Use of last appraisal

[Dawn Hafner]

Can an ESOP use the last independent appraisal for distributions to significant owners part way through next year?

S corporation needs to payout particiapant who is also a significant owner outside the plan. Stock held in particiapnt account in ESOP will be exchanged for cash within the ESOP to the extend liquidity allows. Remainder of stock will be acquired by the Employer through an ESOP loan. Do either of these transations require an interim valuation, or can the trustees rely on the last valuation as representing FMV - given no other significatn events have happened that would alter the value drastically.

I was thinking that we would need an interim valuation, but not finding anything on this.

Cites please!

Thanks.

Dawn

[BeckyMiller]

You know this, but I have to start here anyway.

1. Follow plan document where relevant.

2. If all other participants get their distributions based upon the immediate prior valuation date, I would use the same approach in this situation.

3. However, if the company has to redeem some of the shares to fund this distribution, you have a different situation. Here you have a related party sale that must satisfy the prohibited transaction rules. IRC Reg. Section 54.4975-11(d)(5) requires that the valuation be set as of the date of the transaction. Thus, you would need some determination of value as of the date that the ESOP sells the stock to the corporation.

[QDROphile]

How does an employer acquire stock "through an ESOP loan"?

[BeckyMiller]

Good point QDROphile, I missed that comment. I was just focusing on the valuation requirement.

Dawn - the ESOP loan exemption only goes one way. A related party can lend to the ESOP, but the ESOP can't extend credit to a related party. So, if you want to discuss this aspect you better expand upon what you intended.

[Dawn Hafner]

I did not state clearly. Agree on your points. The Employer will be obtaining an loan to obtain shares of stock from a terminating participant at their retirement. These shares will then be contributed to the plan at a later date through the loan release as the loan is paid.

When I say "ESOP loan" I just mean a loan to the Employer or secured by the Employer that meets the regulatory requirements to have the PT exemption.

Thanks.

Dawn

[QDROphile]

You still have not clarified your comments. If the employer is getting a loan to purchase stock, that has nothing to do with the ESOP. The important facts for you initial questions relate to what transactions are taking place between the ESOP and "disquailifed persons." In conventional ESOP distribution transactions, either the ESOP or the emplyer coud be buying stock distributed from the ESOP. The employer could be buying stock form the ESOP to provide liquidity for the distribution. The employer could be borring money for any of these purposes while the ESOP is not. Or the ESOP could be borrowing. It makes a big difference and I can't tell what is happening.