Morgan Lewis on ESOPs
January 25, 2005

In this Issue:

IRS Issues Temporary Regulations Regarding S Corporation ESOP Anti-Abuse Rules:
On December 16, 2004, the IRS issued a new set of temporary regulations to provide guidance regarding the anti-abuse rules that apply to S corporation ESOPs. S corporation ESOPs are ESOPs that own employer securities consisting of S corporation stock. These new regulations replace temporary regulations on this subject that were published in 2003 and include a number of important changes from the 2003 regulations. The new regulations generally are more stringent than the prior regulations, and they are part of an effort by the IRS to prevent the use of S corporation ESOPs as tax shelters for wealthy individuals. This article provides a brief overview of the anti-abuse rules and describes the most important changes in the new regulations from the prior regulations.

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