ESOP used in corporate acquisition was not disqualified, did not engage in prohibited transaction

Article Abstract:

The IRS National Office rejected District Office positions in Technical Advice Memorandum 9705004 and found that the taxpayer's use of an employee stock ownership plan (ESOP) to effect a corporate acquisition was not a prohibited transaction. The taxpayer was planning to use IRC section 1042 to provide selling shareholders with deferral of income recognition. The shareholders could sell their stock, purchase replacement property, and not be taxed until the replacement property was sold. The National Office found that transactions could be structured to take advantage of section 1042.

Taxation, Acquisitions and mergers, Qualified benefit plans

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ESOP disqualified for violating exclusive benefit rule; 99% of assets invested in defaulted participant loans

Article Abstract:

A 1997 IRS ruling makes clear ESOP plan administrators must obey ERISA fiduciary guidelines. The company in question consisted of a sole shareholder-plan administrator who had invested nearly all of its assets in defaulted participant loans, a violation of the exclusive benefit rule. This type of abuse led to disqualification of the inactive ESOP.

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Plan fiduciaries strictly liable for ESOP's prohibited transaction, even through no breach of fiduciary duty occurred

Article Abstract:

The US District Court of Northern Ohio in Reich v. Hall Holding Co., Inc. correctly held that no finding of breach of fiduciary duty under ERISA section 404 is necessary when a prohibited transaction under section 406 occurs. The exemption under section 408(e) for employee stock ownership plan purchases of employer securities did not apply.

Fiduciary duties, Strict liability

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