NUA – 10 Yr Avg
I am working with a new widowed client and I am trying to piece together what her husband did. She tossed the tax return from the year I need of course.
I do have the Distribution information that accompanied the check and some notes.
Here is what is on the Dist form.
1. Savings $414,411
2. Deferral $295,864
3. Company $1,046,818
4 Loan $ 0
5. Total $1,757,083
6. Less Fed W/H $213,739
7. Less State $21,373
8. Less deemed dist loan 0
9 Net Check $599,368
12. Paid to member 20,531 MDC shares $922,611
Tax Information
Total Taxable income $1,068,696
This includes Ordinary income of $755,907
Capital Gain of $312,789
13 After tax Contribution Dist $48,141
14 NUA Appreciation Excluded from Income $640,255
15 Tax basis for subsequent sale of 20,531 shares $13.753/Share
It looks like he used 10 Year Averaging of the tax.
How can I tell if 10 Year avg was used on the stock?
Does it matter or does the NUA portion always lose the step-up at death? It looks to me that she will still need to pay Cap Gains on the $640k but not on the gain since that point.
Any help would be great.
Mark
Permalink Submitted by Alan Spross on Tue, 2008-02-26 01:18
Mark,
Even if you found a copy of the 1099R for the distribution, it would not necessarily be an indicator of what he did because there are many options available with respect to that distribution. For example, he might have selected some combination of NUA and 10 year averaging if he was born prior to 1/2/1936.
Not too many taxpayers would tackle a 4972 or NUA distribution on their own, but your client hopefully would know if her husband did his own taxes and if not the firm he used. That might be a place to start because I think you need a copy of that return. If that does not pan out, request a transcript using Form 4506. An amendment was even possible if he had second thoughts about the option.
Some of the #s do seem to match up OK, but still is not conclusive to what he eventually did. With respect to your last question, for shares on which NUA is selected, there is NO step up in basis of the NUA itself, but there is a basis adjustment upon owner’s death for gains or losses that occurred after distribution. If shares are now worth more than 44.93 per share (discounting splits) then the excess gets a step up; if less then the NUA amount is just eroded.
Permalink Submitted by Mark Hilgenberg on Tue, 2008-02-26 17:47
Thanks Alan,
He was his own accountant, so there is no one else to call. He was a corporate CPA and he knew his stuff but he never worked with any other advisors. I only wish they would have contacted me before he died, I have so many questions.
Based on the hand written pencil ledger sheets I found (yes hand written) it looked like he was using the 10 year averaging and NUA. The form to request the distribution had the NUA section checked off.
I will be ordering the transcripts.
Thanks for you help.
Mark