NUA

Because it is considered to be Income in Respect of a Decedent, the NUA never gets a step-up in basis.  The stock's cost basis to the beneficiary is the date-of-death value of the stock minus the NUA and the NUA is treated as long-term gains.  

There would be no issues with respect to the stock being inherited by the beneficiary of the spouse to the former employee before the former employee passes?

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 wrote:

There would be no issues with respect to the stock being inherited by the beneficiary of the spouse to the former employee before the former employee passes?

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I don't see where that would have any relevance.  The individual who died is the one who owned the shares.

I was concerned that the former employee spouse would not be able to transfer the stock to their spouse without losing the benefit of the NUA (similar to what would happen when gifting the stock with NUA to another individual - NUA gain must first be taken into income before the transfer). 

"NUA gain must first be taken into income before the transfer"

I see what you are saying.  If the NUA is deferred income that cannot be gifted, the person making the gift would have to pay the tax on the NUA upon gifting and that amount would become part of the cost basis of the shares.  However, I haven't been able to find anything definitive that this is how it must be treated, rather than the donor's basis simply transferring to the recipient such that the NUA would not taxed until the shares are sold.

Everything I look at seems to indicate that a transfer from one spouse to another is not a taxable event. Is there an exception for stock that has NUA?