Tegernsee

Thank you both for your very complete responses!

The subsidiary of a public company offers stock of the parent as an investment option in a 401(k) plan. The subsidiary is sold to another company, but plan participants are allowed to keep their stock in the parent after the acquisition. At what point in time does the stock of the former parent company no longer qualify as “company stock”? Asking for a friend, of course. Thanks!

Thanks, it’s not an S corp (thank goodness!). This is the only stock that has been acquired by the ESOP, so there would be no other cost bases to deal with, so I think all shares in this plan would have a single cost basis.

I’m bringing this up after nearly 7 years, and I’ve never found an answer to this question. Are shares that are quoted on the OTC Markets Group (formerly “pink sheet” shares) considered to be “readily tradable on an established securities market” under Notice 2011-19? Our pricing service can occasionally pick up bid and ask prices for these stocks, but their methodology is that if anyone puts out a bid price on a stock, the pricing system picks up that price, regardless of the price at which the most recent actual trade occurred. Any thoughts on this?

I tried to find this topic addressed, but was unsuccessful. It seems obvious to me, but what do I know. Leveraged ESOP, closely held stock, has only one tranche of stock acquired with the proceeds of a single ESOP loan that has not been renegotiated. Dividends on unallocated shares are used to pay a portion of the stock loan. In the third year of the loan, 50,000 shares are released per the amortization schedule. The loan payment was $500,000, of which $100,000 was from unallocated dividends and $400,000 was an employer contribution. There are a few forfeitures that resulted from participants leaving who were less than fully vested. Therefore, active participants were allocated shares as a result of the loan payment as well as reallocation of forfeitures. However, only the shares that were released by virtue of the loan payment are using the cost basis of the shares when the loan was funded; the shares released as a result of using unallocated dividends and forfeitures are allocated with a cost basis of the FMV as of the end of the year. I had always understood that all shares acquired with the proceeds of a stock loan carry the basis at which they were acquired, regardless of release of shares or reallocation of forfeitures. Am I wrong here? Thanks to any all for their wisdom and insight!

Thanks, all. I do have the plan document, and it has the dividend pass through provision, but the SPD was more succinct so that is what I quoted. It is definitely not an ESOP.

Bill, no problem, as I have only previously seen that in ESOPs. This old dog learned a new trick! Peter Gulia, thank you for those cites - much to chew on there. EBE Catty, I appreciate your providing that cite to Q&A 11. It’s making my head swim. LOL Paul I, the plan is neither a KSOP nor a standalone ESOP, so it has none of the other ESOP-like provisions such as diversification provisions.

Thanks so much, Lou - I appreciate your answer! That makes perfect sense to me, although I don’t think I’ll ever see a response on point. Joe

Actually, the participant may elect to receive the cash. Per the SPD: “Under the Plan, dividends may be used to purchase additional (name of stock) for your account or paid out to you in cash.”

OK, I researched for a long time before posting this question. We have a client that has company stock (NYSE traded) as an investment option in their 401(k) plan. The plan also allows participants to invest all money types, including Roth contributions, in the stock fund. Further, the plan gives participants the option to either reinvest dividends or pass them through. The question is if a participant invests their Roth money source in company stock and elects pass through of dividends, are the dividends taxable or tax exempt? Thanks!

That is a good answer, and I agree. Unfortunately, the individual is happy to point out that he has a degree from a US law school and is not afraid to put it to use. We would prefer to avoid litigation, and threats of litigation, if possible. Also, I would like to get a definitive answer, if available, and get closure on this issue because I know it will come up again. Thanks for the reply!

This is a question I’ve never seen come up - apologies if it has and I didn’t see it. We have a terminated participant in a US ESOP who is a resident of Great Britain (a nonresident alien). He rolled over the non-stock portion of his account balance to an IRA in the US (apparently he plans to work in the US again some day), and had his employer stock distributed to a US investment account so he could benefit from the net unrealized appreciation rules. We reported his basis as a taxable distribution on a 1099R, putting his NUA in box 6, and put the total value of his total stock distribution (basis + NUA) on the 1042-S. He is now telling us that we should have put all the info on the 1042-S, and there was no reason to file a 1099-R. I’ve read the instructions for both forms multiple times now, and can’t see where NUA treatment is discussed at all. That seems reasonable to me, as the purpose of a 1042-S as I understand it is to identify US-source income so the appropriate treaty provisions may be applied to it. Has anyone else ever faced this issue? Thanks!