Section 280g Calculations

Tax consequences of 280g.

Section 280g calculations. A practice note addressing the calculation of parachute payments under section 280g of the internal revenue code code including determining the base amount of disqualified individuals determining the parachute value of certain payments that are contingent on a change in control allocating the base amount and calculating the portion of parachute payments that are excess parachute payments and the related excise tax. Section 101 a of the act enacted section 5211 a of title 12 banks and banking and amended section 5315 of title 5 government organization and employees and section 301 of title 31 money and finance. Section 120 of the act is classified to section 5230 of title 12.

S corporations are not subject to 280g. Generally compensation payments made by a corporation to employees officers and directors are deductible by the corporation for tax purposes. Any excess parachute payment within the meaning of 280g b.

Under section 280g a 20 percent excise tax is charged to the individual on the golden parachute payment amount in addition to any income tax. For rules relating to the imposition of a nondeductible 20 percent excise tax on the recipient of any excess parachute payment see internal revenue code sections 4999 275 a 6 and 3121 v 2 a. However 280g disallows a tax deduction for certain compensation payments made to disqualified individuals such as officers shareholders and highly compensated individuals when the compensation is paid pursuant to a change in control.

An excess parachute payment is defined in 280g b 1 as an amount equal to the excess of any parachute payment over the portion of the disqualified individual s base amount that is allocated to such payment.