§1042 — Sales of stock to employee stock ownership plans or certain cooperatives
9 citing cases
Statute Text — 26 U.S.C. §1042
If—
the taxpayer or executor elects in such form as the Secretary may prescribe the application of this section with respect to any sale of qualified securities,
the taxpayer purchases qualified replacement property within the replacement period, and
the requirements of subsection (b) are met with respect to such sale,
then the gain (if any) on such sale which would be recognized as long-term capital gain shall be recognized only to the extent that the amount realized on such sale exceeds the cost to the taxpayer of such qualified replacement property.
A sale of qualified securities meets the requirements of this subsection if—
The qualified securities are sold to—
an employee stock ownership plan (as defined in section 4975(e)(7)), or
an eligible worker-owned cooperative.
The plan or cooperative referred to in paragraph (1) owns (after application of section 318(a)(4)), immediately after the sale, at least 30 percent of—
each class of outstanding stock of the corporation (other than stock described in section 1504(a)(4)) which issued the qualified securities, or
the total value of all outstanding stock of the corporation (other than stock described in section 1504(a)(4)).
The taxpayer files with the Secretary the written statement described in subparagraph (B).
A statement is described in this subparagraph if it is a verified written statement of—
the employer whose employees are covered by the plan described in paragraph (1), or
any authorized officer of the cooperative described in paragraph (
l
),
1
1 So in original. Probably should be “paragraph (1),”.
consenting to the application of sections 4978 and 4979A with respect to such employer or cooperative.
The taxpayer’s holding period with respect to the qualified securities is at least 3 years (determined as of the time of the sale).
For purposes of this section—
The term “qualified securities” means employer securities (as defined in section 409(
l
)) which—
are issued by a domestic C corporation that has no stock outstanding that is readily tradable on an established securities market, and
were not received by the taxpayer in—
a distribution from a plan described in section 401(a), or
a transfer pursuant to an option or other right to acquire stock to which section 83, 422, or 423 applied (or to which section 422 or 424 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) applied).
The term “eligible worker-owned cooperative” means any organization—
to which part I of subchapter T applies,
a majority of the membership of which is composed of employees of such organization,
a majority of the voting stock of which is owned by members,
a majority of the board of directors of which is elected by the members on the basis of 1 person 1 vote, and
a majority of the allocated earnings and losses of which are allocated to members on the basis of—
patronage,
capital contributions, or
some combination of clauses (i) and (ii).
The term “replacement period” means the period which begins 3 months before the date on which the sale of qualified securities occurs and which ends 12 months after the date of such sale.
The term “qualified replacement property” means any security issued by a domestic operating corporation which—
did not, for the taxable year preceding the taxable year in which such security was purchased, have passive investment income (as defined in section 1362(d)(3)(C)) in excess of 25 percent of the gross receipts of such corporation for such preceding taxable year, and
is not the corporation which issued the qualified securities which such security is replacing or a member of the same controlled group of corporations (within the meaning of section 1563(a)(1)) as such corporation.
For purposes of clause (i), income which is described in section 954(c)(3) (as in effect immediately before the Tax Reform Act of 1986) shall not be treated as passive investment income.
For purposes of this paragraph—
The term “operating corporation” means a corporation more than 50 percent of the assets of which were, at the time the security was purchased or before the close of the replacement period, used in the active conduct of the trade or business.
The term “operating corporation” shall include—
any financial institution described in section 581, and
an insurance company subject to tax under subchapter L.
For purposes of applying this paragraph, if—
the corporation issuing the security owns stock representing control of 1 or more other corporations,
1 or more other corporations own stock representing control of the corporation issuing the security, or
both,
For purposes of clause (i), the term “control” has the meaning given such term by section 304(c). In determining control, there shall be disregarded any qualified replacement property of the taxpayer with respect to the section 1042 sale being tested.
then all such corporations shall be treated as 1 corporation.
For purposes of this paragraph, the term “security” has the meaning given such term by section 165(g)(2), except that such term shall not include any security issued by a government or political subdivision thereof.
No sale of securities by an underwriter to an employee stock ownership plan or eligible worker-owned cooperative in the ordinary course of his trade or business as an underwriter, whether or not guaranteed, shall be treated as a sale for purposes of subsection (a).
An election under subsection (a) shall be filed not later than the last day prescribed by law (including extensions thereof) for filing the return of tax imposed by this chapter for the taxable year in which the sale occurs.
Subsection (a) shall not apply to any gain on the sale of any qualified securities which is includible in the gross income of any C corporation.
The basis of the taxpayer in qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by the amount of gain not recognized by reason of such purchase and the application of subsection (a). If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of such purchase and the application of subsection (a) by a fraction—
the numerator of which is the cost of such item of property, and
the denominator of which is the total cost of all such items of property.
Any reduction in basis under this subsection shall not be taken into account for purposes of section 1278(a)(2)(A)(ii) (relating to definition of market discount).
If a taxpayer disposes of any qualified replacement property, then, notwithstanding any other provision of this title, gain (if any) shall be recognized to the extent of the gain which was not recognized under subsection (a) by reason of the acquisition by such taxpayer of such qualified replacement property.
If—
a corporation issuing qualified replacement property disposes of a substantial portion of its assets other than in the ordinary course of its trade or business, and
any taxpayer owning stock representing control (within the meaning of section 304(c)) of such corporation at the time of such disposition holds any qualified replacement property of such corporation at such time,
then the taxpayer shall be treated as having disposed of such qualified replacement property at such time.
Paragraph (1) shall not apply to any transfer of qualified replacement property—
in any reorganization (within the meaning of section 368) unless the person making the election under subsection (a)(1) owns stock representing control in the acquiring or acquired corporation and such property is substituted basis property in the hands of the transferee,
by reason of the death of the person making such election,
by gift, or
in any transaction to which section 1042(a) applies.
If any gain is realized by the taxpayer on the sale or exchange of any qualified securities and there is in effect an election under subsection (a) with respect to such gain, then—
the statutory period for the assessment of any deficiency with respect to such gain shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of—
the taxpayer’s cost of purchasing qualified replacement property which the taxpayer claims results in nonrecognition of any part of such gain,
the taxpayer’s intention not to purchase qualified replacement property within the replacement period, or
a failure to make such purchase within the replacement period, and
such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
This section shall apply to the sale of stock of a qualified refiner or processor to an eligible farmers’ cooperative.
For purposes of this subsection, the term “qualified refiner or processor” means a domestic corporation—
substantially all of the activities of which consist of the active conduct of the trade or business of refining or processing agricultural or horticultural products, and
which, during the 1-year period ending on the date of the sale, purchases more than one-half of such products to be refined or processed from—
farmers who make up the eligible farmers’ cooperative which is purchasing stock in the corporation in a transaction to which this subsection is to apply, or
such cooperative.
For purposes of this section, the term “eligible farmers’ cooperative” means an organization to which part I of subchapter T applies and which is engaged in the marketing of agricultural or horticultural products.
In applying this section to a sale to which paragraph (1) applies—
the eligible farmers’ cooperative shall be treated in the same manner as a cooperative described in subsection (b)(1)(B),
subsection (b)(2) shall be applied by substituting “100 percent” for “30 percent” each place it appears,
the determination as to whether any stock in the domestic corporation is a qualified security shall be made without regard to whether the stock is an employer security or to subsection (c)(1)(A), and
paragraphs (2)(D) and (7) of subsection (c) shall not apply.
Treasury Regulations
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Treas. Reg. §1.1042-1TQuestions and answers relating to the sales of stock to employee stock ownership plans or certain cooperatives
Q-1: What does section 1042 provide?
A-1: (a) Section 1042 provides rules under which a taxpayer may elect not to recognize gain in certain cases where qualified securities are sold to a qualifying employee stock ownership plan or worker-owned cooperative in taxable years of the seller beginning after July 18, 1984, and qualified replacement property is purchased by the taxpayer within the replacement period. If the requirements of Q&A-2 of this section are met, and if the taxpayer makes an election under section 1042(a) in accordance with Q&A-3 of this section, the gain realized by the taxpayer on the sale of the qualified securities is recognized only to the extent that the amount realized on such sale exceeds the cost to the taxpayer of the qualified replacement property.
(b) Under section 1042, the term qualified securities means employer securities (as defined in section 409(l)) with respect to which each of the following requirements is satisfied: (1) The employer securities were issued by a domestic corporation; (2) for at least one year before and immediately after the sale, the domestic corporation that issued the employer securities (and each corporation that is a member of a controlled group of corporations with such corporation for purposes of section 409(l)) has no stock outstanding that is readily tradeable on an established market; (3) as of the time of the sale, the employer securities have been held by the taxpayer for more than 1 year; and (4) the employer securities were not received by the taxpayer in a distribution from a plan described in section 401(a) or in a transfer pursuant to an option or other right to acquire stock to which section 83, 422, 422A, 423, or 424 applies.
(c) The term replacement period means the period which begins 3 months before the date on which the sale of qualified securities occurs and which ends 12 months after the date of such sale. A replacement period may include any period which occurs prior to July 19, 1984.
(d) The term qualified replacement property means any securities (as defined in section 165(g)(2)) issued by a domestic corporation which does not, for the taxable year of such corporation in which the securities are purchased by the taxpayer, have passive investment income (as defined in section 1362(d)(3)(D)) that exceeds 25 percent of the gross receipts of such corporation for the taxable year preceding the taxable year of purchase. In addition, securities of the domestic corporation that issued the employer securities qualifying under section 1042 (and of any corporation that is a member of a controlled group of corporations with such corporation for purposes of section 409(l)) will not qualify as qualified replacement property.
(e) For purposes of section 1042(a), there is a purchase of qualified replacement property only if the basis of such property is determined by reference to its cost to the taxpayer. If the basis of the qualified replacement property is determined by reference to its basis in the hands of the transferor thereof or another person, or by reference to the basis of property (other than cash or its equivalent) exchanged for such property, then the basis of such property is not determined solely by reference to its cost to the taxpayer.
Q-2: What is a sale of qualified securities for purposes of section 1042(b)?
A-2: (a) Under section 1042(b), a sale of qualified securities is one under which all of the following requirements are met:
(1) The qualified securities are sold to an employee stock ownership plan (as defined in section 4975(e)(7)) maintained by the corporation that issued the qualified securities (or by a member of the controlled group of corporations with such corporation for purposes of section 409(l)) or to an eligible worker-owned cooperative (as defined in section 1042(c)(2));
(2) The employee stock ownership plan or eligible worker-owned cooperative owns, immediately after the sale, 30 percent or more of the total value of the employer securities (within the meaning of section 409(l) outstanding as of such time;
(3) No portion of the assets of the employee stock ownership plan or eligible worker-owned cooperative attributable to qualified securities that are sold to the plan or cooperative by the taxpayer or by any other person in a sale with respect to which an election under section 1042(a) is made accrue under the plan or are allocated by the cooperative, either directly or indirectly and either concurrently with or at any time thereafter, for the benefit of (i) the taxpayer; (ii) any person who is a member of the family of the taxpayer (within the meaning of section 267(c)(4)); or (iii) any person who owns (after the application of section 318(a)), at any time after July 18, 1984, and until immediately after the sale, more than 25 percent of in value of the outstanding portion of any class of stock of the corporation that issued the qualified securities (or of any member of the controlled group of corporations with such corporation for purposes of section 409(l)). For purposes of this calculation, stock that is owned, directly or indirectly, by or for a qualified plan shall not be treated as outstanding.
(4) The taxpayer files with the Secretary (as part of the required election described in Q&A-3 of this section) a verified written statement of the domestic corporation (or corporations) whose employees are covered by the plan acquiring the qualified securities or of any authorized officer of the eligible workerowned cooperative, consenting to the application of section 4978(a) with respect to such corporation or cooperative.
(b) For purposes of determining whether paragraph (a)(2) of this section is satisfied, sales of qualified securities by two or more taxpayers may be treated as a single sale if such sales are made as part of a single, integrated transaction under a prearranged agreement between the taxpayers.
(c) For purposes of determining whether paragraph (a)(3) of this section is satisfied with respect to the prohibition against an accrual or allocation of qualified securities, the accrual or allocation of any benefits or contributions or other assets that are not attributable to qualified securities sold to the employee stock ownership plan or eligible worker-owned cooperative in a sale with respect to which an election under section 1042(a) is made (including any accrual or allocation under any other plan or arrangement maintained by the corporation or any member of the controlled group of corporations with such corporation for purposes of section 409(l)) must be made without regard to the allocation of such qualified securities. Paragraph (a)(3) of this section above may be illustrated in part by the following example: Individuals A, B, and C own 50, 25, and 25, respectively, of the 100 outstanding shares of common stock of Corporation X. Such shares constitute qualified securities as defined in Q&A-1 of this section. A and B, but not C, are employees of Corporation X. For the benefit of all its employees, Corporation X establishes an employee stock ownership plan that obtains a loan meeting the exemption requirements of section 4975(d)(3). The loan proceeds are used by the plan to purchase the 100 shares of qualified securities from A, B, and C, all of whom elect nonrecognition treatment under section 1042(a) with respect to the gain realized on their sale of such securities. Under the requirements of paragraph (a)(3) of this section, no part of the assets of the plan attributable to the 100 shares of qualified securities may accrue under the plan (or under any other plan or arrangement maintained by Corporation X) for the benefit of A or B or any person who is a member of the family of A or B (as determined under section 267(c)(4)). Furthermore, no other assets of the plan or assets of the employer may accrue for the benefit of such individuals in lieu of the receipt of assets attributable to such qualified securities.
(d) A sale under section 1042(a) shall not include any sale of securities by a dealer or underwriter in the ordinary course of its trade or business as a dealer or underwriter, whether or not guaranteed.
Q-3: What is the time and manner for making the election under section 1042(a)?
A-3: (a) The election not to recognize the gain realized upon the sale of qualified securities to the extent provided under section 1042(a) shall be made in a statement of election attached to the taxpayer's income tax return filed on or before the due date (including extensions of time) for the taxable year in which the sale occurs. If a taxpayer does not make a timely election under this section to obtain section 1042(a) nonrecognition treatment with respect to the sale of qualified securities, it may not subsequently make an election on an amended return or otherwise. Also, an election once made is irrevocable.
(b) The statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified securities under section 1042(a), and shall contain the following information:
(1) A description of the qualified securities sold, including the type and number of shares;
(2) The date of the sale of the qualified securities;
(3) The adjusted basis of the qualified securities;
(4) The amount realized upon the sale of the qualified securities;
(5) The identity of the employee stock ownership plan or eligible worker-owned cooperative to which the qualified securities were sold; and
(6) If the sale was part of a single, interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified securities, the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers. See Q&A-2 of this section.
If the taxpayer has purchased qualified replacement property at the time of the election, the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified replacement property, the date of the purchase, and the cost of the property, and declaring such property to be the qualified replacement property with respect to the sale of qualified securities. Such statement of purchase must be notarized by the later of thirty days after the purchase or March 6, 1986. In addition, the statement of election must be accompanied by the verified written statement of consent required under Q&A-2 of this section with respect to the qualified securities sold.
(c) If the taxpayer has not purchased qualified replacement property at the time of the filing of the statement of election, a timely election under this Q&A shall not be considered to have been made unless the taxpayer attaches the notarized statement of purchase described above to the taxpayer's income tax return filed for the taxable year following the year for which the election under section 1042(a) was made. Such notarized statement of purchase shall be filed with the district director or the director of the regional service center with whom such election was originally filed, if the return is not filed with such director.
Q-4: What is the basis of qualified replacement property?
A-4: If a taxpayer makes an election under section 1042(a), the basis of the qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by an amount equal to the amount of gain which was not recognized. If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of the application of section 1042(a) by a fraction, the numerator of which is the cost of such item of property and the denominator of which is the total cost of all such items of property. For the rule regarding the holding period of qualified replacement property, see section 1223(13).
Q-5: What is the statute of limitations for the assessment of a deficiency relating to the gain on the sale of qualified securities?
A-5: (a) If any gain is realized by the taxpayer on the sale of any qualified securities and such gain has not been recognized under section 1042(a) in accordance with the requirements of this section, the statutory period provided in section 6501(a) for the assessment of any deficiency with respect to such gain shall not expire prior to the expiration of 3 years from the date of receipt, by the district director or director of regional service center with whom the statement of election under 1042(a) was originally filed, of:
(1) A notarized statement of purchase as described in Q&A-3;
(2) A written statement of the taxpayer's intention not to purchase qualified replacement property within the replacement period; or
(3) A written statement of the taxpayer's failure to purchase qualified replacement property within the replacement period.
In those situations when a taxpayer is providing a written statement of an intention not to purchase or of a failure to purchase qualified replacement property, the statement shall be accompanied, where appropriate, by an amended return for the taxable year in which the gain from the sale of the qualified securities was realized, in order to reflect the inclusion in gross income for that year of gain required to be recognized in connection with such sale.
(b) Any gain from the sale of qualified securities which is required to be recognized due to a failure to meet the requirements under section 1042 shall be included in the gross income for the taxable year in which the gain was realized. If any gain from the sale of qualified securities is not recognized under section 1042(a) in accordance with the requirements of this section, any deficiency attributable to any portion of such gain may be assessed at any time before the expiration of the 3-year period described in this Q&A, notwithstanding the provision of any law or rule of law which would otherwise prevent such assessment.
Q-6: When does section 1042 become effective?
A-6: Section 1042 applies to sales of qualified securities in taxable years of sellers beginning after July 18, 1984.
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Treas. Reg. §1.1042-1T(b)Any gain from the sale of qualified securities which is required to be recognized due to a failure to meet the requirements under section 1042 shall be included in the gross income for the taxable year in which the gain was realized.
Any gain from the sale of qualified securities which is required to be recognized due to a failure to meet the requirements under section 1042 shall be included in the gross income for the taxable year in which the gain was realized. If any gain from the sale of qualified securities is not recognized under section 1042(a) in accordance with the requirements of this section, any deficiency attributable to any portion of such gain may be assessed at any time before the expiration of the 3-year period described in this Q&A, notwithstanding the provision of any law or rule of law which would otherwise prevent such assessment.
Q-6: When does section 1042 become effective?
A-6: Section 1042 applies to sales of qualified securities in taxable years of sellers beginning after July 18, 1984.
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Treas. Reg. §1.1042-1T(c)If the taxpayer has not purchased qualified replacement property at the time of the filing of the statement of election, a timely election under this Q&A shall not be considered to have been made unless the taxpayer attaches the notarized statement of purchase described above to the taxpayer's income tax return filed for the taxable year following the year for which the election under section 1042(a) was made.
If the taxpayer has not purchased qualified replacement property at the time of the filing of the statement of election, a timely election under this Q&A shall not be considered to have been made unless the taxpayer attaches the notarized statement of purchase described above to the taxpayer's income tax return filed for the taxable year following the year for which the election under section 1042(a) was made. Such notarized statement of purchase shall be filed with the district director or the director of the regional service center with whom such election was originally filed, if the return is not filed with such director.
Q-4: What is the basis of qualified replacement property?
A-4: If a taxpayer makes an election under section 1042(a), the basis of the qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by an amount equal to the amount of gain which was not recognized. If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of the application of section 1042(a) by a fraction, the numerator of which is the cost of such item of property and the denominator of which is the total cost of all such items of property. For the rule regarding the holding period of qualified replacement property, see section 1223(13).
Q-5: What is the statute of limitations for the assessment of a deficiency relating to the gain on the sale of qualified securities?
A-5: (a) If any gain is realized by the taxpayer on the sale of any qualified securities and such gain has not been recognized under section 1042(a) in accordance with the requirements of this section, the statutory period provided in section 6501(a) for the assessment of any deficiency with respect to such gain shall not expire prior to the expiration of 3 years from the date of receipt, by the district director or director of regional service center with whom the statement of election under 1042(a) was originally filed, of:
(1) A notarized statement of purchase as described in Q&A-3;
(2) A written statement of the taxpayer's intention not to purchase qualified replacement property within the replacement period; or
(3) A written statement of the taxpayer's failure to purchase qualified replacement property within the replacement period.
In those situations when a taxpayer is providing a written statement of an intention not to purchase or of a failure to purchase qualified replacement property, the statement shall be accompanied, where appropriate, by an amended return for the taxable year in which the gain from the sale of the qualified securities was realized, in order to reflect the inclusion in gross income for that year of gain required to be recognized in connection with such sale.
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Treas. Reg. §1.1042-1T(d)A sale under section 1042(a) shall not include any sale of securities by a dealer or underwriter in the ordinary course of its trade or business as a dealer or underwriter, whether or not guaranteed.
A sale under section 1042(a) shall not include any sale of securities by a dealer or underwriter in the ordinary course of its trade or business as a dealer or underwriter, whether or not guaranteed.
Q-3: What is the time and manner for making the election under section 1042(a)?
A-3: (a) The election not to recognize the gain realized upon the sale of qualified securities to the extent provided under section 1042(a) shall be made in a statement of election attached to the taxpayer's income tax return filed on or before the due date (including extensions of time) for the taxable year in which the sale occurs. If a taxpayer does not make a timely election under this section to obtain section 1042(a) nonrecognition treatment with respect to the sale of qualified securities, it may not subsequently make an election on an amended return or otherwise. Also, an election once made is irrevocable.
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Treas. Reg. §1.1042-1T(e)For purposes of section 1042(a), there is a purchase of qualified replacement property only if the basis of such property is determined by reference to its cost to the taxpayer.
For purposes of section 1042(a), there is a purchase of qualified replacement property only if the basis of such property is determined by reference to its cost to the taxpayer. If the basis of the qualified replacement property is determined by reference to its basis in the hands of the transferor thereof or another person, or by reference to the basis of property (other than cash or its equivalent) exchanged for such property, then the basis of such property is not determined solely by reference to its cost to the taxpayer.
Q-2: What is a sale of qualified securities for purposes of section 1042(b)?
A-2: (a) Under section 1042(b), a sale of qualified securities is one under which all of the following requirements are met:
(1) The qualified securities are sold to an employee stock ownership plan (as defined in section 4975(e)(7)) maintained by the corporation that issued the qualified securities (or by a member of the controlled group of corporations with such corporation for purposes of section 409(l)) or to an eligible worker-owned cooperative (as defined in section 1042(c)(2));
(2) The employee stock ownership plan or eligible worker-owned cooperative owns, immediately after the sale, 30 percent or more of the total value of the employer securities (within the meaning of section 409(l) outstanding as of such time;
(3) No portion of the assets of the employee stock ownership plan or eligible worker-owned cooperative attributable to qualified securities that are sold to the plan or cooperative by the taxpayer or by any other person in a sale with respect to which an election under section 1042(a) is made accrue under the plan or are allocated by the cooperative, either directly or indirectly and either concurrently with or at any time thereafter, for the benefit of (i) the taxpayer; (ii) any person who is a member of the family of the taxpayer (within the meaning of section 267(c)(4)); or (iii) any person who owns (after the application of section 318(a)), at any time after July 18, 1984, and until immediately after the sale, more than 25 percent of in value of the outstanding portion of any class of stock of the corporation that issued the qualified securities (or of any member of the controlled group of corporations with such corporation for purposes of section 409(l)). For purposes of this calculation, stock that is owned, directly or indirectly, by or for a qualified plan shall not be treated as outstanding.
(4) The taxpayer files with the Secretary (as part of the required election described in Q&A-3 of this section) a verified written statement of the domestic corporation (or corporations) whose employees are covered by the plan acquiring the qualified securities or of any authorized officer of the eligible workerowned cooperative, consenting to the application of section 4978(a) with respect to such corporation or cooperative.
9 Citing Cases
Assuming as we must for purposes of summary judgment that petitioners were mistaken about the value of the promissory notes, that mistake of fact is readily distinguishable from the one in Meyer’s Estate.
Section 1042 provides, generally, that a taxpayer may elect to defer recognition ofthe gain from a sale of stock to an ESOP in certain circumstances.
Petitioner could defer recognition of capital gain on the ESOP stock sale pursuant to section 1042, provided he invested the proceeds in qualified replacement property (QRP)..
We hold that that transaction was a sale of securities by petitioner Jonathan S.
Held: P is not able to defer recognition of the gain that resulted from the sale because P failed to elect such treatment as required by I.R.C.
Clause duly elected, under section 1042, to defer recognition of a gain that resulted from a sale of stock to an employee stock ownership plan (ESOP).
s and Blue Shield organizations in the Tax Reform Act of 1986, Pub. L. 99-514, sec. 1012(b), 100 Stat. 2391, and for the Teachers Insurance Annuity Association and College Retirement Equities Fund in the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1042, 111 Stat. 939. Unlike DEFRA section 177(d)(2), both of those enactments provided a fair market value basis for purposes - 22 - of determining both gain and loss. Also, unlike our situation, Congress expressed its intent in the conference re