stephen

The information below is relevant and came from: CCH ESOP Article CCH® PENSION AND BENEFITS — 9/15/06 IRS final regs disallow deduction of payments used to reacquire corporate stock from ESOPs The IRS has released final regulations that disallow employer deductions of dividends used to pay for the redemption of employer securities held by an employee stock ownership plan (ESOP) or a related person. The regs address issues that have arisen under the application of stock reacquisition expenses under Code Sec. 162(k) and deductions for dividends paid on employer securities under Code Sec. 404(k). The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) amended Code Sec. 404(k)(5)(A) to provide that the Treasury Secretary may disallow a deduction under section 404(k) for any dividend the Secretary determines constitutes, in substance, an avoidance or evasion of taxation. In essence, the regulations seek to render impermissible a double deduction for the same dividend. Payments to reaquire stock not applicable dividends Payments made to reacquire stock held by an ESOP are not deductible under Code Sec. 404(k) because such payments would not constitute applicable dividends under Code Sec. 404(k)(2). Therefore, a deduction for such payments would constitute, in substance, an avoidance or evasion of taxation within the meaning of Code Sec. 404(k)(5) because it would allow a corporation to claim two deductions for the same economic cost. Rules cover reacquisition of stock from related persons, corporation Code Sec. 162(k), with certain exceptions, disallows any deduction for amounts paid or incurred by a corporation in connection with the reacquisition of its stock or the stock of any related person (as defined in Code Sec. 465(b)(3)©). The regulations clarify that amounts paid or incurred in connection with the reacquisition of stock include amounts paid by a corporation to reacquire its stock from an ESOP that are then distributed by the ESOP to its participants (or their beneficiaries) or otherwise used in a manner described in Code Sec. 404(k)(2)(A). Ninth Circuit anomaly In Boise Cascade Corporation v. United States (CCH Pension Plan Guide ¶23,985E), the Ninth Circuit determined that payments made by a corporation to redeem stock held by its ESOP that were subsequently distributed to plan participants were deductible as dividends paid pursuant to Code Sec. 404(k). The court reasoned that the plan, not the plan participants, owned the stock when it was redeemed. This holding contradicts the IRS's position in Rev. Rul. 2001-6 (CCH Pension Plan Guide ¶19,944V), which barred such a deduction. The revenue ruling stated that the treatment of redemption proceeds as applicable dividends under Code Sec. 404(k) would produce such anomalous results that Code Sec. 404(k) could not reasonably be construed as encompassing such payments. The IRS has stated that it would continue to assert that deductions for payments to reacquire employer securities held by an ESOP are disallowed under Code Sec. 162(k) and Code Sec. 404(k) in controversies outside the jurisdiction of Ninth Circuit. Rev. Rul. 2001-6 remains in effect for all periods, including periods before the effective date of the regulations. Concerning any matter in controversy within the Ninth Circuit, agents or district counsel attorneys are to consult the National Office. Effective date These final regulations generally affect administrators of, employers maintaining, participants in, and beneficiaries of ESOPs, and apply to amounts paid or incurred on or after August 30, 2006, and with respect to payments to reacquire stock that are made on or after August 30, 2006.

We'll need more informaiton to be able to assist you with your quesitons. Is the company repurchasing stock from terminated employees to fund their distributions? Or are you saying the company is just buying stock from active participants? Does the plan document allow for this? Did you get a current stock value? Did the fiduciary approve the transaaction?

You may want to give existing employees who have not elected the opportunity to opt out in advance of implemetation (per Pension Protection Act). Otherwise you could have a HR nightmare on your hands.

I agree with Bird on this one.

The Technical Answer Group is another good option. TAG Data

ASPPA 2006 DB Webinar Vicki, I see ASPPA is offering a webinar for this course this fall and thought you may beinerested. Stephen

18. Backdraft 19. The Green Mile 20. The Wedding Singer

It would also be helpful to know how "you are 2 years behind" in getting some benefits. The distribution from an ESOP can be VERY different from a distribution in a 401(k) plan.

Page 1: #3 The Thomas Crown Affair #7 Dummy Page 3: #8 The Bodyguard

I could add to this thread without a problem.

Page 1 #5 - Wildcats Page 1 #6 looks like Dr. Arliss Loveless (Kenneth Branagh) from the 1999 movie Wild Wild West but it does not work in the spreadsheet. (Although - Sidways does work for Sideways). Page 2 #5 - The Wedding Planner

And with three eyes you've seen 50% more than most!

My suggestion is to test based on prior year. If it passes you are done as this follows the plan document. If it fails see if it passes using current year testing (or at least passes better) and check with the companies ERISA attorney to see if they support the idea to switch to current year for 2001.

Did the President sign this into law already?

Which takes ups back to my orignal post on the subject. Perhaps Dazed will enlighten us regarding the reasoning behind asking the original question.

Isn't it up to the Plan Adminisrator to determine if it is a QDRO or not? It seems to me that it is only up to the TPA if they have been hired to make the determination.

Isn't the point of the safe harbor to allow the owner to maximize deferral contributions? Why would you just put in the catch-up? (It may help if I understood what you mean by "NC allocation".)

Vicki, IMHO, the IRS and DOL do not communicate who has filed extension timely and who has not. Nor am I convinced that the DOL even looks at the form to check that it has been filled out properly only that a 5558 is included with the 5500 filing. Thus, I think you could send in a good form, with the "corrected" form as provided by the auditor, or send in the form as provided by the auditor, or just send in the good form and keep a copy of the "corrected" form in your files in case it should come up (which in my estimation is VERY unlikely). After all why would the IRS stop requiring a signature and date on the 5558 if they were checking them? To me the logical next step is to allow an extension by marking a box on the 5500 without a filing requirement for the extension itself. It would save us all a lot of unecessary paperwork and postage. Stephen

Page 1 #6 Ocean's Twelve Page 2 #7 The Bridges of Madison County Page 3 #3 Almost Famous #6 Stand By me #8 E.T. The Extra Terrestrial (although I think E.T. Should be good enough)

It was also the year of ...The San Francisco Earthquake Which is very fitting for S-cubed to have made the post...

I also agree with PiP.

It is possible, but not advisable as negative cash balances can lead to all sorts of administrative issues.

#5 Psycho #18 America History X

Page 2 #8 Welcome to Collinwood

As long as it is not an s-corp and they did not elect 1042 I think it is ok for them to sell their stock and allocate it to themselves. I believe they need to have more than just the two of them benefiting though. The s-corp would be a major problem regarding 409(p). They would fail and the penalties are draconian.