Sections 280G and 4999 Parachute Payment Rules

Summary

Internal Revenue Code Sections 280G and 4999 are intended to penalize certain employees and other service providers who receive, and corporations who pay, "excess" amounts (sometimes referred to as "golden parachute payments") in connection with a change in control. If payments to a "disqualified individual" exceed a specified threshold, the individual is subject to a 20% excise tax (in addition to ordinary income tax) and the corporation is denied a federal income tax deduction. This practice note summarizes these rules and addresses potential ways to mitigate or eliminate their impact.