Interesting ruling, and quite confusing. Rather counterintuitive, because this treatment is quite different from other items of compensatory property (such as restricted stock).

If an employer makes fully vested contributions to a non-exempt trust, the employer is liable for the FICA tax withholding and the trust is liable for income tax withholding. 1 payment, 2 W-2s.

If the contributions are not vested, value of the trust is taxed later when vesting occurs. At least in this case there is only 1 w-2 required, by the trust. However, since the trust is treated as a separate employer the full FICA tax is applicable (even if the employee's regular wages equal or exceed the wage base). The employer and trust, therefore, may each end up paying the full employer portion of the social security portion. The employee can get an income tax break to offset the overpaid social security taxes -- but would this violate 409A?

And what happens if the trust is subject to graduated vesting? Time to upgrade the computer.

I think the conclusion is different than you propose. The Trust is the employer only for purposes of the transmittal of the taxes. For purposes of the determination of the FICA, we look at the actual employer. See GCM 38441 and, the IRS's analysis of this requirement in PLRs 200108010 and 199952048. These dealt with VEBAs, but it is the same issue - a trust making compensatory payments on behalf of the actual employer.