Mercer Select US - Third Circuit denies company's claim for ESOP dividend deduction

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Third Circuit denies company's claim for ESOP dividend deduction

No deduction is allowed for amounts paid by a company to redeem stock when ESOP participants terminate employment, the US Court of Appeals for the Third Circuit has ruled (Conopco v. US). The company made the redemption payments "in connection with the reacquisition of its stock," the court said, so the deduction was prohibited by Code Section 162(k). The decision is consistent with a recent Eighth Circuit case but conflicts with a 2003 Ninth Circuit ruling. The cases involve tax years before 2006, when the IRS issued final regulations barring deductions in this situation. (Select News, 15 Jul 2009)

Full text of Conopco v. US (3d Cir., 13 Jul 2009) (PDF)

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