Early this month, the U.S. Government signed into law, the Inflation Reduction Act (the “Act”). Included in the Act are multiple pieces of legislation that advance ideas which have been in the works for over two years. These ideas include provisions to increase tax revenues, encourage renewable energy investments and support U.S. manufacturing.
What this means for Business Owners
While a 1% non-deductible excise tax will be imposed on the fair market value of any stock repurchased (occurring after calendar year 2022) by a domestic corporation with “stock traded on an established securities market“, this will not apply to Employee Stock Ownership Plans. ESOPs, along with some stock repurchases, would be exempt from the 1% excise tax, including repurchased stock contributed to a pension plan or ESOP.
As Congress developed the plan to curb the use of stock repurchases as a strategy to avoid taxes, The ESOP Association worked closely with Congressional leaders to safeguard existing ESOPs and encourage the formation of future ESOPs. That means:
Existing Employee-Owned businesses can continue to operate independently, pay down debt financing and pay out repurchase obligations to their employee-owners.
The Act protects existing ESOPs that may engage in future stock purchases or repurchases through their ESOP.
Companies that engage in stock repurchases may now view the formation of an ESOP to benefit their employees as an opportunity.
As always, our team is available to help illuminate how these insights might benefit your succession planning efforts. If you or one of your clients are interested in pursuing this opportunity, please contact us at info@lazearcapital to schedule a discussion as soon as possible.