This article discusses the traps for the unwary created by Section 409A of the Internal Revenue Code (“Section 409A”) with respect to current trends in change-in-control compensation for public company executives and the structure of private company acquisitions. Although Section 409A is a deferred compensation statute, it potentially applies to many types of compensatory arrangements implicated in a change in control, including severance arrangements, stock options, incentive arrangements and certain other forms of compensation. The consequences to the executive of violating Section 409A are severe — accelerated income inclusion, interest and a 20% federal penalty tax (California imposes an additional 20% penalty).
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Topics: Deferred Compensation, Earn-Outs, Executive Compensation, IRS, Section 409A, Severance Agreements
Published In: Administrative Agency Updates, Business Organization Updates, Mergers & Acquisitions Updates, Tax Updates
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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