Private Letter Ruling Suggests C ESOPs Can Go Over 25% of Pay Limit

In PLR 200732028, the IRS ruled that a C corporation ESOP can contribute up to 25% of pay to cover principal payments on an ESOP loan, plus contribute up to 25% of pay in addition if the contributions are not used to repay either principal or interest on the loan. The combined contributions must be within the individual annual addition limits under Section 415. This ruling follows the same logic as a prior ruling allowing such combined limits for ESOPs and profit sharing plans. The IRS said that the law under which this is allowed does not apply to S corporation ESOPs. Private letter rulings apply only to the company requesting them, but the language here makes a strong case the IRS would rule the same way in other cases.