See the Commercial Security Bank case and TAM 8939002.
With that said, I think you might have trouble with this one, only because of the nature of the obligation.
It would probably make more sense for your seller client to pay out this obligation before the transaction closes. If the sale is going to produce cap gains at a 20% long-term federal rate, and he’s in the 37% ordinary bracket, then your client can get an arbitrage in tax rates. Let’s say client has $100k of cash, $100k of stock basis, $0 basis in assets to be sold and $100k of “accrued” vacation pay.
Scenario #1: If buyer assumes that $100k cash basis liability and agrees to pay $4.9m (instead of $5m), client will have a $4.9m cap gain. Net taxable income is also $4.9m. He’ll also have $5m in cash (the $4.9m + $100k existing).
Scenario #2: If buyer does not assume that liability and agrees to pay $5m instead, client will have a $5m cap gain. Client will then pay, and deduct, the $100k accrued vacation pay. Net taxable income is $4.9m, just like Scenario #1. Also like Scenario #1, client ends up with $5m in cash (the $5m + $100k existing - $100k vacation pay payment).
Not sure how the FICA will pan out and how that’s been considered in the calculating of the obligation. But worst case, that’s only 7.65% max. Further, if these people are the same ones getting the phantom payouts (from your other thread), those folks will be over the wage base.