NUA

[Gvandelo]

A former employee spouse receives a distribution of company stock with an NUA from a 401K and meets all of the conditions required to take advantage of the NUA and pays ordinary income taxes on the basis of the stock. 

The employee spouse then transfers the stock to their spouse (non-employee spouse). The non-employee spouse then passes away and the child of the non-employee spouse inherits the stock (employee spouse has not passed away). 

What are the tax consequences when the child sells the stock?

[dmertz]

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.  

[Gvandelo]

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?