NUA
Can an individual rollover the cost basis portion after the stock is sold to an IRA within 60 days to avoid paying Ordinary Income taxes?
Some time known as the Frank Duke Method.
Can an individual rollover the cost basis portion after the stock is sold to an IRA within 60 days to avoid paying Ordinary Income taxes?
Some time known as the Frank Duke Method.
Permalink Submitted by Alan Spross on Wed, 2010-06-09 01:41
No, this is not allowed.
Once the shares are distributed to the employee, the employee CAN roll some or all of the shares over to reduce the number of NUA shares. But he cannot mix NUA treatment for the amounts in excess of the cost basis with a rollover of the cost basis.
To report NUA on Sch D, you must also report the value per share at distribution less the NUA per share as the Sch D cost basis. The amount reported as basis cannot be rolled over. For each share of stock distributed the employee can elect a rollover or NUA treatment but for any share that gets NUA treatment no part of the value of that share can be rolled over.
Also, note that Sec 403(e)4 that emumerates NUA refers only to this feature applying to shares that are distributed to the employee, not distributed then sliced up into components with one of those components of each share being rolled over.
Permalink Submitted by Brent Bodner on Wed, 2010-06-09 02:38
http://www.accountantforums.com/lump-sum-distribution-employer-stock-t13…
This is the only discussion I have found. Can you shed more light?
Permalink Submitted by Alan Spross on Wed, 2010-06-09 05:13
Thanks for the link. While there are several tangential issues discussed, on the basic point of aggregate rollover accounting vrs per share accounting, I agree with Alan Kalman’s interpretation. But I will concede that the IRS Regs have failed in some respects to be clear on this issue. It should best be clarified by excluding from the definition of an eligible rollover distribution proceeds from shares that the employee has elected to receive NUA treatment.
I don’t agree that the 5498 form issued by the IRA custodian is material to the basic question. IRA custodians report only gross amounts of value that they receive as contributions to the IRA on Form 5498. That amount does not shed any light on the NUA cost basis for shares that are not rolled over.
There is some debate about NUA application in plans that account for different lots of shares with different cost basis amounts per share, and in those cases it benefits the employee to roll over the higher cost basis shares to an IRA and utilize NUA on the lower cost basis shares. Some tax experts feel that the direct rollover should be done from the qualified plan before the distribution of other shares, but others feel the employee can do an indirect rollover of the shares and retain the lower cost basis shares for NUA.
I will continue to search for an IRS cite that clarifies that all accounting must be done on a per share basis rather than in lump sums despite the fact that the 1099R will only show gross totals and gross NUA dollars for the entire distribution.