No Withholding on Distribution in Stock and Cash

[GMK]

The ESOP's assets are mainly in employer stock, plus a little cash. All assets are allocated to participants' accounts.

The ESOP makes a distribution (paid to participant, not a rollover) in stock and cash, where the cash, for example, is for partial shares ($7) plus the cash account balance ($11). The stock basis is, say, $20,000, so mandatory withholding is $4,004, but withholding cannot exceed the cash portion.

The total cash portion ($18) is less than $200, but it is not ALL in lieu of partial shares.

All the references I've found, including IRC 3405(e)(8), say that no withholding is required for a distribution which consists only of employer securities and "cash (not in excess of $200) in lieu of fractional shares."

Does this mean ONLY in lieu of fractional shares, or can other small cash amounts be included in the $200?

In other words, does the ESOP need to withhold the $18 cash portion?

Thanks in advance for any advise, references, and experience. If you need more information, let me know.

(For reference, the ESOP used to keep larger cash reserves to pay all benefits in cash. This year it will make distributions in stock and cash, and situations like the example are likely.)

Thanks, again.

[GMK]

With no reply to the contrary, I guess I better stick with ONLY in lieu of fractional shares.