NUA – determining basis
Client owns both preferred and common stock inside their qualified plan that have been purhased over many years; the basis differs (common vs preferred) My understanding is NUA treatment is available for both share types – is this correct?
preferred share basis is the same for each participant whereas for common shares it differs based on number of variables (i.e length of service, etc) In short the client has worked for the employer for 30+ years his common stock basis (client cliams he has documentation) is significantly lower than that determined by the administrator – from what I gather the administrator is using an average of various “lots”
Can the client use his own documentation to determine basis? If so – how is tax reporting (1099) reconciled?
are they “stuck” using the administrators calculation?
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2016-11-09 00:14
The IRS has far more faith in the plan’s accounting for tax basis than an employee. Most plans use average cost basis for all the shares, but for those that account for basis in lots, this is usually used to separate the shares that are sold or rolled over as opposed to those distributed for NUA purposes (the lower cost basis shares). The 1099R only shows a dollar amount of cost basis and NUA. NUA treatment is available for both preferred and common stock of the employer, as well as for subsidiaries no longer owned by the parent company. Note that employer shares purchased by dividend reinvestment are also NUA shares and can affect the cost basis.