If an ESOP is maintained by a controlled group of corporations including S corporations, what is the deduction limit? That is, are all of the contributing employers limited to a 15% of pay contribution limitation or may C corpations contribute and deduct higher amounts?

Contributions to an ESOP that includes a money purchase plan combined with a stock bonus plan are subject to a deduction limit of 25% of covered payroll....this 25% limit is available to both C corporations and S corporations. If the ESOP does not include a money purchase plan, the general deduction limit is 15% of covered payroll (unless "credit carryovers" from pre-1987 years are available).

The special deduction limit applicable to contributions used for ESOP loan payments, under IRC Section 404(a)(9), is available only to C corporations.

In an ESOP of a controlled group of corporations, the deduction limit applicable to any S corporation (together with any qualified S corporation subsidiaries) would be computed separately, based on the covered payroll of its employees, and any S corporation could not utilize Section 404(a)(9).