Maroon Corporation Is Considering Deferred Compensation Plans for Its Executive

Maroon Corporation is considering deferred compensation plans for its executive employees over age 55.All of the employees use the cash method of accounting.One plan is to allow the employee to make an election at the beginning of the year to defer 10% of his or her salary until retirement,at which time the executive would receive the deferred pay plus 6% interest.

A) The 10% of salary and the interest must be included in gross income before retirement.
B) The employee cannot defer the income (both the salary and the interest) for tax purposes because it is constructively received each year.
C) The employee must recognize the salary each year,but can defer the interest.
D) The salary and the related interest can be deferred from inclusion in gross income until they are received.
E) None of the above is correct.

Correct Answer:

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