Tax News

CCH (cch.taxgroup.com) reports:

 
Code Sec. 162(k)(1) precluded a corporation from claiming deductions under Code Sec. 404(k)(1) with respect to redemption payments that it made to reacquire its preferred stock from its employee stock ownership plan (ESOP). Code Sec. 162(k)(1) disallows deductions for any amounts paid or incurred by a corporation in connection with the reacquisition of its own stock. Therefore, even if the amounts paid by the corporation were applicable dividends under Code Sec. 404(k)(1), the amounts could not be deducted.

  The corporation's argument that Code Sec. 162(k)(1) did not apply because while the payments to the trust were made in connection with a redemption, the subsequent distribution of the benefits to the participants was not, was rejected. Under Code Sec. 404(k)(2)(A)(ii), dividends must be both paid by the corporation to the plan and distributed in cash to the participants in order to be eligible for the deduction. Although the corporation correctly contended that there would be no allowable deduction under Code Sec. 404(k)(1) without the plan's benefit distribution to the participant, no distribution from the ESOP would be deductible unless the corporation made the dividend payment to the plan.

  Affirming a DC N.J. decision, 2007-2 USTC ¶50,582

Conopco, Inc., CA-3, 2009-2 USTC ¶50,492

Other References:

 
Code Sec. 162

  CCH Reference - 2009FED ¶9052.23

 
Code Sec. 316

  CCH Reference - 2009FED ¶15,704.426

 
Code Sec. 404

  CCH Reference - 2009FED ¶18,371.30

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 75,204