QKC Exam – ESOP QUESTIONS N
ANSWERS RATED A+ 2025/2026
25% deductibility - CORRECT ANSWER ✔✔maximum deductible contribution for stock bonus
plan
benefits of an ESOP - CORRECT ANSWER ✔✔-sharing of ownership in company
-tax incentives
tax incentives for ESOP - CORRECT ANSWER ✔✔-dividends may be deductible
-favorable tax treatment for distributions available
-opportunity to delay recognition of gain on sale of shares
-increased contributions
ESOP aggregation rule - CORRECT ANSWER ✔✔ESOP cannot be aggregated with other employer
plans for coverage or testing
ESOP permitted disparity rule - CORRECT ANSWER ✔✔ESOP cannot use permitted disparity
allocation formula
cash or employer stock - CORRECT ANSWER ✔✔form of allowable contributions in ESOP
prudent person rule - CORRECT ANSWER ✔✔rule ESOP is exempt from as it applies to
diversification
, publicly traded - CORRECT ANSWER ✔✔type of ESOP where participants are entitled to vote
shares
participants votes allowed for these when rights are passed through - CORRECT ANSWER ✔✔-
corporate merger
-liquidation of company
C corporation - CORRECT ANSWER ✔✔type of entity involved in 1042 election
3 years - CORRECT ANSWER ✔✔length requirement of seller having owned stock in 1042
transaction
30% - CORRECT ANSWER ✔✔percentage of stock ESOP must own after 1042 election
transaction
25% shareholder - CORRECT ANSWER ✔✔seller, family member or other types of these
shareholders cannot receive allocated shares during "non-allocation period"
qualified replacement property - CORRECT ANSWER ✔✔security issued by domestic company,
did not have passive investment income in excess of 25% of gross receipts for previous taxable
year
employees ineligible to receive allocation in 1042 election - CORRECT ANSWER ✔✔-spouse
-siblings
-lineal ancestors
-lineal descendants
5% de minimis rule - CORRECT ANSWER ✔✔exception to ineligible 1042 employees, if
aggregated amounts to all seller's lineal descendants does not exceed this
ANSWERS RATED A+ 2025/2026
25% deductibility - CORRECT ANSWER ✔✔maximum deductible contribution for stock bonus
plan
benefits of an ESOP - CORRECT ANSWER ✔✔-sharing of ownership in company
-tax incentives
tax incentives for ESOP - CORRECT ANSWER ✔✔-dividends may be deductible
-favorable tax treatment for distributions available
-opportunity to delay recognition of gain on sale of shares
-increased contributions
ESOP aggregation rule - CORRECT ANSWER ✔✔ESOP cannot be aggregated with other employer
plans for coverage or testing
ESOP permitted disparity rule - CORRECT ANSWER ✔✔ESOP cannot use permitted disparity
allocation formula
cash or employer stock - CORRECT ANSWER ✔✔form of allowable contributions in ESOP
prudent person rule - CORRECT ANSWER ✔✔rule ESOP is exempt from as it applies to
diversification
, publicly traded - CORRECT ANSWER ✔✔type of ESOP where participants are entitled to vote
shares
participants votes allowed for these when rights are passed through - CORRECT ANSWER ✔✔-
corporate merger
-liquidation of company
C corporation - CORRECT ANSWER ✔✔type of entity involved in 1042 election
3 years - CORRECT ANSWER ✔✔length requirement of seller having owned stock in 1042
transaction
30% - CORRECT ANSWER ✔✔percentage of stock ESOP must own after 1042 election
transaction
25% shareholder - CORRECT ANSWER ✔✔seller, family member or other types of these
shareholders cannot receive allocated shares during "non-allocation period"
qualified replacement property - CORRECT ANSWER ✔✔security issued by domestic company,
did not have passive investment income in excess of 25% of gross receipts for previous taxable
year
employees ineligible to receive allocation in 1042 election - CORRECT ANSWER ✔✔-spouse
-siblings
-lineal ancestors
-lineal descendants
5% de minimis rule - CORRECT ANSWER ✔✔exception to ineligible 1042 employees, if
aggregated amounts to all seller's lineal descendants does not exceed this
