Rollovers of distributions from ESOPs?

[Guest MikeD]

I think this is a simple question, but I can't put my hands on an answer.

The ESOP allows distributions in two forms- company stock or cash. Cash is paid in 5 installments. Stock is immediately bought back with a 5-year note (it's an S-Corp ESOP).

Would the payments on the 5-year note be eligible for rollover? On it's face, it seems like it would be difficult to rollover the loan payments since the distribution happened in year 1 of loan (when the stock was actually distributed and bought back). So, is a rollover possible?

[QDROphile]

The recipient has the following options:

1. Roll over the distribution of the shares to the IRA and then the IRA puts the shares to the buyer. The IRA owns the note and collects the payments.

2. Accept the shares and immediately put them to the buyer. Roll over the note and the first payment to the IRA. I assume that the intial cash payment happens at about the same time as the distribution/put.

Option 1 is usually preferred. Timing is everything. Not many IRAs will take the shares or note.

[Guest MikeD]

The recipient has the following options:

1. Roll over the distribution of the shares to the IRA and then the IRA puts the shares to the buyer. The IRA owns the note and collects the payments.

2. Accept the shares and immediately put them to the buyer. Roll over the note and the first payment to the IRA. I assume that the intial cash payment happens at about the same time as the distribution/put.

Option 1 is usually preferred. Timing is everything. Not many IRAs will take the shares or note.

thank you. your last sentence is the problem i am having. i can't imagine an ira taking the note.

[RLL]

Option 1 is fine, but Option 2 is not permissible under IRS rulings.

IRS takes the position that the note cannot be rolled over to the IRA. When property is distributed from a plan, either that property or the proceeds from the sale of that property may be rolled over. The note does not constitute "proceeds" of the sale; for this purpose, the IRS says that the installment payments (when and as received) are the "proceeds" of the sale. But most of those "proceeds" will be received after the deadline for completing the rollover and could not be rolled over.