What is the latest on whether or not shareholders of a Target Company may sell their shares to the ESOP of an Acquiring Company and still qualify for the 1042 tax-free exchange? Isn't there a continuity of interest issue here? Other limitations? Thanks.

I understand that the IRS has recently raised questions about such a transaction, even after the change in the "continuity of interest" regulations. I'd check with folks at the IRS National Office before proceeding.

Also, note that Section 1042 requires a sale of shares of the company which maintains the ESOP. If the sale of stock is to the Acquiring Company ESOP, the Target shares must be exchanged for Acquiring Company shares prior to the sale to the ESOP.

[This message has been edited by RLL (edited 05-15-2000).]

I seem to recall that The ESOP Association had a discussion of this topic in their newsletter about 6 months ago or so. Unfortunately, I don't remember the content of that article.