Section 1042 ESOP Stock Sale Rollover

§ 1042. Sales of stock to employee stock ownership plans or certain cooperatives(a) Nonrecognition of gainIf—(1) 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, (2) the taxpayer purchases qualified replacement property within the replacement period, and (3) 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. (b) Requirements to qualify for nonrecognitionA sale of qualified securities meets the requirements of this subsection if—(1) Sale to employee organizationsThe qualified securities are sold to—(A) an employee stock ownership plan (as defined in section 4975(e)(7)), or (B) an eligible worker-owned cooperative. (2) Plan must hold 30 percent of stock after saleThe 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—(A) each class of outstanding stock of the corporation (other than stock described in section 1504(a)(4)) which issued the qualified securities, or (B) the total value of all outstanding stock of the corporation (other than stock described in section 1504(a)(4)). (3) Written statement required(A) In generalThe taxpayer files with the Secretary the written statement described in subparagraph (B). (B) StatementA statement is described in this subparagraph if it is a verified written statement of—(i) the employer whose employees are covered by the plan described in paragraph (1), or (ii) any authorized officer of the cooperative described in paragraph (l),11 So in original. Probably should be “paragraph (1),”. consenting to the application of sections 4978 and 4979A with respect to such employer or cooperative. (4) 3-year holding periodThe taxpayer’s holding period with respect to the qualified securities is at least 3 years (determined as of the time of the sale). (c) Definitions; special rulesFor purposes of this section—(1) Qualified securitiesThe term “qualified securities” means employer securities (as defined in section 409(l)) which—(A) are issued by a domestic C corporation that has no stock outstanding that is readily tradable on an established securities market, and (B) were not received by the taxpayer in—(i) a distribution from a plan described in section 401(a), or (ii) 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).