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Petitioner was incorporated on August 9, 1985, and its
principal business activity is real estate sales. It is the
employer and plan administrator with respect to the ESOP, a
defined contribution plan. Petitioner established the ESOP and
the trust as of August 12, 1985, effective for plan years
beginning on and after August 12, 1985. The plan years and
limitation years of the ESOP and the trust are the fiscal years
ending July 31. Petitioner amended and restated the plan
document on November 7, 1989, effective August 1, 1989. On
August 20, 1990, respondent issued a favorable determination
letter to petitioner stating that the ESOP, as amended and
restated, was in form qualified under section 401(a) and
consequently the trust was entitled to tax exempt status under
section 501(a). This determination letter applied to plan
year(s) beginning after July 31, 1989.
The ESOP contains a salary reduction cash or deferred
arrangement feature, under which an ESOP participant is permitted
to reduce his cash compensation or to forgo an increase in cash
compensation conditioned upon the employer's making a pretax
contribution in the same amount to the ESOP to the participant's
account.
Apart from the 10 shares of petitioner's stock issued to
Robert and Charlene Peers on August 9, 1985, the ESOP's trust is
and has been the sole shareholder of petitioner since its
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