can an esop own real property?

[Guest lworthington]

i have a new client and an esop that is approx 8million

unleveraged, and an s corp.

approx 50pct is in stock, and other 50pct in equities

can the employer purchase a building with part of the available cash?

thanks so much for a quick response

sincerely

lw

[Guest lworthington]

i am really looking for help!

does anyone know anything about esops?

help!

[stephen]

I had an ESOP that had a building in the plan assets. Thus I imagine the only restrictions that apply to an ESOP regarding holding property as an asset are the same restrictions that apply to other qualified plans.

[Guest lworthington]

thanks so much for the response, i am looking for just a little guidance

[Alf]

approx 50pct is in stock, and other 50pct in equities

I think people are afraid of your facts/question, but I'll bite. Stock is an equity, so your facts aren't very clear. I assume that "stock" is qualifying employer securities and the "equities" are regulated investment companies (mutual funds) so that the RICs will be liquidated to get the "cash." If this is the case, you may have a basic problem with ESOP qualification because of the requirement that ESOPs be primarily invested in QES, unless the ESOP is bifurcated into two or more parts (different plans really). Anyway . . .

Prohibited transactions should be a big concern when dealing with the purchase of a building. Is this building being used or purchased from a disqualified person or party in interest? Even if it is not, holding real estate in any qualified plan presents real issues about UBIT and just paying expenses, etc. There are several threads about the cons of real estate investments in qualified plans on these boards and the internet in general to get you started.

[GBurns]

Doesn't an ESOP have a Trustee? How come this employer has such free control of the assets of the ESOP?

Will the purchase of the building be an investment by the ESOP? Who will have ownership of the building?

The fact that you stated that it was the employer who wanted to make the purchase made both the ESOP and the transaction seem questionable.

[Demosthenes]

Also, the fact that it's an S corp raises a few flags. S corp status is normally selected by sole props or partnerships to preserve the sole prop or partnership taxation while limiting liability to the assets of the corporation.

An S corp with an ESOP makes me wonder if the Corp is privately held. There could be publicly traded S corps. I've never seen one but I can't claim to have seen it all yet either.

If that's the case, the relationship between the owners, the principals of the corporation (possibly the same people), the ESOP, and the property may call for a higher level of scrutiny.