The Internal Revenue Service (IRS) recently issued IR-2023-144 (the Notice), warning stakeholders of compliance issues associated with employee stock ownership plans (ESOPs) related to the tax liability of high-income taxpayers. Although it is unclear what prompted the Notice, the IRS’s intent is clear—it has a new enforcement focus on ESOP-related tax avoidance, particularly with respect to S corporation ESOPs.
ML BeneBits
EXAMINING A RANGE OF EMPLOYEE BENEFITS
AND EXECUTIVE COMPENSATION ISSUES
AND EXECUTIVE COMPENSATION ISSUES
The SECURE 2.0 Act of 2022 (SECURE Act 2.0) makes far-reaching changes to the US retirement plan system. Our initial SECURE Act 2.0 LawFlash provided a general overview of its significant provisions. This blog post—one in our series of coverage on SECURE Act 2.0—focuses on provisions unique to employee stock ownership plans (ESOPs).
We invite ML BeneBits readers to join us for the following programs on employee benefits and executive compensation.
Anti-ESG state legislation continues to focus on public retirement plan investing and asset management. Over the last year, 18 states have proposed or adopted state legislation or regulation limiting the ability of the state government, including public retirement plans, to do business with entities that are identified as “boycotting” certain industries based on environmental, social, and governance (ESG) criteria. Since our last update, four states have either adopted or proposed legislation or other forms of regulation that would restrict ESG activities using state assets.
In Pizzella v. Vinoskey, 2019 U.S. Dist. LEXIS 129579, the US Department of Labor (DOL) brought a case against an independent transactional ESOP trustee (the trustee), but also named the seller of stock to an employee stock ownership plan (ESOP) as a defendant (the seller). The court found that the ESOP overpaid for Sentry Equipment Erectors, Inc. (the company) stock, in violation of ERISA, and that the trustee breached its duties of prudence and loyalty and engaged in a prohibited transaction by paying more than adequate consideration for shares in the ESOP transaction.
Before 2020, the IRS had long taken the position that an employee stock ownership plan (ESOP), and any other retirement plan for that matter, must be adopted no later than the end of the first tax year in which the employer wished to claim a deduction for a contribution to the plan. As a reminder, effective December 31, 2019, Section 201 of the SECURE Act extended that deadline from the end of the applicable tax year to the due date, including extensions, of the plan sponsor’s income tax return for the applicable tax year. Accordingly, under the SECURE Act, if a plan is adopted by the extended due date, it will be treated as having been adopted as of the last day of that year.
Join Morgan Lewis this month for these programs on employee benefits and executive compensation.
Join Morgan Lewis this month for these programs on employee benefits and executive compensation.
A CARES Act provision offers some relief to employee stock ownership plans by allowing the suspension of required minimum distributions for 2020.
Our employee benefits and executive compensation practice is available to help employers evaluate and troubleshoot potential issues arising from the changing work environment and economic situation caused by the COVID-19 pandemic.