But Will the S Corporation Tax Benefit Last?

Many would argue that Congress did intend to provide an incentive for S corporations to set up ESOPs, but did not intend to provide an incentive for C corporations with ESOPs to switch to S. The tax cost of this oversight could be substantial. There is a realistic chance, therefore, that Congress could decide to prevent this kind of conversion. Whether Congress would allow a painless way to convert back to C status cannot be predicted.

In fact, there are already calls to abolish the ESOP tax exemption in S corporations altogether. Given that the tax estimate for this provision (under $100 million) is probably very understated, these must be taken seriously.