Money for nothing and leverage for free: the politics and history of the leveraged ESOP tax subsidy

Article Abstract:

Congress must provide the Department of Labor with the resources to effectively oversee the administration of employee stock ownership plans (ESOPs) and should consider other reforms to reduce the risks of ESOPs. ESOPs are a form of corporate tax subsidy and do little to improve the welfare of employees. In fact, leveraged ESOPs increase the financial risks imposed on workers. Congress should promote enforcement of the adequate consideration standard, apply SEC disclosure rules to ESOPs, grant the IRS investigative authority and overturn Mertens with regard to ESOPs.

Finance, Corporations, Powers and duties, Corporate finance, United States. Department of Labor

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ESOPs create liquidity for shareholders and help diversify their assets

Article Abstract:

Employee stock ownership plans are useful vehicles for financial diversification and liquidity in the estate plans of close corporation shareholders. The relatively complex rules and regulations under IRC section 1042 allow nonrecognition of gain on sales of close corporation stock to such plans when new marketable securities are purchased in their place. Issues to consider include distributions, form of corporation, and coordination with other estate planning methods.

Management, Planning, Employee incentives, Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation)

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