IRS Issues Correction to Anti-Abuse Regulations for ESOP S Corporations

On March 12, 2005, the IRS issued a correction to regulations issued in December designed to curb abuses of ESOPs in S corporations. In those regulations, family attribution rules that generally apply in the tax law (such as considering a spouse's ownership as ownership of the other spouse) were incorporated into tests under the ESOP regulations for who is a disqualified person. Many ESOP experts believed that this was overly broad, and the IRS has now said it is deleting this provision. As we went to press with this, the notice was not yet posted on the IRS site.