The Internal Revenue Service (IRS) has given taxpayers advice about how to interpret the phrases “readily tradable on an established securities market” and “readily tradable on an established market” with respect to employer securities.
The guidance, given in IRS Notice 2011-19, is aimed at employee stock ownership plan (ESOP) sponsors and ESOP advisors.
In some cases, Internal Revenue Code provisions impose different rules when employer stock is easy to sell through ordinary channels and when employer stock is difficult to sell.
Internal Revenue Code Section 401(a)(22), for example, sets voting rights pass-through rules for some defined contribution plans holding employer securities that are “not readily tradable on an established market.”
Still other sections, such as Section 401(a)(35)(A), which deals with asset diversification, refer to employer securities that are or are not “readily tradable on an established securities market.”