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Since 1990, ESOT Resources, Inc. has provided strategy development & implementation consulting services to more than 300 owners of closely held companies throughout the USA. We have a broad range of experience in many industries including manufacturing, metal fabrication, distribution, trucking, construction, engineering, telecommunications and media advertising. Our consulting services focus on the development, implementation and financing of tax advantaged strategies using proven & conservative financial tools to accomplish client objectives for shareholder liquidity, capital formation, business succession and wealth preservation. Our company holds active memberships in the ESOP Association, the National Center for Employee Ownership Foundation, the Kansas City Chamber of Commerce, the Lee's Summit Chamber of Commerce and the Association of Merger & Acquisition Advisors. In 1996, our firm developed our flagship service known as the FLPSOP®. Our FLPSOP® is the strategic coordination of a Family Limited Partnership (FLP) and an Employee Stock Ownership Plan (ESOP). In the typical FLPSOP® structure, an FLP is geared to own the tax deferred ESOP rollover investments that are generated from the sale of closely held stock to an ESOP. IRC Sec 1042 governs the ESOP rollover rules and as with most everything else in life, those rules are not perfect. A well conceived FLP structure goes a long way to making up for those imperfections and serves to enhance the value of the ESOP rollover. An FLP provides a protective environment for ESOP rollover investments by protecting those investments from seizure by future judgment creditors and an FLP provides significant valuation discounts of 40% to 50% for purposes of estate & gift taxes. In 1997, our firm submitted an application to the US Patent Office for a registered trademark for our FLPSOP® . On October 13th, 1998, the US Patent Office issued Registered Trademark #2,195,992 to our firm. In early 1998, we helped one of our valued clients in Des Moines, Iowa to obtain a Private Letter Ruling from the IRS with respect to the client's FLPSOP® structure. That project culminated when the IRS issued PLR 9846005 on November 13th, 1998. In that Private Letter Ruling, the IRS provided very helpful technical guidance as to how an FLP should acquire ESOP rollover investments. While IRC Sec 1042 specifically provides that a partnership may elect a 1042 rollover, this Private Letter Ruling was the first meaningful written guidance from the IRS as to exactly how a partnership should acquire ESOP rollover investments. The four technical issues associated with PLR 9846005 were:1) The "holding" period of a business owner's stock in his closely held corporation can be "tacked" to the FLP. IRC Sec 1042 requires the selling shareholder to an ESOP to have owned his closely held stock for at least 3 years prior to the date of sale to the ESOP. This provides our client with an important planning advantage - as long as you have owned your closely held company for more than 3 years, your FLP will be deemed to have met this 3 year holding period requirement even if your FLP is only one day old. 2) You may gift away 100% of the limited partnership interests in your FLP to minimize estate & gift taxes but as long as your FLP continues to own its ESOP rollover investments, the IRC Sec 1042 tax deferred rollover is preserved. 3) Your FLP must be the selling shareholder to the ESOP. If you were to sell your stock to an ESOP and then transfer your tax deferred ESOP sale proceeds to an FLP, that form of transfer will result in a "recapture" of capital gains taxes. 4) It is the partnership, not each of the limited partners, that must make the IRC Sec 1042 election and file the proper documents with the IRS. On April 10th, 2001, the IRS released Revenue Ruling 2000-18 which formally affirmed items #3 and #4 above that were addressed in our informal 1998 Private Letter Ruling. In this formal ruling, the IRS stated that in order for an FLP to take advantage of the IRC Sec 1042 tax deferred rollover, the FLP must be the selling shareholder to the ESOP and it is the FLP that must file the appropriate rollover documents with the IRS. In early 2001, our firm began a second Private Letter Ruling project with one of our Wichita, Kansas clients that was intended to build upon our 1998 Private Letter Ruling and provide our clients with a more streamlined structure to own their ESOP rollover investments. The objective of the Private Letter Ruling was to have the IRS provide a Limited Liability Company (LLC) with the same treatment as an FLP. The advantage of using an LLC in lieu of an FLP is that a "single entity" LLC can significantly reduce the paperwork that is involved with a "dual entity" FLP. A "dual entity" FLP consists of a partnership that holds assets and a corporation that serves as the managing general partner of the partnership. We are pleased to announce the IRS released Private Letter Ruling #146427-01 dated June 5, 2002. Please note this number is a temporary control number as the permanent PLR number has not yet been assigned by the IRS. To the best of our knowledge, this new Private Letter Ruling is the first written affirmation from the IRS, albeit in an informal manner, that an LLC, if taxed as a partnership, can elect the IRC Sec 1042 tax deferred rollover. IRC Sec 1042 provides that individuals, estates, trusts and partnerships may elect to defer capital gains taxes upon the sale of "C" corporation stock to an ESOP. While a corporation that owns "C" stock in another corporation can sell that stock to an ESOP, corporations cannot elect 1042 rollover treatment. There are seven technical issues in our 2002 Private Letter Ruling, three of which are reinforcement of technical issues in our 1998 Private Letter Ruling. The four new issues in our 2002 Private Letter Ruling are: 1) If the FLP that was established in 2000 is converted to an LLC, will the 1042 election that was made by the FLP on the block of shares that has already been sold to the ESOP be able to be continued upon the conversion of that limited partnership to an LLC? 2) In the future, when the LLC sells additional shares in the operating company to the ESOP, will the LLC be able to make its own 1042 election on those future sales? 3) Will the holding period and tax basis of the operating company's stock that is owned by the FLP, which was "tacked" to the FLP from our client and his spouse when they capitalized their FLP with stock in the operating company, also be "tacked" from the FLP to the LLC upon the conversion of the FLP into an LLC? 4) Can our client make gifts of LLC units under the "annual exclusion" and "lifetime exemption" rules and still preserve the 1042 rollover election? We are delighted to report the IRS has said "yes" to all four questions. The IRS ruled:1) The conversion of the FLP to an LLC will not result in a "disposition" of the "qualified replacement property" and therefore, the 1042 rollover will be preserved. 2) The LLC would be able to sell its remaining shares to the ESOP in the future and make its own 1042 rollover election on those shares, provided of course all of the other general requirements of the 1042 rollover rules are met. 3) The FLP's holding period and tax basis of its stock in the operating company will be "tacked" to the LLC. Our client and his spouse have owned their operating company stock for over 20 years. The FLP, and now the LLC, will also be deemed to have a 20+ year holding period, thereby satisfying the 3 year holding period requirement of the 1042 rollover rules. 4) Gifts of LLC units may be made to facilitate estate planning objectives and as long as the LLC continues to own the "qualified replacement property", the 1042 rollover election will be preserved. Our company has worked very hard over the years to develop conservative yet economically advantageous planning techniques for our clients. We look forward to the opportunity to work with you to develop the most advantageous strategies to accomplish your objectives for shareholder liquidity, capital formation, business succession and wealth preservation.