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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.


Differing treatment of dividends in ESOP stock did not affect status as employer securities

In a private letter ruling, the IRS has ruled that company securities held in an employee stock ownership plan (ESOP) were “employer securities” despite differences in their treatment of special dividends.

A company’s stock consisted of multiple classes of non-convertible preferred stock and multiple classes of common stock, none of which was publicly traded. One of the classes of common stock was ESOP Common Stock, the only type of stock held by the company’s ESOP. Under the terms of incorporation, only this class of stock offered special dividends.

Under the terms of the company’s incorporation, the company’s directors were permitted to declare a dividend on the ESOP Common Stock that was higher than the dividend declared for other classes of stock, or declare a dividend on the ESOP Common Stock without declaring any dividend for other classes of stock.

The directors designated one series of ESOP Common Stock to be entitled to a special dividend, while leaving another series of ESOP Common Stock with no special dividend. The IRS ruled that both series of ESOP Common Stock qualified as “employer securities” under Code Sec. 409(l)(2) , which requires common stock issued by the employer to have, among other requirements, dividend rights equal to or in excess of that class of employer common stock having the greatest dividend rights.

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