Foreign Trust Question - Does this qualify as an 402(b) trust?

[jbregs]

Hi all, my wife is a U.S. resident alien (former Canadian) who received a lump-sum cash distribution from an Employee Share Ownership Plan (ESOP) trust after leaving her employer, the Canadian branch of a U.S. organization (NYSE-listed stock).

We both became resident aliens 01/01/2024, and the withdrawal event happened in April 2024.

I’m working to determine if she’s a “U.S. owner” of this foreign trust under IRC Section 679, requiring a substitute Form 3520-A (trust didn’t file one), or if it’s exempt under 6048(a)(3)(B)(ii) as a 402(b) trust.

Here’s the setup:
ESOP Details (listed as part of her employer's Smart Saving Program):
- Structure: Canadian trust holding employer’s NYSE-listed stock; voluntary after 6 months employment.
- Her Contributions: Elects any percentage of pay via after-tax payroll deductions (biweekly); immediately vested, buys stock.
- Employer Match: 50% of her ESOP contributions, up to 1% of her salary (e.g., 2% contribution gets 1% match); vests 100% after she has 2 years in the program.
- Vesting: Her contributions immediate; match vests after 2 years; unvested match forfeited if leaving before 2 years (she left post-vesting).
- Withdrawals: One free withdrawal/year without penalty; additional withdrawals may suspend match and incur fees; distribution paid out 90 days post-exit (lump-sum, less tax).

Question: Since U.S. owners of foreign trusts must file Form 3520-A, is she an owner under 679, or is this ESOP exempt under 6048(a)(3)(B)(ii) as a 402(b) trust?

Consider:
- Section 679(a)(1): U.S. person transferring property to a foreign trust with a U.S. beneficiary (her) is the owner of that portion, unless exempt under 6048(a)(3)(B)(ii).
- Section 6048(a)(3)(B)(ii): Exempts trusts described in 402(b) from 679 ownership and 6048(a)(3)(A) reporting.
- Section 402(b): Non-501(a) employees’ trusts; employer contributions taxed when vested (Section 83), distributions taxed when received (Section 72); her contributions after-tax, match deferred 2 years.
- However, under 1.402(b)-1(b)(6) there's a clause for "non incidental" contributions made by employees. In this case, my wife's contributions are typically 2x greater than the employer's (honestly, this was a $50 employee, $25 employer contribution in 2024...)

The match’s 2-year vesting feels like deferred compensation, and it’s an employee trust tied to her pay.
Does this qualify as 402(b), exempting her from 3520-A, or would the IRS likely treat it as a 679 trust due to its foreign status and stock ownership focus (or the non-incidental employee contributions)?

What are the practical implications here, based on your assessment?
File 3520 and 3520-a? Record the income?

She received a Canadian tax slip for the gains, so assuming it was taxed in Canada.

Opinions welcome—sorting our tax obligations!