Tax Incentives for Employee Stock Ownership Plans

Tax incentive enacted by Congress to promote increased use of employee stock ownership plans include advantages for the sponsoring company and the participating employees. This article reviews some key incentives.

A shareholder of a “closely held” C corporation may sell company stock to an employee stock ownership plan and trust (“ESOP”) and defer the taxation of gain to the extent that he or she reinvests in securities of other corporations (“replacement securities”).

The sale must be one that would otherwise result in long-term capital gain to the shareholder, the shareholder’s holding period for the stock must be at least three years, and the shareholder must not have received the stock from a qualified employee plan (such as an ESOP), by exercising a stock option, or through an employee stock purchase program.

Read more: Tax Incentives for Employee Stock Ownership Plans | The National Law Review