Coverage of leased/shared employees by an ESOP.

[Guest JPCMPLS]

Company A spins out all of its employees to a professional employer organization (PEO) and leases them back. Company A wants to adopt an ESOP covering the leased employees and purchase stock from the owner in a leveraged transaction. Is the Company A stock "qualified employer securities" with respect to PEO's employees controlled by A?

[Linda Wilkins]

In 2004, the JCEB discussion with the IRS addressed this topic.  (Perhaps you submitted the question?)  The IRS position was that it would violate the  "employer securities" provisions of §409(l) with respect to these employees because Notice 2004-11 does not list 409(l) as treating leased employees as employees of the sponsor for this purpose.  (The Notice specifies which sections of the Code would apply by treating the recipient employer as the employer, and it does not list 409(l).)

I am curious whether there is any more recent or published guidance on this question.