Section 280G Clause
(Safe Harbor Cutback)

Summary

You can use these clauses in compensation arrangements to impose automatic reductions to change-in-control related payments to the extent necessary to avoid triggering the excess parachute payment penalties under I.R.C. §§ 280G and 4999 (collectively, Section 280G). Such provisions are frequently used in change-in-control, employment, or other compensation agreements with executives (and others potentially subject to Section 280G) that do not provide for Section 280G gross-ups. This language is a so-called safe harbor cutback, which reduces potential Section 280G parachute payments to an amount less than the Section 280G threshold if payment of the unreduced amounts would trigger Section 280G's excise tax. The form also includes provisions addressing determinations, adjustments, and other considerations. For a full listing of key content covering executive employee agreement considerations, see Executive Employment Agreement Resource Kit. For language illustrating alternative approaches to handling Section 280G concerns in compensation arrangements, see Section 280G Clause (Valley or Net-Best Cutback), Section 280G Clause (Basic Gross-Up), and Section 280G Clause (Conditional Gross-Up). For more information on this topic, see Sections 280G and 4999 Parachute Payment Rules. For a general practice note on change-in-control agreements and accompanying annotated form, see Change-in-Control Arrangement Drafting Considerations and Change-in-Control Agreement. For a full listing of key content covering executive compensation issues related to I.R.C. Sections 280G and 4999, see Section 280G Resource Kit.