An ESOP can also be used to lock in the capital gains tax rate. If, for example, a shareholder wishes to sell less than 30% of his stock, or wishes to invest the proceeds in investments other than "qualified replacement securities" he may sell part or all of his stock to the ESOP and elect capital gains treatment. As a result, he will be taxed at the 20% rate, even if he retains significant stock ownership. This is in contrast to a partial stock redemption, which is usually taxed at ordinary income tax rates.

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