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5% owner for RMD

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Shareholder X of a corporation which sponsors an ESOP owns 4.8% of the NUMBER of outstanding shares of the company. This 4.8% is based on his non-esop shares only, and the total outstanding shares includes the ESOP shares (all outstanding company stock).

Shareholder X is turning age 70-1/2, so determining his ownership % is important. If he is a >5% shareholder, he must take a substantial RMD for 2016 and all future years. If he is not a >5% shareholder, he does not have to take RMDs until he retires.

Reg 1.416-1 T-17 says a 5% owner is any employee who owns (or is considered as owning within the meaning of 318) more than 5 percent of the VALUE of the outstanding stock of the corporation . . .

To determine whether shareholder X is a >5% owner, can I do a pure number of shares owned over number of shares issued calculation, or do I need to know an appraised dollar value of shares for each of the other shareholders? In other words, the stock valuation for the ESOP may say ESOP shares are worth $10, but another owner may have a different per share value based on his specific discounts applied, depending on minority/majority and deemed marketability. If some shareholders' stock is worth say $8.00, then the math could work out that shareholder X owns more than 5% of the VALUE of all shares.

Assume voting rights are equal for all shares. Which way does the 5% determination need to be made - number of shares or dollar values - and has anyone heard of the non-esop shares being valued for a purpose like this?


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I have never seen anyone use anything other then shares if the shares have the same rights. I have never seen someone say, "we need to get the outside share appraised to see if their value is different do to different discount measurements.".

You raise an interesting question but I simply have never seen it done.

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You raise an interesting point, but like, ESOP Guy, I haven't seen it done.

Seems to me that you have to figure out what the company is worth, whether by share values or an overall appraisal or other (?), and then see if the owner's stock is worth more than 5% of that value or not. It's probably easier said than done.

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