Rollovers and TAM 200841042

[KJohnson]

TAM 200841042 appears to contemplate what is essentially a "paperless" distribution of employer securities from an ESOP to a participant and exercise of the put back to the company and the employee just receives a check from the company for the stock. The TAM seems to say that the NUA rules apply here (although LMSB initially argued that it should all be ordinary income). Does this mean that the former employee who immediatley exercises the put is taxed at ordinary income tax rates on the ESOP basis and capital gains on the NUA. If so, canthe employee take the proceeds of the put that are subject to ordinary income tax and roll them over to avoid that taxation and just "keep" the amount of the distirbution that is NUA and pay only the capital gains tax on that portion?

Here is the TAM

http://www.irs.gov/pub/irs-wd/0841042.pdf