ESOP's and 125 plans

[Guest bosco]

Is there a difference between an ESOP's more than 2% shareholder and a Sub "S" more than 2% shareholder for purposes of a 125 plan?

I've got a 100% ESOP owned Sub "S" corp. wanting to include the 2% owner employees.

[BeckyMiller]

You need to watch the attribution rules. IRC Section 1372 (the fringe benefit rule for S Corporations) uses the rules under IRC Section 318 which does not include any attribution out of the ESOP to plan participants.

This is in contrast to IRC Section 267 which does include such attribution.