Tax Facts

8916 / Can an employer provide employee fringe benefits through a stock bonus plan?

Yes, an employer can provide employees with benefits through a stock bonus plan. Generally, a stock bonus plan is a profit sharing plan that holds employer securities and generally distributes those securities to participants when benefits are paid.1

Stock bonus plans can be funded through an employer’s contribution of employer securities, cash, or both. Traditionally, the IRS has taken the position that the distribution must be in the form of employer stock (except for the value of a fractional share).2 The Tax Court has agreed with the IRS position.3 A stock bonus plan may provide for payment of benefits in cash if certain conditions are met (see Q 8917). For the purpose of allocating contributions and distributing benefits, the plan is subject to the same requirements as a profit sharing plan.

1.  Treas. Reg. § 1.401-1(a)(2)(iii).

2.  Rev. Rul. 71-256, 1971-1 CB 118.

3.  Miller v. Comm., 76 TC 433 (1981).

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