Cost Basis for NUA Following Employer’s Merger
A client’s 401(k) account currently has about $500K in employer stock with a cost basis of about $125K.
Client’s employer will soon be merging with another company.
Although the proposed merger has been very good for the company stock price, it will not be a tax-free transaction. Consequently, anyone who holds the company stock in a non-qualified account will recognize a capital gain on the share exchange.
Am I correct in assuming that the merger will effectively “reset” my client’s cost basis for calculating NUA even though he won’t currently recognize any gain from the transaction (since the stock is in his 401(k) account)?
Permalink Submitted by Alan - IRA critic on Mon, 2017-11-27 17:52
Yes, the cost basis for NUA purposes should be re calculated. If client’s employer shares are replaced by those of the acquiring firm, the acquiring firm’s shares are still deemed NUA shares. If cash is generated that is more than the amount of cash needed to eliminate partial shares, I do not believe that either the cost basis or the NUA of the shares retired for cash can be transferred to the remaining shares. That would reduce the total dollars of NUA available once the LSD is completed. Client should seek specific clarification from the plan administrator on how the details of this merger affect NUA.
Permalink Submitted by [email protected] on Mon, 2017-11-27 20:40
Alan, thanks for the quick reply. I’ll be sure to have Client inquire with the plan administator.