NUA in ESOP
Has anyone worked with an employee that utilized NUA where the plan was an ESOP?
If yes, did the employee receive long term capital gains treatment immediately, since the stock must be sold back to the ESOP?
Please furnish citing for the allowance.
Permalink Submitted by mk foss on Wed, 2009-01-14 18:04
I haven’t worked with someone who received ESOP shares but most people who receive NUA shares sell them almost immediately.
The item to be aware of is how to treat the gain if the shares are sold within the first year for greater than the FMV when the shares were issued. The NUA amount is always long term capital gain, any further appreciation after the shares are issued until 1 year has passed is short term capital gain.
Since ESOPs typically are not valued on a daily basis, there should be no issue of additional appreciation before the sale.
Permalink Submitted by Alan Spross on Wed, 2009-01-14 18:42
I would think that the buy back would not affect the use of NUA as long as the NUA shares were first distributed to the employee. If no actual 1099R distribution took place where the NUA was reported in Box 6, then any potential NUA benefit would be eliminated.
Since the mechanics of the required buy back are critical here, an employee in this situation should have specific questions of the plan if this question is not fully addressed in the SPD for the ESOP.
Tax Code section is 402(e)(4).