Taxation of Net Unrealized Appreciation

[Guest ptpnthr]

Can a participant (or the participant's estate) who, on account of the ESOP's termination, receives a distribution of employer securities attributable to an employer contribution take advantage of the exclusion of the net unrealized appreciation if the participant (i) has died, (ii) has separated from service, (iii) has attained age 59 1/2, or (iv) has become disabled? Assume the distribution is paid in one lump sum payment in stock. Thanks in advance.

[RLL]

Hi ptpnthr ---

It appears that the NUA exclusion in such a situation would only be available to participants who have attained age 59-1/2 or are disabled, as well as for death benefits attributable to participants who had attained age 59-1/2 or had become disabled prior to death.

Note the language of IRC section 402(e)(4)(D)(i) --- "after" is used for the age and disability situations, while "on account of" is used for death and separation from service. Plan termination is not in and of itself an event which triggers availability of the NUA exclusion.