Here is my situation. Client is a family owned S corp with only two family member employees, both of whom are highly compensated. Goal is to provide an ESOP, but the ESOP would be subject to the 50% excise tax under Code Section 4979A. This is a shot in the dark, but is there anything out there that would exempt this ESOP from the excise tax given that ALL employees are highly compensated? TIA

If the goal is to add an ESOP to get tax-free character on the income, I don't know of anyway for your client to get there. I am assuming that the 2 family members are the only eligible employees.

gmann ---

If this is going to be an ESOP covering "only two family member employees," it is the type of scheme that Congress appropriately found to be abusive and not entitled to tax-favored treatment. ESOPs are intended to provide broad-based stock ownership for employees. What you're describing is using ESOP as an abusive tax-shelter, not as an ownership sharing employee benefit plan.

Thanks for your responses. This company has only two employees, both family members, and both HCEs, and before advising them that an ESOP is not available I just wanted to make sure I am not missing something since no employee is being excluded. Thanks again.