Golden Parachute Payments

Definition

Also referred to as Income Averaging

Any payment in the nature of compensation to (or for the benefit of) a disqualified individual if_

  1. The  payment is contingent on a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation, and
  2. The aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount.

 

The term “base amount” means the individual’s annualized includible compensation for the period consisting of the most recent 5 taxable years ending before the date on which the change in ownership or control occurs (or such portion of such period during which the disqualified individual performed personal services for the corporation).

Referring Cite

IRC § 280G

Additional Helpful Information

  • For purposes of ‘2’ above, certain payments not treated as parachute payments under paragraph are not taken into account. Golden parachutes are often used to discourage takeovers by increasing the cost of acquisition of the company