ESOP Valuation
An Employee Stock Ownership Plan (ESOP) provides stock ownership interests to employees so that they have a vested interest in the successful operations of their companies.
A qualified ESOP receives tax-favored treatment under the Internal Revenue Code, including:
- Employers can deduct stock or cash contributions to an ESOP
- Employers can deduct dividends paid on ESOP-held stock
- An owner of a closely held C corporation can defer capital gains taxation on stock he or she sells to an ESOP
- An S corporation ESOP is not taxable on its share of corporate earnings
- Employees pay no tax on stock allocated to their ESOP account until they receive distributions
Because of these tax benefits, whenever an ESOP acquires employer's stock from the corporation or from certain shareholders, the acquisition price must be less than or equal to "adequate consideration." For employer securities that are not regularly traded, the Department of Labor defines adequate consideration as the fair market value determined by an appraiser independent of all parties to the transaction.
According to the IRS and the Department of Labor, valuations are required at least annually for annual contributions, determination of the plan account balance, or repurchase of small blocks of terminated participants' shares. In addition, a separate valuation as of the date of the transaction, is required for the purchase of a non-participant's shares or the purcahse of significant blocks of stock.
We understand the benefits of creating a culture of employee ownership and have the decads of experience needed for ESOP valuations.