E-Alerts

The Hazards of Deferred-Compensation

The Firm is pleased to present the attached White Paper, Internal Revenue Code § 409A: A Dangerous Trap For Deferred-Compensation Arrangements, which describes the complexities and harsh tax consequences that deferred-compensation arrangements can create for both employers and employees if such arrangements are not structured with extreme care.

Under deferred compensation arrangements, employees obtain in one year a contractual right to receive compensation in a later year.  These arrangements are common in employment agreements, severance agreements, certain non-competition agreements, and agreements addressing equity compensation and stock options.

Under Internal Revenue Code, Section 409A, covered deferred-compensation arrangements must comply with a myriad of complex timing, documentary and other requirements.  Non-compliant arrangements can result in severe tax penalties for employers and employees alike.

In short, any agreement involving some form of delayed compensation may implicate issues under Section 409A.  Therefore, it is vital, when preparing any of these agreements, that employers obtain professional guidance to ensure that such arrangements are structured in compliance with Section 409A.

We would be happy to assist you with any needs you may have with any of these agreements or any deferred compensation arrangement.