Chapter 34
GOLDEN PARACHUTE PLAN
LEARNING OBJECTIVES:
A. Know basic facts about golden parachute plans
REVIEW:
This chapter discusses golden parachute plans, which provide special severance
benefits to executives in the event of corporate ownership changes. The biggest
tax implication relates to amounts characterized as an excess parachute
payment. These amounts will not normally be deductible by the employer paying
the severance, and a tax penalty will be assessed on the recipient. Two
references are provided for learning more.
CHAPTER OUTLINE:
A.
B.
C.
D.
What Is It?
Tax Implications
Where Can I Find Out More About It?
Chapter Endnotes
FEATURED TOPICS:
Golden parachute plans
CFP® CERTIFICATION EXAMINATION TOPIC: NONE
1
Chapter 34
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Know basic facts about golden parachute plans
KEY WORDS:
golden parachute, parachute payment, base amount
DISCUSSION:
1. Discuss why executives may demand parachute payments.
2. Discuss problems related to these parachute payments.
QUESTIONS:
1. Which of the following are tax sanctions on amounts characterized as
parachute payments?
(1) no employer deduction is allowed on excess amounts
(2) the person receiving the payment is subject to a penalty tax equal to 20%
of the excess payment
(3) the entire severance payment will be deemed nondeductible by the
employer
(4) excess amounts must be repaid within 24 months
a.
b.
c.
d.
(1) only
(1) and (2) only
(2) and (3) only
(3) and (4) only
Chapter 34, p. 285
2. Parachute rules generally do not apply when payments are received from
which of the following entities?
(1) S corporations
(2) qualified retirement plans
(3) simplified employee pensions plans
(4) SIMPLE IRAs
Chapter 34
a.
b.
c.
d.
(1) and (3) only
(1) (2) and (3) only
(2) (3) and (4) only
(1) (2) (3) and (4)
Chapter 34, p. 286
ANSWERS:
1. b
2. d