NUA with subsequnt allocation

[stephen]

Terminated participant takes a lump sum, all stock distribution from ESOP in 2007 and elects NUA. In 2008 a small allocation of stock takes place.

Does the fact that an additional allocation after the year in which the participant took a lump sum preclude the NUA treatment for both the original and the follow-up distribution?

Lump Sum says full account balance with-in one taxable year. How does that apply in this case? Is he forced out of NUA by small allocation in 2008?

[RLL]

A benefit distribution is a "lump sum distribution" if it represents the total amount payable at the time of the payment. A later allocation will not cause the payment to fail to be a lump sum distribution.

There are old IRS Revenue Rulings that make this clear. But don't ask me for cites .... you can do your own research.

[stephen]

I was able to find the cite below as supporting evidence.

Thank You,

Stephen

§1.402(a)-1. Taxability of beneficiary under a trust which meets the requirements of section 401(a)

(a) In general.

(6) (ii) The term “total distributions payable” means the balance to the credit of an employee which becomes payable to a distributee on account of the employee's death or other separation from the service or on account of his death after separation from the service. Thus, distributions made before a total distribution (for example, annuity payments received by the employee after retirement), will not defeat application of the capital gains treatment with respect to the total distributions received by a beneficiary upon the death of the employee after retirement. However, a distribution on separation from service will not receive capital gains treatment unless it constitutes the total amount in the employee's account at the time of his separation from service. If the total amount in the employee's account at the time of his death or other separation from the service or death after separation from the service is paid or includible in the gross income of the distributee within one taxable year of the distributee, such amount is entitled to the capital gains treatment notwithstanding that in a later taxable year an additional amount, attributable to the last year of service, is credited to the account of the employee and distributed.

(iv) If the “total distributions payable” are paid or includible in the gross income of several distributees within one taxable year on account of the employee's death or other separation from the service or on account of his death after separation from the service, the capital gains treatment is applicable. The total distributions payable are paid within one taxable year of the distributees when, for example, a portion of such total is distributed in cash to one distributee and the balance is used to purchase an annuity contract which is distributed to the other distributee. However, if the share of any distributee is not paid or includible in his gross income within the same taxable year in which the shares of the other distributees are paid or includible in their gross income, none of the distributees is entitled to the capital gains treatment, since the total distributions payable are not paid or includible in the distributees' gross income within one taxable year. For example, if the total distributions payable are made available to each of two distributees and one elects to receive his share in cash while the other makes a timely election under section 72(h) to receive his share in installment payments from the trust, the capital gains treatment does not apply to either distributee.