Over 5% owner if stock is sold Jan 1?

[DPL]

What if owner sells his stock to an ESOP on January 1 and plan is calendar year. Considered an owner on 1/1 or not for ADP test purposes?

[Lou S.]

It is highest percentage owned at any time during the year. So if someone sells his stock on the 1st day of the Plan year they are a 5% owner that year and are considered to have owned 5% of the stock in the prior year, next year.

[My 2 cents]

How do you sell stock right on January 1? The markets are all closed.

[Belgarath]

My 2 Cents - I don't think the stock market being closed would matter for a non-publicly traded company, as is the case with many ESOP's?

[DPL]

Yes, this is private company stock and yes, the stock purchase agreement is dated January 1.

[ErisaGeek]

I would agree with Lou S comments. The individual regardless on Jan 1st did own more than 5% even though that morning or afternoon he signed the stock agreement to sell his shares. The conservative answer would be to count him as a HCE unless the agreement is somehow drafted that somehow spells out that as of Jan 1st opening the HCE has no ownership which would be doubtful. You would almost want to draw up an agreement then on Dec. 31st surrending the shares.

[Peter Gulia]

Consider that a choice of January 1, rather than December 31, might have been a considered choice.

For an analysis of exactly when the seller became no longer an owner, one might consider affected taxpayers' logical consistency of positions across all tax treatments.