A recent report from ranking member Sen. Ron Wyden and the Democratic staff on the Senate Finance Committee indicates that nonqualified deferred compensation plans continue to be in the crosshairs of potential tax reform efforts.
The report, which characterizes the longstanding and widespread use of supplemental retirement and other deferred compensation plans as a “tax avoidance” scheme on par with the latest in esoteric financial derivative transactions, does not offer new proposals but instead lends its support to previous proposals to tax nonqualified deferred compensation when it vests, to limit the total amount of nonqualified deferred compensation to, e.g., $1 million per employee and to close the Section 162(m) “loophole” that only takes current compensation into account when applying the $1 million deduction cap.
While the near-term propsects for comprehensive tax reform are uncertain at best, the ongoing focus by congressional policymakers, and in paticular the Joint Committee on Taxation, on the treatment of nonqualified deferred compensation arrangements suggests that, sooner or later, changes in this area are likely to come.
