NONRECOGNITION OF GAIN TREATMENT
01.Core Concepts
• ESOP nonrecognition of gain treatment – key requirements: 1. The ESOP must own at least 30% of the corporation’s stock immediately after the sale. 2. The seller must reinvest the proceeds from the sale into qualified replacement securities within 12 months after the sale and hold such securities three years. 3. The company cannot be a public company. 4. ESOP must hold stock for at least three years. 5. Sellers must have owned stock for at least 3 years. • Qualified replacement securities: Securities in a domestic corporation, including stocks, bonds, debentures, or warrants, which receive no more than 25% of their income from passive investments.