Our valuation specialists understand the difficulties involved in calculating accurate change-in-control payouts, especially when IRC Section 280G is involved. We help clients assess their executive agreements, equity plan documents and current equity awards to ensure compliant calculations.
A Safe Landing for 280G Calculations
Our valuation services team is prepared to support clients with all of their reporting needs under IRC Section 280G, which requires the calculation of all payments contingent upon a change-in-control in order to check for applicable tax penalties. These so-called "golden parachute" payments can include a lengthy list of compensation elements, such as:
- Cash severance benefits;
- Pro-rata or accelerated cash bonus payouts;
- Health and welfare benefits;
- Nonqualified pension benefits; and
- Accelerated vesting of equity awards.
Any parachute payment in excess of a recipient’s “Base Amount” (effectively an average of their pay over the previous five years) is not tax-deductible, and IRC Section 4999 then imposes a 20 percent excise tax on the recipient for any excess parachute payment.
Tax calculations can become exceedingly complex in the event that a company provides tax gross-up assistance, which is intended to shield payment recipients from excise taxes. Once gross-ups are paid, they are counted as part of the “golden parachute” payout, creating an escalating cycle of excise taxes and further gross-up payments.
Our team has the expertise to help you understand and manage the IRC Section 280G reporting process, ensuring proper compliance no matter how complex your underlying compensation arrangements might be.