SECTION 1. PURPOSE

Treasury and the Service have determined that it is consistent with the purposes of, and policies underlying, employee stock ownership plans (ESOPs) to enable an ESOP to direct certain rollovers of distributions of S corporation stock to an individual retirement plan (IRA) in accordance with a distributee’s election without terminating the corporation’s S election. Accordingly, if the requirements of this revenue procedure are satisfied, the Service will not treat a corporation’s S election as terminated when an ESOP distributes stock of that corporation to a participant’s IRA in a direct rollover.