On May 1, final rules were issued by the U.S. Cost Accounting Standards Board determining the allowable expense government contractors may report for ESOP plans. The expense will look more like the tax expense than the financial statement expense under AICPA Statement of Position No. 93-6, Employers' Accounting for Employee Stock Ownership Plans. An "ESOP" is defined to include any defined contribution plan designed to invest primarily in employer stock. The reimbursement will be measured by:
- The market value of the shares at the time a contribution of stock is made;
- The principal and interest paid with respect to a leveraged ESOP; or
- A combination of the above.
The cost is assignable to a cost accounting period only to the extent an allocation is made to participant accounts by the tax return filing date, including any permissible extensions. For leveraged ESOPs, the determination of allowable costs follows Federal Acquisition Regulation Part 31, which permits companies to charge the costs of principal and interest on an ESOP loan provided the stock is acquired at fair market value. No distinction is made in the regulation for internally versus externally financed ESOP loans. Dividends paid on ESOP shares are allowed as a cost for ESOPs of S or C corporations. (For tax purposes, only C corporations are allowed to deduct dividends and only in certain circumstances.)
Companies operating under an existing approved reimbursement procedure can retain that method or renegotiate under the new rules. The new regulations are available in full at http://edocket.access.gpo.gov/2008/E8-9376.htm. |
