Hobbies and Games Inc. has had taxable income the last three years, but is breaking even this year. Sondra, the sole shareholder, has a \(\$ 25,000\) basis in her stock. After consulting with a local CPA, the corporation does the following:

a. Sets up an Employee Stock Ownership Plan (ESOP).

b. Contributes \(\$ 40,000\) to the ESOP, borrowed for the occasion from a local bank.

c. Deducts the \(\$ 40,000\) as a contribution to a qualified plan, thus creating a net operating loss of \(\$ 40,000\). The loss is carried back, resulting in a refund of taxes paid the last three years.

d. Permits the ESOP to purchase 49 percent of Sondra's stock; she reports a long-term capital gain of \(\$ 27,750\). (See IRS Letter Rulings 8147187 and 8222026.)

Can all these transactions be executed under the rules applicable to employee stock ownership plans?