Under Internal Revenue Code (IRC) § 1042, an individual taxpayer can elect to defer gain on sale of employer securities to a company’s employee stock ownership plan (ESOP) if qualified replacement property is timely acquired. If the requirements of IRC § 1042 are satisfied, the gain that would otherwise be recognized is deferred and the taxpayer’s basis in the qualified replacement property is reduced by the gain not recognized. If the taxpayer then disposes of the qualified replacement property, any deferred gain is then recognized. There are some limited exceptions to this triggering of deferred gain on disposition including an exception for gifts. While the IRC § 1042 does not define a gift, the IRS in a Private Letter Ruling (PLR) examined whether a transfer pursuant to a divorce triggered recapture of the deferred gain. The IRS determined that IRC § 1021 treats the transfer as a gift to the transferee but does not specifically characterize it as a gift by the transferor. However, the IRS concluded that the transfer to a spouse in connection with a divorce should be treated as a gift and does not trigger recognition of the deferred gain. (PLR 201021005)