American Job Creation Act and S-Corporation distributions on allocated shares to pay debt

[Guest ESOP Guru]

Previous to the American Job Creation Act - 2004, a leveraged ESOP in an S-corporation could use distributions on unallocated ESOP shares to repay a plan loan, but not allocated shares. The AJCA changed this by allowing distribution on either to be used to repay a loan, just as in C-corporation ESOPs.

In a C-corporation there are special rules for the exclusion of interest paid on a plan loan when testing for annual additions (415©(6)) as long as no more than 1/3 of the contribution is allocated to the HCEs. This use to only apply to C-corporations.

My questions is did the AJCA change this 1/3 rule to now apply to an S-corporation as well as a C-corporation?

[Guest tcroscut]

Not that I am aware of. I believe the 1/3 rule remains applicable only to C Corporations.

[RLL]

I'm very surprised to see that a self-anointed "ESOP Guru" has to come to this message board and ask questions of regular folks.

[Kirk Maldonado]

RLL:

On the opposite end of the spectrum, I think that you are being overly modest if you include yourself within the group of "normal folks."

I've found your postings to be among the best I've seen on the Message Boards; they are invariably both concise and precise.

[Guest ESOP Guru]

I know enough to know that I don't know it all

[Kirk Maldonado]

That's more than a lot of people know.