ESOPs: Savvy Strategy for Tax Management, Succession, and Continuity

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en Limba Engleză Carte Paperback – 30 May 2017
Changing demographics, impending changes in taxation, and challenging economic conditions have made ESOPs a creative strategy to ensure organization survival and success. This publication defines issues that must be fully considered before installing an ESOP, and highlights the common attributes of successful installations. Use this book to chart a course through succession issues and transition ownership issues with a minimum impact to financial results. The book offers you practical strategies to deal with current economic realities and taxation challenges, including the following: 
  • Increasing tax rates in the near future will make ESOPs a tax efficient option for business owners. 
  • In recessionary times ESOPs control the succession process versus letting probate and inheritance taxes jeopardize the survival of their organization. 
  • Financing for almost any business transaction is difficult; ESOPs are very seller finance friendly. 
ESOPs represent an effective exit vehicle for Baby Boomer owners.
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ISBN-13: 9781937350543
ISBN-10: 1937350541
Pagini: 224
Dimensiuni: 180 x 252 x 12 mm
Greutate: 0.43 kg
Editura: Wiley
Locul publicării: Hoboken, United States

Public țintă

CPAs, financial advisors


Introduction ix Chapter 1: Employee Stock Ownership Plan History and Background
Overview of Employee Ownership and Employee Stock Ownership Plans 1
Underlying Philosophy of ESOPs 1
Legislative History  2
Employee Retirement Income Security Act of 1974  3
Revenue Act of 1978  3
The Chrysler Loan Guarantee Act of 1979  3
The Economic Recovery Tax Act of 1981  3
Deficit Reduction Act of 1984  4
Tax Reform Act of 1986  4
Small Business Job Protection Act of 1996  4
Taxpayer Relief Act of 1997 4
The Economic Growth and Tax Relief Reconciliation Act of 2001 5
Jobs and Growth Tax Relief Reconciliation Act of 2003  5
Impact on ESOPs  5
ESOPs Today 6
Summary  7
Chapter 2: Significant Events and Organizations
Regulations and Government Agencies  9
Employee Retirement Income Security Act of 1974  9
IRS  11
Securities and Exchange Commission  13
DOL  14
General ERISA Fiduciary Considerations  16
Proposed DOL Regulations Specifi c to ESOP Valuations 19
Major Exceptions to ERISA for the Benefi t of ESOPs  20
ESOP and ERISA Litigation  21
Summary  22
Industry Organizations and Standards  22
The AICPA  22
The ESOP Association  26
National Center for Employee Ownership (NCEO)  28
Ohio Employee Ownership Center  30
Appendix 2A IRS Form 5309, Application for Determination of Employee Stock Ownership Plan  31
Chapter 3: Employee Stock Ownership Plan Transaction Mechanics
Traditional Uses of an ESOP  35
Provide Liquidity and Diversifi cation for Shareholders  36
Provide a Means of Capital Formation  36
Finance Corporate Acquisitions  36
An Incentive to Increase Employee Productivity and Retain Personnel  36
Provide a Succession Plan  37
Provide Liquidity in Divorce Situations  37
Provide Negotiating Leverage for Any Proposed Transaction  37
Summary  38
Alternatives to an ESOP  38
Sell or Transition the Business to Family Members  38
Sell to Management or Key Employees  38
Sell or Merge With a Third Party Financial Buyer  38
Sell or Merge With a Third Party Strategic
or Investment Buyer  39
Sell Stock Through an Initial Public Offering  39
Liquidate the Business  39
Summary  39
Basic Features of ESOPs 40
Operating Considerations of an ESOP  40
Contributions to an ESOP Are Tax Deductible Within Statutory Limits  44
Contributions to an ESOP Based on Dividends (C Corporation)  50
Contributions to an ESOP Based on Distributions (S Corporation)  52
IRC Section 1042 Tax–Free Rollover (C Corporation)  54
Nontaxable Income Related to ESOP Stock (S Corporation)  58
Assets in ESOP Remain Untaxed Until Retirement  59
Appendix 3A Sample Documents Relating to the Internal Revenue Code Section 1042 Election  61
Sample Statement of Election  62
Sample Statement of Consent for ABC, Inc  63
Sample Statement of Purchase  64
Chapter 4: Employee Stock Ownership Plan Transactions and C Corporations
Sample Facts ABC, Inc (C Corporation)  65
Abbreviated Financial Statements  66
FMV of Common Stock for the Purposes of an ESOP  67
Common Entities in Transactions  68
Example Stock Contributed to ESOP (Capital Formation ESOP)  69
Example Leveraged ESOP With IRC Section 1042 Rollover  70
IRC Section 1042 Restrictions  71
Example Prefunded ESOP With IRC Section 1042 Rollover  72
IRC Section 1042 Restrictions  74
Example Leveraged ESOP With IRC Section 1042 Rollover and Control  75
Example Leveraged ESOP With IRC Section 1042 Rollover, Multiple Classes of Stock, and Control  78
Summary  83
Chapter 5: Employee Stock Ownership Plan Transactions and S Corporations
Sample Facts ABC, Inc (S Corporation)  85
Abbreviated Financial Statements  86
FMV of Common Stock for the Purposes of an ESOP  87
Common Entities in Transactions  88
Example Stock Contributed to ESOP (Capital Formation ESOP)  89
Example Leveraged ESOP (Paying Capital Gains)  90
Example Prefunded ESOP With No Bank Debt  92
Example Convert to C Corporation Leveraged ESOP With IRC Section 1042 Rollover and Control  94
IRC Section 1042 Restrictions  98
Example Leveraged Sale of 100 Percent to the ESOP in a Single Transaction  100
Summary 103
Chapter 6: Advanced Employee Stock Ownership Plan Applications
Mergers and Acquisitions Buying a Target Company With Pretax Dollars 106
Purchase of Stock  106
Purchase of Assets  107
Mergers and Acquisitions Extending the Internal Revenue Code Section 1042 Rollover to a Target Company  107
Extending the IRC Section 1042 Rollover to an Investment in Another Closely Held Company 108
Multiple Investor ESOPs 108
Charitable Giving and ESOPs 109
Contributions of Closely Held Stock to Charities  109
Charitable Remainder Income Trusts and ESOPs  110
Summary  110
Chapter 7: Valuation Issues and Considerations
Issues Regarding ESOP–Based Valuations 112
Identify the Client  112
Standard of Value 113
IRS  113
DOL  115
Valuation Independence and SOX 119
Impact of SOX  119
AICPA Newsletter: CPA Expert, Summer 2003  119
Valuation Perspective on the Repurchase Obligation and the Put Option 120
Valuation Report Date and Events 121
Opinion of Value at a Point in Time  123
Approaches to Establishing Value 123
Initial Valuation: C Versus S Corporation Considerations 123
Income Approach  125
Market Approach  127
Asset Approach  128
Lack of Marketability Adjustment (Discount)  129
Ownership Characteristics 129
Minority and Control Positions 129
Multistage Transactions  130
Dilution Considerations and Outstanding Shares  131
Dilution With the ESOP Contribution of Newly Issued Stock  132
Leveraged ESOPs Initial Valuation and Annual Updates 133
Annual ESOP Update Issues 134
Fluctuations in Value Between Years  134
Valuation Methodology Issue of Consistency  135
Increasing Value With Time  136
Multi–Investor ESOPs and Allocation Considerations 136
Multiple Classes of Stock in C Corporation ESOP Transactions  137
Practical Valuation Considerations 139
Chapter 8: Administration and Transaction Considerations
Initial Considerations and ESOP Feasibility Study 141
Team of Advisors  142
Team of Advisers Summary Have a Transaction Quarterback   145
Feasibility Study  146
Informal Planning Process  146
Written ESOP Feasibility Study  146
Feasibility Summary  147
Strategic ESOP Design Considerations 148
Contribution and Addition Limits to Qualified Plans Expanded  148
Maintaining Both an ESOP and a 401(k) Plan  148
Creation of a Preferred Stock or Super Common Stock for the ESOP in a C Corporation  149
Compatibility With the S Corporation Election  150
Senior Management Compensation and Incentives  150
Special S Corporation Considerations  152
ESOP Trustee and Transaction Considerations  152
Benefits of an Independent Fiduciary  154
ESOP Fairness Opinion  155
Fairness From Only a Financial Viewpoint  155
Common Components of the Fairness Opinion  155
Rights of ESOP Participants  156
Right to Demand Employer Securities  156
ESOP Participant Voting Rights  156
Written Materials  158
Dispute Settlement  158
Diversification Requirements  158
Stock Repurchase Obligation  159
Practical Insights  159
Repurchase Studies  160
Funding the Repurchase Obligation  161
Election: Redeeming the ESOP Stock Back to the ESOP  162
Election: Redeeming the ESOP Stock to the Company Treasury  163
ESOP Termination  163
Plan Termination With Outstanding ESOP Debt  164
Disadvantages of ESOPs  165
Complex Regulatory Environment  165
Fiduciary Responsibilities  166
Initial Cost and Ongoing Expenses  166
Repurchase Obligation  167
Employees Fail to Understand and Appreciate the ESOP  167
Summary  168
Chapter 9: Financial Considerations
Financing Overview for ESOPs 169
ESOP Loan Exemption  170
Financing an ESOP Internal Sources  171
Financially Successful Employer (Plan Sponsor)  171
Prefunding the ESOP  171
Stock Contributions to the ESOP  172
Inside Loan From the Company to the ESOP  173
Financing an ESOP Seller Financing  173
S Corporation Application  173
C Corporation Application  174
Leveraged QRP Solution  174
Floating Rate Note  175
Financing an ESOP Third–Party Financing (Bank Debt) 176
Historical Note Repeal of ESOP Loan Interest Exclusion  176
Overview of General Banking Concerns  176
Common Loan Mechanics  177
C Corporation ESOPs  178
S Corporation ESOPs 178
Summary  179
Chapter 10: Litigation and Significant Cases
The Employee Retirement Income Security Act of 1974 and ESOPs  181
The Importance of Court Cases  182
The IRS  182
The DOL  183
Significant Court Cases  183
Court Case: Donovan v Cunningham  184
Court Case: Hines v Schlimgen  185
Court Case: Las Vegas Dodge, Inc v US  186
Court Case: Gary L Eyler v Commissioner  187
Court Case: William R Davis v Torvick, Inc  190
Court Case: Delta Star v Patton  191
Chapter 11: Practical Considerations and Employee Stock Ownership Plan Resources
Qualifying ESOP Candidates  195
Qualities of Successful ESOP Candidates  196
Characteristics of Less Successful ESOP Candidates  196
Practical Insights Summary  198
Overview of ESOP–Related Resources  198
The EA Publications  198
NCEO Publications  199
The Ohio Employee Ownership Center  199
Other ESOP Resources  200

Notă biografică

Scott D. Miller, CPA, ABV, CVA, is president and founder of Enterprise Services, Inc. which provides financial consulting services to private business, specializing in transition planning and business valuations. Scott understands closely held and family–owned businesses, serving as officer and principal in several businesses. He has helped hundreds of business owners through transition planning, valuations, and other strategic financial issues. A nationally recognized authority on business transitions and valuations. Scott publishes in professional journals and authors seminars for the American Institute of CPAs and the National Association of Certified Valuation Analysts.