S corp. stock plans need not violate one-class-of-stock rules

Article Abstract:

The stock plans of S corporations may avoid violating IRS regulations contained in Section 1362 regarding the single-class-of-stock requirement of S corporations. This may be done by establishing phantom stock plans (PSPs) or stock appreciation rights (SAR) plans to prevent the creation of a second class of stock, hence ensuring that the S corporation election is not nullified. The IRS has issued seven private letter rulings that can serve as guidelines in structuring PSPs or SAR plans. These are Letter Rulings 8828029, 8834085, 8838049, 9032027, 9040035, 9109025, and 9119041.

Management, Employee stock ownership plans

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Innovative IRS programs may prevent qualified plan disqualification

Article Abstract:

The IRS has begun a concerted effort to enforce administrative and operational requirements for pension and savings plans formed under Section 401(a). The disqualification of plans and the removal of all accompanying tax advantages are the sanctions imposed in the event that noncompliance with Sec 401(a) rules is proven. To assist companies that might wish to redesign their pension and saving plans to ensure compliance, the IRS has introduced several programs wherein shortcomings in plans can be resolved without the imposition of the disqualification sanction.

Pension, health, and welfare funds, Salary reduction savings plans, 401K plans, Defined benefit plans

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Some fringes are still free to S corporation owner-employees

Article Abstract:

The tax treatment of subchapter S corporations' employee fringe benefits under Section 1372 has been made more understandable with the recent issuance of Rev Rul 91-116 by the IRS. These new regulations consider fringe benefits of S corporations as guaranteed payments for the purposes of deduction and inclusion, but as wages when it comes to the issue of settling withholding and employment tax obligations. The specific statutory fringe benefits covered by Section 1372 are identified.

Taxation, Qualified benefit plans

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