Who will be subject to taxation when participating employees

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Problem 1: The Coldest Brew coffee company established a non-qualified deferred compensation plan several years ago. Each year, three top executives defer a portion of compensation to the plan. In order to make sure funds are available to meet obligations under the plan, the company has established a reserve account invested in a mutual fund portfolio. The reserve account is held as a general asset of the company. Who will be subject to taxation when the participating employees and sponsoring company file their prior year returns?

1. Employees will pay tax on deferred income
2. Employer will pay tax on deferred income
3. Employee will pay tax on reserve account earnings
4. Employer will pay tax on reserve account earnings

A. 1 and 3
B. 2 and 4
C. 2 only
D. 4 only

 

Reference no: EM133003561

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