How ESOPs can be used to dispose of a closely held business

Article Abstract:

Family-owned businesses that wish to transfer ownership of the business outside the family may find that setting up a leveraged employee stock ownership plan (ESOP) may be the most tax-effective way to help shareholders dispose of their holdings. An ESOP offers many advantages. Among others, it enables the shareholders to find a willing buyer that has a clear interest in maintaining the operations of the company and also provides an avenue for granting employees the privilege of having a partial ownership stake in the business. The establishment of an ESOP, however, comes with a complex array of requirements that make planning and implementation fairly difficult. Considerations that must be taken into account by shareholders and employees include the regulatory requirements for such matters as retirement plan provisions, voting rights and stock bonus programs.

Family-owned business enterprises, Family-owned businesses, Employee stock ownership plans

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FUTA and FICA tax regs. for deferred comp

Article Abstract:

Proposed Regulations provide clarifications regarding the rule that makes nonqualified deferred compensation subject to Federal Unemployment Tax Act (FUTA) and Federal Insurance Contributions Act (FICA) taxes before it is income to the employee. Proposed Regulation 31.3121(v)(2) explains only the FICA rules in detail because the treatment of nonqualified deferred compensation under FICA Sec. 3121(v)(2) and FUTA Sec. 3306(r)(2) is the same. This Proposed Regulation discusses the scope of the rule, the amount subject to tax as wages, the timing and the approach for avoiding double taxation. Covered plans are those that are nonqualified and established, and provide for the deferral of compensation. Effective data is Dec. 31, 1996.

Laws, regulations and rules, Deferred compensation

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Coping with fluctuating interest rates when deferred payment obligations are used

Article Abstract:

Interest rate fluctuations over the course of an obligation makes planning for original issue discount (OID) critical both before and after a seller-financed sale. OID rules require a new approach because of economic trends and the effects of the Tax Reform Act of 1986. Parties who have already executed notes with OID should be alert for available planning opportunities when a sale is completed. It is essential to understand and utilize alternatives such as variable interest rate obligations and contingent payments.

Interest rates, Discount (Finance), Inflation (Economics), Variable rate loans

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