September 1, 1995

IRS Issues Guidance on Pass-Through Voting in ESOPs

NCEO founder and senior staff member

The IRS has now changed its position on pass-through voting of ESOP shares. According to the Department of Labor, as well as a recent federal court ruling in the Polaroid case, when a trustee does not receive timely directions from plan participants concerning how they want their allocated shares voted, the trustee must vote those shares. The trustee would make the voting decision independently based on the best interest of plan participants.

But until recently, the IRS seemed to disagree. For the last ten years, the IRS position was that these shares could not be voted at all. In Revenue Ruling 95-57, however, the IRS said that a trustee could vote the undirected shares.