KEYWORD:

Tid Bits, Tricks & Traps

The Sarbanes-Oxley rules for plan “blackout” periods kick in on January 26, 2003. The August Bulletin summarizes the rules that apply to blackout periods.

Over 50 by the end of 2003?--catchup contributions to 401(k) and other plans with elective deferrals increase to $2,000 for the 2003 tax year. Catch-up contributions are not subject to the usual 401(k) rules and may be made in addition to other elective deferrals.

As a result of EGTRRA, S-ESOPs--employee stock ownership plans where the sponsor is an S-Corporation--can be subject to unfavorable tax rules where participants with large plan stock allocations collectively own at least half of the outstanding stock in the corporation. These EGTRRA rules do not apply until 2005 for S-ESOPs established before March 15, 2001. Some clever consulting firms formed “shell” S-ESOPs immediately before March 15, 2001 and are now marketing them to individuals and corporations. The sales pitch is that the delayed effective date applies to these S-ESOP. The IRS, in Revenue Ruling 2003-6, warns that it disagrees with this view.

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• Biography Of Norman Stein

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