Is Your ESOP an IRS target?

The IRS recently announced they are targeting abusive ESOP transactions. Should you be concerned that they will target your ESOP?

No, unless your transaction utilized one of the rapacious approaches outlined in the NCEO newsletter. The IRS, ESOPs, and the Greater Good | NCEO

The advisors touting these approaches tend to charge fees that approach or exceed $500,000. Which typically means only large ESOP transactions.

The use of synthetic equity in the form of warrants attached to seller debt & Stock Appreciation Rights (SARs) that have rates of return that are in the stratosphere, as opposed to an ROR that is heavily supported by market date & does not “push the envelope”, can also draw the attention of the regulators.

Unfortunately, as Loren Rogers points out in the NCEO article, the IRS announcement may result in reduced new ESOP formation.