The December 15, 2008 Employee Ownership Update is online and discusses the following:

• Tribune Company Bankruptcy and the ESOP
• Employee Ownership in LLCs
• IRS and Treasury Release Proposed Section 409A Income Inclusion Regulations
• Apply Soon for Winning Workplaces Awards
  

The Update discusses how the bankruptcy filing of the Tribune Company will have a nominal net impact on the retirement plans of the Tribune Company employees and notes that this didn't stop members of the media from providing false information as part of its Sensational Anti-ESOP Coverage. The Update stresses the importance of the ESOP community Countering Negative ESOP Coverage with the Facts and getting the real ESOP story out to the decision makers. It also discusses some complex tax issues that the Tribune bankruptcy may trigger:

The bankruptcy may trigger some complex tax issues. As a 100% S ESOP, the Tribune has just one shareholder. But if the reorganization is structured so that there are more than 100, or one or more owners are not qualified S owners (such as non-U.S. citizens or non-tax-paying entities), the S election will be broken, causing potential taxation issues. In addition, if the company's assets are sold, there could be built-in gains taxes if the benefit is greater than the company's taxable income (a very likely scenario). Cancellation of debt could also trigger tax issues.

The Update also discusses employee ownership in LLCs.

Limited liability companies are a popular form of corporate organization for smaller companies. They are taxed in much the same way S corporations are taxed, but, unlike S corporations, they do not have to distribute earnings pro-rata to owners. If you search the Web for employee ownership in LLCs, you'll find almost every article suggesting that it is best to convert to S or C status to make it more practical. In fact, however, LLCs can have forms of broad-based equity sharing. Capital interests work similarly to restricted stock and profits interests similarly to stock options. More common, however, would be an LLC unit that would function in much the same way as phantom stock or stock appreciation rights and be paid out in cash. The "interests" approaches raise some tax uncertainties that, while subject to common practice, are still mostly governed by proposed regulations that were never finalized.

In a related discussion, IRC Section 1042 Tax Deferred Sale of Stock to an ESOP and Private Letter Ruling (PLR) 200827018 Involving a Predecessor LLC discusses how a private letter (PLR) ruling allowed two selling shareholders of a C Corporation to include the time period that they owned a predecessor LLC that was merged into a newly created C Corporation in the 3-year holding period. This strategy may be useful if a LLC decides it would like to sponsor an ESOP in the future.

The Update also discusses the latest proposed IRC Section 409A Nonqualified Deferred Compensation (NQDC) Plan Regulations, effective January 1, 2009. IRS Notice 2008-113 – Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) in Operation provides some initial guidance on the calculation of 409A income and related taxes. IRS Notice 2008-115 – Reporting and Wage Withholding Under Internal Revenue Code § 409A provides an enhanced correction program for certain operational errors.