Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

Do general family attribution rules apply to the anti-abuse testing requirements in an ESOP under Section 409(p)?

Family attribution rules do apply and the definition of family members for the anti-abuse testing is much broader than normal definitions. Spouses, lineal ascendants and descendants , brothers and sisters-in-law, brothers and sisters, and the lineal ascendants and descendants of brothers and sisters all are included. This definition applies only to who is a family member; not to whose ownership is attributed to whom.

Specifically, the regulations define the rules as follows:

For purposes of this paragraph, the term "member of the family" means, with respect to any individual-

(i) the spouse of the individual,

(ii) an ancestor or lineal descendant of the individual or the individual's spouse,

(iii) a brother or sister of the individual or the individual's spouse and any lineal descendant of the brother or sister, and

(iv) the spouse of any individual described in clause (ii) or (iii).

A spouse of an individual who is legally separated from such individual under a decree of divorce or separate maintenance shall not be treated as such individual's spouse for purposes of this subparagraph.

The Section 318 attribution rules do not apply for purposes of determining a disqualified person. Therefore, only the cousin and their child under iii are aggregated for disqualified person determination purposes.

For details on S corporation ESOPs, see S Corporation ESOPs.

Link to this FAQ Topic: S Corporation ESOPs