Opinion ID: 2966464
Heading Depth: 3
Heading Rank: 1

Heading: The Tax Determination Letter

Text: Plan participants have a right to see the Plan's tax determination letter because the Plan is not a valid ESOP unless it is qualified within the meaning of 26 U.S.C. § 4975(e)(7). Thus the letter is an instrument under which the Plan is established, and without the letter the Plan may not operate. Under 26 U.S.C. §§ 401-404, qualified ESOP plans receive preferential tax treatment. Most importantly, employer contributions to the Plan are not taxable to employees in the year of contribution. If the Plan is not properly tax-qualified, employees are liable for tax on employer contributions in the year those contributions are made. This result would mean hardship for employees because they would be required to pay tax on contributions converted into what could be highly illiquid (and in this case, substantially _________________________________________________________________ ries. ESOP implementation at Weirton Steel, for example, saved the company from bankruptcy, preserved jobs, and allowed employees to share in the company's future successes. See Alex Kotlowitz, Pilots' Offer May Spur Other Unions to Attempt to Purchase Companies, Wall St. J., Apr. 17, 1987. 26 underperforming) assets, assets whose value they will not enjoy until retirement, which might be many years away. Although the Plan's Form 5500 Annual Report represents that a positive determination letter has been issued and that the Plan is therefore properly taxqualified, the only way Plan participants can confirm the Plan's tax status is to see a copy of the letter issued by the IRS. Thus, Plan participants need to see the letter so they can be sure that their own tax returns are accurate. See Sage v. Automation, Inc. Pension Plan & Trust, 845 F.2d 885, 894 n.4 (10th Cir. 1988).