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policy can be used to generate additional
wealth at the first spouse’s death to If the compensation payment is made
ensure enough assets remain for the sur-
viving spouse to maintain their lifestyle. within 2½ months after the end of the
Individuals may also choose to leave employer’s tax year in which the services
assets to charity to avoid estate taxes and
fund a life insurance policy held outside creating the right to such compensation
are performed, it may not have to be
of their estate that will provide wealth
for heirs. treated as deferred compensation.
Planning point: There are many
pitfalls to avoid when incorporating life
insurance in an estate plan and many for compensation related to the transac- ■ Buyer has a Sept. 30 tax year end.
types of life insurance to consider. It tion will go to the target. However, there ■ The compensation payments in-
is important to work with an adviser are many considerations when determin- cluded transaction bonuses, restricted
knowledgeable in this area to ensure the ing who gets the deduction (e.g., type of stock units (RSUs), and restricted
plan provides the estate and beneficiaries compensation, accounting methods, and stock awards.
with the maximum benefit. buyer’s fiscal year). ■ Vesting for all awards accelerated on
This item explores three types of the CIC date and were paid within a
Planning for estate success compensation paid to employees of the week afterward.
Ensuring that an estate plan considers target. The target receives one deduction, ■ No Sec. 83(b) elections were made
income tax consequences can be crucial but the other deductions fall into two tax for the restricted stock awards.
to its success. Many of the strategies de- years of the buyer. In this scenario, Pub- ■ Target has historically deducted
scribed above require technical analysis lic1 (Buyer) acquired Public2 (Target) cash bonus payments in the year of
and familiarity with tax laws. Tax profes- on June 30, 2022 (the change-in-control accrual, when the bonuses were fixed
sionals can help ensure estate plans are (CIC) date), in a merger treated as a and determinable at year end and
successful by making sure they are up to stock acquisition for federal income tax paid within 2½ months of year end.
date regarding the most recent changes purposes. The salient facts are as follows: ■ Target historically took deductions
in income tax law. ■ Target has a Dec. 31 tax year end related to RSUs in the year the shares
From Carol Warley, CPA/PFS, J.D. and will file a short-period tax return were transferred.
(incoming vice chair of the AICPA Trust, ending on the CIC date, joining the The treatment of compensation is
Estate, and Gift Tax Technical Resource consolidated group of Buyer on July described in a summary format for each
Panel) (Carol.Warley@rsmus.com); 1, 2022. of the relevant tax years below.
Amber Waldman, CPA, M.Acc. (Amber.
Waldman@rsmus.com); Abbie Everist,
J.D., LL.M., MBA, MA (Abbie.Everist@
rsmus.com); Tandilyn Cain, CPA, MST,
CFP (Tandilyn.Cain@rsmus.com); and
Rachel Ruffalo, J.D., LL.M. (Rachel.
Ruffalo@rsmus.com), Washington, D.C.

Expenses & Deductions
IMAGE BY RICHARD DRURY/GETTY IMAGES Determining compensation

deductions in M&A
transactions
Compensation deductions in mergers
and acquisitions (M&As) are com-
plicated. Deductions can end up with
multiple parties over several tax years.
Companies may assume that deductions

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