Rules governing timing of ESOP contributions

[Guest Daniel Fisher]

Does anyone know of any rules governing the timing of ESOP contributions?

For example, ER has set up an ESOP with a plan year end of February 28. It is now 75 or so days after the end of the plan year. By what time is the ER required to purchase stock for that plan year? Can stock received after the end of the plan year through a 1042 election be contributed to plan for the plan year ending on February 28?

Any help that anyone could provide would be greatly appreciated.

[RLL]

In order for an employer contribution to be deductible (under the Internal Revenue Code) for a taxable year, it must be paid to the ESOP not later than the due date (including any extension) for filing the employer's federal income tax return for that taxable year. The contribution must be treated under the ESOP as though it had been made on the last day of the taxable year.

In the case of an employer with a taxable year endiing on Feb. 28th, the due date would be May 15th....November 15th if the employer has an extension for filing the return.

There is no specific time by which the ESOP is required to use a cash contribution to purchase employer stock. The employer is not required to purchase stock....it's contribution to the ESOP may be in cash or stock.

Stock under a Section 1042 election is purchased by the ESOP (not by the employer) from a shareholder. 1042 stock cannot be contributed by the employer to the ESOP. The ESOP would use cash or borrowed funds or a note (to the seller) to pay for such stock.