Required tax payments for fiscal year S Corporation ESOP

[Guest ladycpa2]

We have a client that has been making required tax payments under IRC Section 7519 because they were not 100% owned S Corporation ESOP and maintained a 9/30 year end. The ESOP recently purchased the remaining ownership of the S Corporation and they are now 100% owned by the ESOP. They have been making the required payments under IRC Section 7519 but it seems ridiculous that they will have to continue to make required payments when there is no tax deferral for the shareholder since the ESOP pays no taxes. It looks like the regs under 7519 haven't been updated for S corporations to be owned by ESOPs and so they would have to continue to make the required payments. Any thoughts or has someone else dealt with this?

[BeckyMiller]

Hmmm... I do not know the mechanics. But, under the Revenue Procedure that defines the rules for an S corporation to run on a fiscal year, it makes a specific statement that the enterprise can report on the same fiscal year as a 100 percent ESOP shareholder. So, I would be sorely tempted to file a final deposit form and ask for a refund of tax citing the applicable language from the revenue procedure. See Rev. Proc. 2002-38.

[Guest ladycpa2]

Hmmm... I do not know the mechanics. But, under the Revenue Procedure that defines the rules for an S corporation to run on a fiscal year, it makes a specific statement that the enterprise can report on the same fiscal year as a 100 percent ESOP shareholder. So, I would be sorely tempted to file a final deposit form and ask for a refund of tax citing the applicable language from the revenue procedure. See Rev. Proc. 2002-38.

[Guest ladycpa2]

Becky,

Thanks for your reply. If anyone else has dealt with this, please post since it doesn't seem like there is a whole lot of guidance out there.

thanks!