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Change of Control and Attribution rules


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We have a client that is setting up a deferred compensation arrangement and wants to exclude from the Change in Control benefit any transactions between family since it is a closely held company. I think for 409A purposes this is not problematic because they only further restrict the 409A-acceptable definition of a CIC, rather than expand it.

It seems to me that, within a family, if a person is treated as owning any interest owned by the person’s spouse, children, grandchildren or parents, then (for example) a child who purchases stock from his parent would not trigger a Change in Control, because the child is already deemed to own the interest under the 318 attribution rules. I cannot find any guidance that explicitly states that, though. Has anyone dug into how this works?

Thank you!

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You seem to be looking for some reasoning that a within-the-family transfer would not be a change-in-control as the § 409A rules define it. But why?

If the provision the persons negotiating the deferred compensation agreement want might be narrower than what the § 409A rules allow for a change-in-control trigger, what tax-treatment harm would result from the narrower provision?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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I agree with Peter.  Rather than trying to justify why the intra-family transfer falls within the default 409A change in control definition, why not just specifically state in the plan definition of change in control that it does not include such intra-family transfers.

As you stated, as long as you are narrowing the definition (which you are here), it will still be 409A compliant.

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