when making stock contribution to closely-held ESOP, how do we determine appropriate amount to deduct by April 15 when 12-31 valuation is not received by April 15/tax return?

[EGB]

Closely-held ESOP makes annual stock contribution. Year-end annual valuation cannot be completed before April 15 of next year. What amount is properly deductible? Assume filing an extention in order to allow more time to complete the valuation is not an option and that completing the valuation by April 15 is not an option. Must the 12-31 valuation for the applicable plan year be used or can the prior plan year's valuation be used since the applicable plan year's valuation cannot be completed in time for tax filing? Employer really does not want to use the prior year valuation (even if this is ok). What are the options?

I believe it is common that valuations for closely-held ESOPs are not completed until 5-6 months into the next calendar year, so this question must come up fairly often for employers making stock contributions to closely-held ESOPs.

Any help would greatly be appreciated!

[QDROphile]

Ask the person that sold the ESOP to the company. As you say, it must be a common issue and therefore a responsible purveyor would have resolved the issue with the company before the company committed to the ESOP. I am sure that the tax deduction for the stock contribution was a selling point.

[EGB]

At the establishment of the ESOP, all contributions were contemplated to be in cash, so this was not an issue. They are now wanting to begin making some stock contributions.

[WDIK]

Just curious, but why the assumption that an extension is not an option?

[Guest Harry O]

I would use last year's numbers (assuming these numbers make some sense today) and then file an amended return once the appraisal is completed. I don't undertstand why an extension isn't an option . . .

[mbozek]

The amount of the employer deduction is the fmv of the stock on the date of the contribution. Rev. Rul 73-583. If the stock is thinly traded then then the fmv could be the closest valuation to the date of the trade or the average of the fmv before the contribution and after the contribution. Why not ask the accountant- thats their job.

[rcline46]

Why not contribute cash and buy the stock after it is valued? That way the exact $ deduction is determined.

What, no cash? Tough, go borrow it. Ifn yuz doesn't extend yuz gotta take da lumps.

[BeckyMiller]

Just to clarify - if your accountant is issuing independent financial statements, it is NOT their job to come up with the FMV of the stock. They just test the value number that management has selected.

Having got that off my chest, I agree with the comments that extending the return is typical in this case. Since most private companies only want to value their shares once a year, you can deposit some shares into the trust on January 2 (assuming that the 12/31 value and the 1/2 value would be the same). Round up on the number of shares that you think you may need. Then claim a deduction for the number of shares at the year-end value that meet your objective and treat any remaining shares as a deposit on the subsequent year's contribution. Not precise but avoids the need for making any after the fact valuation adjustments.