ESOP Valuations Under Increased IRS Scrutiny

An employee stock ownership plan (ESOP) can facilitate the transfer of a business to the owner’s children or employees over a period of years in a tax-advantaged way. However, the IRS recently issued a statement warning businesses about a range of compliance issues related to ESOPs and announcing plans to ramp up compliance enforcement. The IRS has identified numerous issues, such as improper valuation of employer stock, prohibited allocation of shares to disqualified persons and failure to follow tax law requirements for ESOP loans, causing the loans to be prohibited transactions. In light of this warning, business owners who are interested in pursuing an ESOP should seek the advice of business valuators and other professional advisors to ensure compliance with the rules. Here’s some critical information...