There can be a substantial tax advantage to the S corporation ESOP business model and there are anti-abuse rules that apply to all S corporation ESOPs. Watch this video to learn more.
The anti-abuse rules are what we like to call an ownership concentration percentage test. Essentially 50% or more of the company cannot be owned by what we call disqualified persons and those are persons that are owning stock in the ESOP or who own synthetic equity and stock in the ESOP. If the tests are violated on any day in a given year then that could result in deemed distributions of the accounts of disqualified persons, deemed distributions of allocations to their accounts as well as excise taxes on the corporation each year.