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Illustration: 280G
Noncompliance vs. 280G
Compliance
JR Llewellyn
Compensation Advisors
What Noncompliance Looks Like
Assumptions
• 280G Limit
– Three Times Base Amount (minus 1) = $899K
• Parachute Payment
– E...
What Noncompliance Looks Like
Results of Excess Parachute Payment
Penalty for noncompliance based on amount CIC value
exce...
What Compliance Looks Like
Assumptions
• Base Amount $300K
– Three Times Base Amount (minus 1) = $899K
• Parachute Payment...
What Compliance Looks Like
Results of Excess Parachute Payment
• Individual Excess Payment is $0
– Tax Consequence
• Ordin...
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Illustration: 280G Noncompliance vs. 280G Compliance

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To understand the associated tax consequences and penalties with 280G noncompliance, here’s an illustration that compares what happens when you plan ahead and are compliant.

Publicado en: Economía y finanzas
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Illustration: 280G Noncompliance vs. 280G Compliance

  1. 1. Illustration: 280G Noncompliance vs. 280G Compliance JR Llewellyn Compensation Advisors
  2. 2. What Noncompliance Looks Like Assumptions • 280G Limit – Three Times Base Amount (minus 1) = $899K • Parachute Payment – Employment Agreement (2x) = $600K – Unvested Equity = $100K – Accelerated NQDC = $200K – Total Parachute Payment = $900K • $900K > 3x Base Amount minus 1 of $899K resulting in an “Excess Parachute Payment”
  3. 3. What Noncompliance Looks Like Results of Excess Parachute Payment Penalty for noncompliance based on amount CIC value exceeds ONE times Base Amount ($300K) • Individual Excess Payment is $600K = ($900K - $300K) – Tax Consequence • Ordinary Income Tax on the full payment $900K (40%) = $360K + • IRC 4999 Excise Tax on “Excess Parachute Payment” (20%) = $120K = • Net CIC Benefit of $420K (53% paid in taxes ) • Corporate Excess Payment Penalty – Non Deductibility of $600K – Additional Cash Taxes of $240K
  4. 4. What Compliance Looks Like Assumptions • Base Amount $300K – Three Times Base Amount (minus 1) = $899K • Parachute Payment – Employment Agreement (2x) = $600K – Unvested Equity = $98K – Accelerated NQDC = $200K – Total Parachute Payment = $898K • $898K < 3x Base Amount minus 1 of $899K resulting in no “Excess Parachute Payment”
  5. 5. What Compliance Looks Like Results of Excess Parachute Payment • Individual Excess Payment is $0 – Tax Consequence • Ordinary Income Tax on the full payment $898K (40%) = $359K • Net CIC Benefit of $538K (40% paid in taxes ...still sad but better) • Corporate Excess Payment Penalty – Full deductibility on $898K – Net “Cost” of $538K assuming 40% corporate tax rate

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