They are summarized below. The plan allowed Boise to pay dividends from time to time to repay a loan, add to a participant s account, or be passed through directly to participants.
Employees can take distributions from the plan in cash when they retire or terminate employment.
The company claimed that its payment of the distributions was also a deductible dividend, notwithstanding the fact that it had already taken a deduction for contributions it had made to the plan to put stock into it. Under either ISOs or Section 423 plans, if an employee holds on to the shares for a period of at least one year after the exercise of the right to buy shares and two years after the right was granted, the employee receives capital gains tax treatment on the spread between the grant and exercise price. Employers have argued that they should not have to withhold taxes for these dispositions because they cannot know at the time the employee exercises the option whether they will ultimately meet the hlding requirements, nor can they easily track whether employees ultimately hold the shares for the required period. So if a company did not have to withhold the spread on a disqualifying disposition for one purpose, it did not have to withhold it for another. In this light, Revenue Ruling 71-52 may be outdated, the IRS argued.