IRC Section 409(p) Anti-Abuse Testing, History of Regulations, and Private Letter Ruling (PLR) 200804023

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Thu, Apr 24, 2008
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PLR 200804023 was published on January 25, 2008 and is the first 409(p) anti-abuse private letter ruling.

Purpose of IRC Section 409(p) Anti-Abuse Testing

The purpose of the IRC Section 409(p) anti-abuse compliance test is to ensure that an S Corporation ESOP is providing broad-based coverage that benefits rank-and-file employees. It is a very complex test that must be passed every day of the plan year and penalties are so severe that failing is not a practical option. If disqualified persons own more than 50% of deemed-owned shares, then there is a nonallocation year and the plan fails the test. Disqualified persons, deemed-owned shares, and nonallocation year are among the terms defined in the PLR Analysis section below.

History of IRC Section 409(p) Regulations

Here is a recap of the history of the IRC 409(p) regulations:

PLR Analysis

Topics: Compliance, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

Keep Your ESOP On Track and On Time
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