Jump to content

S Corp and nonresident aliens


Recommended Posts

US corp wholly owns foreign sub and maintains an ESOP (US co is an S Corp). Can the ESOP cover one nonresident alien of the foreign corp? Although an S Corp can't have a nonresident alien as a shareholder, it is the ESOP that is considered the shareholder and not the participants, correct? Also, the ESOP can be written to prevent distributions in the form of stock, so the nonresident alien will not get stock or become a shareholder. Does this work???

Link to comment
Share on other sites

Under the minimum participation standards of IRC §410, both nonresident aliens and (generally) union employees are excluded from consideration. We handle several ESOP's that exclude their union employees from participation, but nevertheless selectively allow certain union employees to participate. For example, one such ESOP is sponsored by a construction contractor, and they feel that their job foremen are crucial to the success of their jobs and have accordingly allowed them to participate in the ESOP despite being covered by a collective bargaining agreement. I have other plans the name individual union employees as being specifically eligible.

I have still others that allow all union employees to participate, but carve out a very small portion of the overal employer contribution to be allocated among the BU group - thus pumping up their eligible compenation and maximum contribution per §404(a)(3) or (9), while giving very little actual benefit to the BU group.

Take a look at PLR 8144028 which seems to address your exact situation. I'll attach a copy to this post.

And yes, you are able to disallow stock distributions in order to protect your S Election.

PLR_8144028.pdf

Marcus R. Piquet, CPA

American ESOP Advisors LLC
5995 Brockton Ave Fl 2, Riverside, CA 92506-1833
(951) 779-1124 (v) (951) 346-0896 (fax)

mpiquet@AmericanESOP.com

Link to comment
Share on other sites

  • 2 years later...
Guest cbclark

We are idly looking at this issue and have wondered what compensation would the plan use for the Canadian non-resident employee working in the subsidiary in Canada? We are not sure if the plan sponsor really wants to cover this person in the ESOP but for nothing better to do on a gorgeous spring Friday afternoon (since I have to be in here anyway), I thought I would look around. I read the 2001 PLR as well as the 1981 PLR. Thanks.

Link to comment
Share on other sites

on a gorgeous spring Friday afternoon

Correction: It ain't spring yet.

I too am enjoying this heat wave (a lot), but it's still winter.

And it's going to be winter all the way to Tuesday (12:14 a.m. CDT).

I think I could get used to un-brutal winters. :shades:

Link to comment
Share on other sites

We are idly looking at this issue and have wondered what compensation would the plan use for the Canadian non-resident employee working in the subsidiary in Canada? We are not sure if the plan sponsor really wants to cover this person in the ESOP but for nothing better to do on a gorgeous spring Friday afternoon (since I have to be in here anyway), I thought I would look around. I read the 2001 PLR as well as the 1981 PLR. Thanks.

Depends on the plan's definition of compensation. Currency conversion is involved. Unless CAD is trading the same as USD.

PensionPro, CPC, TGPC

Link to comment
Share on other sites

Guest cbclark
on a gorgeous spring Friday afternoon

Correction: It ain't spring yet.

I too am enjoying this heat wave (a lot), but it's still winter.

And it's going to be winter all the way to Tuesday (12:14 a.m. CDT).

I think I could get used to un-brutal winters. :shades:

Ah yes technically true. But I am ignoring the technical truth and hoping that the fluke late March snow storm does not appear. Enjoy your heat wave while you can! I am enjoying ours.

Link to comment
Share on other sites

Guest cbclark
We are idly looking at this issue and have wondered what compensation would the plan use for the Canadian non-resident employee working in the subsidiary in Canada? We are not sure if the plan sponsor really wants to cover this person in the ESOP but for nothing better to do on a gorgeous spring Friday afternoon (since I have to be in here anyway), I thought I would look around. I read the 2001 PLR as well as the 1981 PLR. Thanks.

Depends on the plan's definition of compensation. Currency conversion is involved. Unless CAD is trading the same as USD.

Well that makes sense, although I certainly don't want to muddy the waters with amending the already-crazy comp definition and telling someone that currency conversions will be in play! Thank you for your speedy response.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...