Technical Aspects of ESOPs
ESOPs provide a way for companies to use tax-deductible contributions to an ESOP trust to buy out an existing owner or owners, help finance growth in pretax dollars, or provide an employee benefit through the contribution of shares to the plan. Tax benefits of an ESOP include the following:
■ Owners in closely held C corporations can defer taxation on the gain they make selling to an ESOP, provided certain requirements are met.
■ Companies can borrow money through an ESOP for any business purposes and repay it in pretax dollars.
■ Companies contributing stock to an ESOP get a tax deduction for its fair market value.
■ In C corporations, dividends used to repay an ESOP loan or passed through to employees are tax deductible. ...
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