NUA Question

Submitted by Brian Standage on Thu, 2007-09-20 18:58

We have several clients that currently work for a local Kraft plant. They are nearing retirement and we have discussed NUA, in general. Recently, Altria spun off Kraft (their employer). Most employees own a large number of shares of Altria and some Kraft stock.

When our clients retire over the next few years, will they be able to take advantage of NUA on the Altria stock they own???? My concern is that they will not be employed by Altria when they retire, therefore not be considered the stock of your employer.

And, if they can take advantage of the NUA in the Altria stock…would it be based on all of the appreciation in the stock – or just the appreciation that occured while they were employees of Altria, with the appreciation that occured after the spin-off not eligible for the NUA???

Hope this makes sense.

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Permalink Submitted by Alan Spross on Thu, 2007-09-20 20:20

They should be able to consider the MO shares for NUA including the gains since the spin off right up to the day of distribution. These shares were employer shares when they were acquired, and in most such spinoffs the employee is not allowed to acquire shares in the former employer after the spinoff. That should protect NUA potential on all the shares. My impression is that dividend reinvestment in MO after the spinoff is an exception in that it acquires more shares and also tends to increase the cost basis somewhat.

One way to test this is to simply have them ask for a NUA cost basis quote for all employer shares (MO, Kraft and any others), and see what the response is. Often, the original shares (MO only in this case) have the best NUA potential because they reflect a much earlier acquisition period other than dividend reinvestment and carry a lower % cost basis. The employee should be able to select NUA for example on the MO but not on the Kraft shares. This often works as a surrogate solution for plans that only offer average cost accounting, since the employee would then have a choice of specific shares because they are different companies.