S Corp Stock

[Guest yukon]

Question:

Can an S Corp (a bank) offer its own stock as an investment option in its 401(k) plan? If so, are there any issues to be worried about?

Facts:

* Non-publicly traded.

* Not an ESOP.

Thanks!

[QDROphile]

UBTI

[Guest yukon]

Did you mean "UBIT"?

[WDIK]

UBTI = Unrelated Business Taxable Income

UBIT = Unrelated Business Income Tax

(or something like that)

so... UBTI is subject to UBIT

[Lori Friedman]

Qualified plan trusts are permitted to be shareholders in S corporations [i.R.C. Sec. 1361©(6)]. All types of income that pass through from an S corporation are taxable, however, including interest, dividends, and other items that would otherwise be excluded [i.R.C. Sec. 512(e)(1)]

[BeckyMiller]

Warning - the UBTI for a qualified plan shareholder of an S corporation includes both the pass-through income and any gain on the ultimate disposition of the stock. See IRC Section 512(e)(1)(B)(ii). The IRS has stated that disposition for this purpose includes a distribution of shares from the plan to the participant. If I had a client that actually wanted to do this, I would challenge that conclusion of the Service.

But, this can be an extremely costly step so caution is advised.

[Kirk Maldonado]

Don't you also have to worry about violating the limitation on the maximum number of shareholders in an S Corporation if shares are distributed to participants?

Also, isn't there a concern if the stock is rolled over into an IRA and not immediately redeemed?