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  1. In the case of a 2020 regular taxable ESOP distribution with NUA reported in box 6 of Form 1099-R, if you self-certify for COVID relief from taxation, Form 8915-E does not allow you to claim beneficial capital gains tax treatment on your COVID distribution. Capital gains on an ESOP distribution with NUA are normally reported on Form 4972, line 6, and the instructions for Form 8915-E (page 2, left column at the very bottom in the "Note") specifically mentions no capital gains from Form 4972 are allowed. The link to IRS Form 4972 and its instructions are here: Form 4972 and Instructions. Form 8915-E and instructions can be found here: Form 8915-E Instructions; Form 8915-E Accordingly, from what I can tell, COVID impacted recipients of 2020 ESOP distributions with NUA will have a choice to make with respect to claiming COVID relief on Form 8915-E: 1) file Form 8915-E and forego capital gain treatment, but pick up the waiver of the 10% early withdrawal excise tax (plus get 3-year ordinary income tax spread & ability to rollover); or 2) don’t file Form 8915-E for COVID relief and keep capital gain treatment, but pay the 10% excise tax if applicable (and lose the 3-year tax spread & ability to rollover). In my opinion, if the CARES Act is going to allow taxes to be spread over three years, then spread the taxes normally due over three years. I doubt the CARES Act contemplated the IRS recharacterizing capital gains into ordinary income as a consequence of getting COVID relief. If any income tax preparers out there can think of a workaround like attaching a Form 8275 statement or similar, please let me know. I’ve complained to the ESOP community and LinkedIn. I’m not sure if anything will happen, but the IRS makes mistakes now and then, and ESOPs are complicated, even for the IRS. Alternatively, the CARES Act didn't address this issue and it would take an act of Congress to fix. Any thoughts?
  2. To take advantage of the Net Unrealized Appreciation (NUA) tax rules for shares distributed from an ESOP, the IRS requires a Lump Sum distribution from all of the employer's qualified plans of the same type (that is, all pension plans, all profit-sharing plans, or all stock bonus plans). If the employer has a 401k plan and a separate ESOP, do employees have to take a Lump Sum distribution of both the 401k and the ESOP to take advantage of the NUA? I've read different opinions on this.
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