IRS Continues in Hot Pursuit of S ESOP Scams

The IRS is now asking some accounting firms to provide names of any companies to whom they have sold S ESOP corporation tax shelters. The IRS has specified a number of S ESOP transactions as "listed transactions," meaning they are tax dodges with no business purpose that must be reported to the IRS. Legitimate S corporation ESOPs-those that provide most of their benefits to rank-and-file employees-will not have a problem with the new rules, with the exception of a few very small (typically under 15 or 20 employee) companies. But those ESOP set up principally to avoid taxes for key employees are being shut down, and their promoters are now subject to special scrutiny and possible IRS punitive actions.