Engineering Inc. - March/April 2005 - 21

 Many firms have a history, a culture of broad [employee] stock ownership.
So, in dealing with liquidity and signed into law a tax bill that Code
made S corporations eligi- contribute any money to ESOPs benefited S
corporation ESOPs. ble participants starting in 1998. they may not
automatically real- succession, it The new law makes it possible C
corporations are general for- ize the value and benefit of the becomes a
natural for S corporations to use ESOP profit entities that are incorpo-
program. shares that have been allocated rated on the state level and pay
You have to communicate, idea that employees t o employees to repay a plan
income tax on taxable income communicate, communicate to should come to own
loan, just as C corporations have generated by the corporation; S get
people to accept the fact that long been allowed to do. c o r p o r a t i
o n s are formed the t h e y are employee owners, the firm. It fits both
No doubt, understanding the same way but are taxed as a part- Flicker
says. You have to sell the the culture and intricacies of an ESOP can be a
nership or sole proprietorship value of the program so that they challenge.
But those who work rather than as a separate entity. appreciate what the
benefit is to purpose of i n engineering firms have an One major
difference in ESOP t h e m . Most successful ESOP engineering firms.
advantage, according to Getz. rules between S and C corpora- c o m p a n i
e s have tremendous JAMES G. STEIKER ESOPs are not easy for the tions is
that S corporations can- employee communication plans. SES ADVISORS, INC.
rank and file worker to under- not take advantage of the capital The Tax
Benefits stand, he says. They require a g a i n s tax deferral available
to c e r t a i n level of knowledge of corporations with C status. Un l i
k e other qualified retire- finance and taxes and what the O t h e r w i s
e , S corporations ment plans, like 401Ks, ESOPs firm is doing with its
money. In e n j o y ample tax benefits. are permitted by law to borrow
engineering firms, you're dealing Among them, an S corporation's m o n e y
to purchase company w i t h an educated work force profits are totally
tax-free when stock. These leveraged ESOPs that can better understand an
it has an ESOP that owns 100 are the most commonly used. ESOP than people
at another percent of the company stock. First, the company establishes a
type of company. L a s t October, President Bush t r u s t , which is
overseen by major stockholders or an outside financial professional. The
com- There is an added tax advan- pany then borrows from a bank t a g e to
the owner or major or other qualified lender to fund s h a r e h o l d e r
of a private sub- the purchase of the shares from chapter C corporation
that uses t h e owner, or majority share- a n ESOP. If they sell a mini-
holder. The money is then re- m u m of 30 percent of their loaned to the
ESOP trust, which s h a re s to the ESOP trust and uses it to buy the
shares. Upon invest the proceeds in stocks or purchase, these shares are
held bonds of publicly traded U.S. by the trust in what is known as
companies within one year, they a suspense account. are able to defer all
capital gains Once a year, typically, the taxes on the sale. Capital gains
company makes an ESOP con- t a x e s can be deferred perma- t r i b u t i o
n to the trust. At the n e n t l y if the stocks or bonds same time, shares
are released pass to the shareholders' heirs from the suspense account and
u p o n their death, says Lowell given to employees based on a G e t z , a
Houston-based inde- f o r m u l a determined by each pendent financial
consultant to c o m p a n y. The net result of a e n g i n e e r i n g and
architectural s e r i e s of financial transfers firms and an ESOP
specialist. among the company, the trust When the tax advantages of and
the bank is that the com- E S O Ps were created by Con- p a n y 's
contributions to the gress in the early 1970s as a way E S O P trust,
which typically to encourage employee owner- equal its interest and
principal ship, they were made available on its bank loan, are fully tax o
n l y to C corporations. But deductible as a business com- changes to the
Internal Revenue pensation expense. M a r c h l April 2005 ENGINEERING
INC. 2 1         
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Engineering Inc. - March/April 2005

Table of Contents for the Digital Edition of Engineering Inc. - March/April 2005

Table of Contents
From ACEC To You
Ask Members
News & Notes
Market Watch
Legislative Action
COVER STORY: A Perfect Legal Storm
Interview With F. James Sensenbrenner, Jr.
Is There an Engineer in the House
The ABCs Of ESOPS
ACEC/PAC Donations Break All-Time Record
ACEC Roundtable
Members In the News
One on One
Engineering Inc. - March/April 2005 - Cover1
Engineering Inc. - March/April 2005 - Cover2
Engineering Inc. - March/April 2005 - Table of Contents
Engineering Inc. - March/April 2005 - From ACEC To You
Engineering Inc. - March/April 2005 - Ask Members
Engineering Inc. - March/April 2005 - News & Notes
Engineering Inc. - March/April 2005 - Market Watch
Engineering Inc. - March/April 2005 - 6
Engineering Inc. - March/April 2005 - 7
Engineering Inc. - March/April 2005 - Legislative Action
Engineering Inc. - March/April 2005 - 9
Engineering Inc. - March/April 2005 - COVER STORY: A Perfect Legal Storm
Engineering Inc. - March/April 2005 - 11
Engineering Inc. - March/April 2005 - Interview With F. James Sensenbrenner, Jr.
Engineering Inc. - March/April 2005 - 13
Engineering Inc. - March/April 2005 - Is There an Engineer in the House
Engineering Inc. - March/April 2005 - 15
Engineering Inc. - March/April 2005 - 16
Engineering Inc. - March/April 2005 - 17
Engineering Inc. - March/April 2005 - The ABCs Of ESOPS
Engineering Inc. - March/April 2005 - 19
Engineering Inc. - March/April 2005 - 20
Engineering Inc. - March/April 2005 - 21
Engineering Inc. - March/April 2005 - ACEC/PAC Donations Break All-Time Record
Engineering Inc. - March/April 2005 - 23
Engineering Inc. - March/April 2005 - 24
Engineering Inc. - March/April 2005 - 25
Engineering Inc. - March/April 2005 - 26
Engineering Inc. - March/April 2005 - ACEC Roundtable
Engineering Inc. - March/April 2005 - 28
Engineering Inc. - March/April 2005 - 29
Engineering Inc. - March/April 2005 - 30
Engineering Inc. - March/April 2005 - 31
Engineering Inc. - March/April 2005 - Members In the News
Engineering Inc. - March/April 2005 - 33
Engineering Inc. - March/April 2005 - 34
Engineering Inc. - March/April 2005 - 35
Engineering Inc. - March/April 2005 - One on One
Engineering Inc. - March/April 2005 - Cover3
Engineering Inc. - March/April 2005 - Cover4
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