Stock option backdating 2016
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Also problematic is that if these terms are not met, the corporation is not prohibited from paying the compensation.Instead, it is prohibited from deducting that amount on its tax return. The ones who suffer are the shareholders—the same people who, even in this day of expanded compensation disclosures, are not provided with details on the executive compensation plans before being asked to vote on them, nor are they given information on the tax deductions taken or forfeited.
The objective of this study is to examine the impact of a prior limitation on deductibility of compensation, Internal Revenue Code Section 162(m).© Crown copyright 2016 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated.To view this licence, visit uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] put forth in Section 162(a), entities are allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including, as noted in Section 162(a)(1), a reasonable allowance for salaries or other compensation for personal services actually rendered.However, a number of sections of the Internal Revenue Code—in particular, sections 162(m), 162(m)(5), 162(m)(6), and 280(g)—limit the deductibility of executive compensation.In contrast to much of the debate today on the need of the federal government to raise tax revenue, the primary goal of Section 162(m), which limited tax deductions for executive compensation, was not to raise revenue but to reduce excessive, non-performance-based compensation—in other words, to do something about excessive compensation that 1992 presidential candidate William Jefferson Clinton campaigned against.
This paper will review the effectiveness of that provision in achieving its goals, and provide information on how much revenue it has raised or lost due to deductions for executive compensation. Companies have found it easy to get around the law. And it seems to have encouraged the options industry.
Section 280(g) does not apply to periodic payments to employees, but rather to change in control payments.2 If the amount is equal to or greater than three times the covered individual’s average W-2 compensation for the prior five years, the company forfeits the tax deduction for that payment, and the individual is subject to a 20 percent excise tax on the excess payment.
As with sections 162(m)(5) and 162(m)(6), Section 280(g) contains no performance-based exception.
The topic of executive compensation has long been of interest to academics, the popular press, and politicians.
With the continued increase in executive compensation and resultant increase in pay disparity between those executives and the average worker, this issue is once again coming to the forefront of the public policy debate.
Section 162(m)(5) was adopted in 2008 and applies to the chief executive officer (CEO), chief financial officer (CFO), and next three highest paid officers of public and private entities that accepted money under TARP.