leveraged ESOP termination, loan "forgiven"

[t.haley]

I am trying to find information on terminating a leveraged ESOP where the ESOP loan from the LLC has been "forgiven" and the stock has a FMV of zero. I think the shares still need to be distributed to the participants even though they have no monetary value; they still have voting rights associated with them. However, I cannot find any guidance on treating the "forgiveness" of the ESOP loan. Is it still treated as a leveraged ESOP? Presumably the loan was forgiven sometime in 2008 (still tracking that down). The 5500 for 2008 shows income to the plan in the amount of the loan balance that was forgiven. Any ideas?

[Ron Snyder]

Resign

[Guest Dressageho]

I am trying to find information on terminating a leveraged ESOP where the ESOP loan from the LLC has been "forgiven" and the stock has a FMV of zero. I think the shares still need to be distributed to the participants even though they have no monetary value; they still have voting rights associated with them. However, I cannot find any guidance on treating the "forgiveness" of the ESOP loan. Is it still treated as a leveraged ESOP? Presumably the loan was forgiven sometime in 2008 (still tracking that down). The 5500 for 2008 shows income to the plan in the amount of the loan balance that was forgiven. Any ideas?

Yikes! I hope you're not a fiduciary on this one. If the loan has been documented as being satisfied (even though it's satisfied by being "forgiven"), then it's no longer leveraged, no? What does the Plan document say? Many ESOPs say that distributions can only be made in cash. If so, then the membership interests in the LLC couldn't be distributed and the problem is solved, even though the solution is not likely pass any governmental "smell" test. Good luck with this one.