NUA – Undoing
Client laid off; Had highly appreciated stock (cost basis very low) in 401k. Client took advanatge of NUA early in 2012, only to have just find out that there was a “separate bucket” with restricted shares in it. The restriction is lifted on 1/1/13 (but is outside having all distributed in calendar year). The restricted shares amount to less than 1% of entire portfolio, but is preventing the NUA from being complete/recognized.
Shares have been distributed and liquidated.
Are there any options at all for this client? other than having to pay Ordinary Income on the entire distribution
Thanks for taking time to read and I am looking forward to your responses
Permalink Submitted by Alan Spross on Tue, 2012-09-04 22:49
There is no solution I know of. Therefore, it appears his best shot is to appeal to the plan to make an exception of a couple days on the restricted shares to get them distributed in 2012. If plan communications are responsible for this costly error, it may give him some leverage. Was he mislead in not being able to do a qualified LSD this year?
Otherwise, if still within 60 days of receipt of the shares, client could roll over the proceeds to an IRA (exact proceeds whether a gain or loss) and that would avoid ordinary income on the distribution. Then if the restricted shares have a low enough cost basis he could do the LSD next year and use NUA on those shares. If the 60 days has elapsed, and the amount is sufficient, client could pursue a PLR with the IRS for extension of the 60 day period. Note Rev Procedure 2003-16:
http://www.unclefed.com/Tax-Bulls/2003/rp03-16.pdf
User fees for rollovers are lower than other user fees and graduated based on the amount of the rollover.
Permalink Submitted by george dougherty on Thu, 2012-09-06 10:23
Has anyone ever experienced a former employee surrendering/disclaiming their restricted shares, whereby bringing their share total down to zero? In this case the former employee would gladly give back/surrender thestill restricted shares.
Permalink Submitted by Alan Spross on Thu, 2012-09-06 16:35
He would have to pose that question to the plan. Even if he is allowed to disclaim them, there will be a problem if this information is not clear to the tax reporting dept since his 1099R for 2012 will have to show the NUA amount and cost basis of the shares already distributed. In other words, reporting would have to contemplate that an LSD was completed in 2012.