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Code Section 4960 Apply to ESOPs?


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Others may have given this more thought, and I have not reviewed in any depth, but I would think in most ESOP-owned companies you would meet one or more of the exceptions in determining the five highest-compensated employees under 53.4960-1(d)(2) such that the company's employees would not become covered employees with respect to the ESOP as an ATEO. 

Would be interested to hear other opinions.

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My initial impression is that the tax would not apply since the exec is employed by the company owned by the ESOP and not the ESOP itself, which is the Sec 501(a) tax-exempt entity under Sec 4960.  The company may not be taxed on corporate income if it is an S Corp., but that does not make it a tax-exempt entity for purposes of Sec 4960.

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