IRS Rules Loan Availability Does Not Jeopardize Employee Stock Purchase Plan Qualification, May 2, 2019

May 2, 2019

The IRS released a PLR providing that a plan participant's eligibility to obtain a loan from the employer (or a third party) to purchase shares under an employee stock purchase plan does not jeopardize the plan's qualification under IRC Section 423(b). Section 423(b) provides that, to qualify as an employee stock purchase plan, all employees granted options under the plan must have the same rights and privileges. In this case, loan availability was premised on the fact that the loan could not violate the Sarbanes-Oxley Act of 2002, meaning that some participants may have been rendered ineligible to take out a loan to purchase employee shares through the plan. This PLR (which can technically only be relied upon by the taxpayer requesting the ruling) indicates the IRS' view that provisions allowing purchase of shares via loans do not prevent qualification even if some employees are ineligible. For more information on the ownership of employer stock in an employer-sponsored plan, visit Tax Facts Online.