Does anyone know whether the employer is required to withhold for federal income taxes where the employee has died and spouse is entitled to a lump sum death benefit from the employer's unfunded nonqualified deferred comp plan? Reg. Sec. 35.3405-1, Q & A 21 appears to require withholding under section 3402 but at least one IRS representative that I've talked to says there is no withholding obligation. The 1099-R instructions are not particularly helpful in my view but the representative cited to these as her authority that no withholding is required. Any input would be appreciated.

You need to look at Rev. Rul. 86-109. There should be no withholding requirement.