LO.7 Elba is an officer of a local company that merges with a public company, resulting in

Question:

LO.7 Elba is an officer of a local company that merges with a public company, resulting in a change of ownership. She loses her job as a result of the merger, but she receives a cash settlement of $680,000 from her employer under a golden parachute plan. Her average annual compensation for the past five tax years is $230,000.

a. What are the tax consequences to Elba and to the company as a result of the

$680,000 payment?

b. Assume instead that Elba’s five-year average annual compensation was $130,000 and that she receives $420,000 in the settlement. What are the tax consequences to Elba and the company?

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