IRS Releases New Snapshot Guidance for S Corporation ESOPs, May 16, 2019

May 16, 2019

The IRS recently released "snapshot" guidance to help S corporations avoid a nonallocation year for employee stock ownership plan (ESOP) purposes. Pursuant to the guidance, ESOPs are allowed to incorporate a "transfer method" into the plan document, pursuant to which the plan can transfer employee stock from a participant's ESOP account if that participant is a disqualified person into a non-ESOP account of that same person. Alternative methods are also available, including excluding allocations for participants who may potentially be disqualified persons or increasing allocations to certain employees who are not highly compensated. These methods must also comply with all other qualification rules. Importantly, to use the transfer method, the method must be included in the ESOP plan document prior to the occurrence of a nonallocation year. For more information on ESOPs maintained by S corporations, visit Tax Facts Online.