Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

The correct answer is that all of the doctrines mentioned may lead to tax liability for unfunded nonqualified deferred compensation plans. Each of these doctrines plays a crucial role in how the Internal Revenue Service (IRS) views deferred compensation arrangements.

The constructive receipt doctrine indicates that an individual must report income when it is made available to them, regardless of whether they have taken possession of the income. In the context of a deferred compensation plan, if the employee can access the funds or has control over their use, the IRS may require taxation even if they have not actually received the funds.

The economic benefit doctrine states that if an employee has an economic benefit from deferred compensation that is not contingent on future services, the employee may be taxed on that value. This would apply in cases where the benefit is currently available, even if the actual payment is postponed, resulting in immediate tax liability.

Lastly, the cash equivalency doctrine posits that if a nonqualified deferred compensation plan leads to cash or cash-like benefits available to the employee, the value of those benefits is subject to taxation. This means that if the deferred compensation has attributes that resemble cash, it may be taxed as income even before it is actually distributed.

Considering these doctrines collectively provides a comprehensive understanding of the tax implications