NUA election--can basis be rolled in kind???

[Guest danmar]

This falls into the category of "can I have my cake and eat it too?"

In Natalie Choate's "Life and Death Planning for Retirement Benefits", she indicates that the IRS has allowed (PLR 8538062 6/25/85) a participant to elect NUA treatment on an ER stock distribution and then allowed them to roll the amount of the stock representing basis into an IRA. Thus, no tax was incurred on the distribution and the participant will be able to pay taxes on the NUA amount as LTCG.

Can this be right? I couldn't find the cited PLR on my RIA Pensions CD, which led me to believe that the PLR had been contradicted by later rulings. I'm guessing that the IRS wouldn't allow the participant to elect an accounting method such as FIFO on the ER stock that was different from the method the plan trustee elected for the ESOP trust.

Thanks for your help, Dan.

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[Kirk Maldonado]

That is what the PLR states. (It is available on LEXIS.)

I question whether that is the proper result. I don't think that you can "tranfer" basis and/or NUA between shares. I don't recommend relying upon this PLR. If you want to take this position, you should seriously consider obtaining your own PLR.

[Guest]

I agree that this is a nutty ruling. I can't believe that anyone would be able to get a similar ruling out of the IRS today. I've heard some financial planner-types advocate this technique (without expressing any knowledge of this ruling!). Of course, they often blow their credibility in the next sentence by mentioning the wonders of the basis step-up for employer stock!