If an LSD from a 401k takes place on a certain date, e.g., 5/6/08, and the 401k administrator is instructed to send the company stock “in-kind” from this LSD to the owner’s (retiree’s) brokerage firm, then the appreciation on this stock should be eligible for the special NUA tax treatment (long-term cap gains rate). If the stock (which has to first work its way through a transfer agent) arrives at the brokerage firm on a later date, e.g., 6/1/08, where it is then immediately sold, the appreciation on this stock from the LSD (5/6) to the sale date (6/1) is not eligible for NUA and is subject to the short-term cap gains rate.

Question: How is this stock sale to be reported on the retiree’s 2008 federal tax return? Note: The retiree was not born before 1/2/36 so no alternate method is available to report the LSD. I would think that the number of shares sold on 6/1 should be reported on Part II of Sched D and the Sales Price (Column 8d) should reflect the price that the stock would have sold at on the date of the LSD had the stock been sold at that time. This same number of shares should then be shown in Part I of Sched D with the number from 8d appearing in the Cost Basis column, 1e. Part I, 1d (Sale Price) would reflect the sale price as o 6/1. Is this correct? I’m a little uncomfortable reporting a stock as “sold” (col 8d) when in fact it has not actually been sold. However, I don’t know of another way to report this. Thanks for you help!