I am reviewing a plan that provides that certain employees are entitled to a bonus payment if there is a change in control of the corporation. I have 3 questions regarding this plan.

1. When are the amounts taxable to the 2 individuals? When a change in control occurs? Or is there any reason that the individuals would have to pay taxes (based on a valuation of the company) prior to an actual change in control?

2. Change in control is defined as a "sale, exchange or other disposition of all of the stock of the Company, a merger or consolidation of Company, or a sale of all or substantially all of the assets of the Company such that the Company is not controlled, directly or indirectly, by those persons who were shareholders before the transaction" Does this definition comply with the treasury regs so that the plan conforms to 409A?

3. Assuming the plan does not meet the 409A requirements, and a change in control does eventually occur, how would the individuals be taxes? Would the tax owed be considered when the Plan was implemented (which is when they had a vested right to payment)? In my scenario, the plan was adopted in 2000, so would the 2 guys have to amend their 2000 return, pay interest from that date, plus the 20% excise tax?

Can anyone assist? Thanks.

Why not ask the person who is reviewing the plan for section 409A compliance?

Unfortunately, I am the one reviewing the plan for compliance. It's a little more complex than that, but I am reviewing this plan to see if there are any holes and gain a better understanding by asking the questions above.

I am sorry you got stuck with an assigment that was not reasonable to give to you.