The IRS ruled, in technical advice, that a loan to an ESOP was a prohibited transaction because it failed the requirements that would entitle it to an exemption from those rules.  The Department of Labor determined that using the principal-only method, rather than the principal and interest method, to determine the shares to be released made the loan a prohibited transaction for ERISA purposes.  This caused the IRS to determine that the loan was a prohibited transaction under section 4975(c).  The company was thus liable for excise taxes.

T.A.M. 2014–20–006-7 (June. 20, 2014)

With thanks to “Loan to ESOPs is a Prohibited Transaction,” 2014 TNT 120-22. Tax Analysts (June 23, 2014)

Posted by David Staggs, Associate Editor, Wealth Strategies Journal