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The Employee Ownership Update

Loren Rodgers

January 15, 2013

(Loren Rodgers)

The American Taxpayer Relief Act and Employee Ownership

The American Taxpayer Relief Act of 2012 (ATRA), which Congress passed to temporarily avoid the fiscal cliff, did not directly focus on stock compensation or ESOPs, but a number of its provisions affect both. Most people are familiar with the changes to ordinary income tax rates and to capital gains, both of which affect the taxes and strategies of employees receiving stock compensation. Incentive stock options have long depended on Congress adjusting the alternative minimum tax (AMT) by passing an annual change to the income exemption amount (the so-called "patch"), but the new law sets those minimums at $50,600 for single filers and $78,750 for joint filers and permanently indexes those amounts to inflation. In addition, MyStockOptions.com points out that gains between September 27, 2010, and the end of 2013 on the stock of qualified small businesses will be exempt from capital gains tax and the AMT calculation, which will affect those who exercise options or hold restricted stock.

For those considering ESOPs, ATRA's higher capital gains tax rates increases the value of Internal Revenue Code Section 1042, which allows sellers of stock to C corporation ESOPs to defer capital gains tax on the sale proceeds, subject to meeting appropriate qualifications. The increase in the income tax rate may also increase the value of the S corporation tax benefit.

IRS Revises Employee Plans Compliance Resolution System

On December 31, 2012, the IRS released Revenue Procedure 2013-12 (PDF), which updates the Employee Plans Compliance Resolution System (EPCRS). The changes include new submission procedures, rules for locating lost participants, and self-correction of certain excess annual additions. The revisions are generally effective as of April 1, 2013.

Apply for the Innovations in Employee Ownership Award

Driven by engaged, entrepreneurial employees, employee-owned companies often emerge as industry leaders, pioneering best practices in a range of areas. The Innovations in Employee Ownership Award seeks to recognize the innovative practices that result from having an engaged workforce of employee-owners, as well as ideas that tie stock to improved company culture or performance. For more information, contact us at awards@nceo.org or complete an application online now. The deadline to submit completed applications is February 28, 2013.

Employee Ownership Conference in Australia

Employee Ownership Australia and New Zealand announced its 2013 conference, which will be held in Sydney on May 24. Speakers include Graeme Nuttall, who authored the key report on employee ownership for the UK government; Minister Tony Smith; and Loren Rodgers of the NCEO.

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