Non-Allocation Period in event of Death

[Guest DeePA]

Does the non-allocation period (the later of 10 yr period after 1042 or payoff of loan) disappear in the event of death. That is, if someone who exercised 1042 dies prior to the 10 yr. period, does the non-allocation period automatically expire.

We have a case where the owner who exercised 1042 dies after 8 years and the sons are curious as to whether they can now receive ESOP forfeitures.

Any insight???

Thanks

[RLL]

Hi DeePA ---

If the deceased owner was a more-than-25% shareholder when the 1042 sale occurred, his/her sons are treated as more-than-25% shareholders under IRC sections 318(a) and 409(n)(1). A more-than-25% shareholder cannot receive an allocation of any of the 1042 sale shares, and the nonallocation period under section 409(n)(1)(A) does not apply to allow allocations to such shareholders even after ten years. See section 409(n)(1)(B). The death of the seller does not effect any change in this rule.