock held by an ESOP could not be used to pay off a loan unless the stock was pledged to secure the loan, even though comparable dividend distributions from a C corporation could be so used. In order to avoid costly and time-consuming disagreements with the IRS, most ESOP-owned S corporations have refrained from using distributions of earnings on unpledged shares to pay down an ESOP loan. This was becoming a significant limitation on the use of ESOPs by S corporations.
• What We're Doing, Where We're Going

For the full story, please view the PDF.