Equity compensation is attractive to employees and employers alike. Because the opportunity to participate in the growth of a company provides potentially unlimited compensation to employees, its incentive value is quite powerful to employers. In this last post in this series on Section 409A, we will sort through the types of equity compensation that are
Section 409A, Part III: Alternative Compensation Arrangements
Our last post described the portions of an executive employment agreement that may be impacted by Section 409A. However, Section 409A may also impact the structure of other, less traditional compensation paid to key employees. In the context of a closely-held business, two commonly-encountered alternative compensation arrangements used outside of the context of an individual
Section 409A, Part II: The Employment Agreement Obstacle Course
Closely-held businesses often rely heavily on a small group of key employees to help their businesses succeed. Given the value of these key employees to the business, it is not uncommon for the business to offer them certain types of additional executive compensation, in addition to standard base salary and participation in typical employee welfare
Section 409A, Part I: What Is It?
Ask most closely-held business owners what words come to mind when they hear the names “Enron” and “Worldcom” and many would say things like “bankruptcy,” “failure,” “scandal” and “greed.” Ask those same business owners what impact those two names had on the ways they are able compensate their key employees and most would likely say
Holding Property For Investment? Make Sure To Act Like It.
In several previous posts, we have emphasized the importance of educating oneself about the tax consequences of any given business transaction well before that transaction comes to life. In many situations, such forethought gives a taxpayer the opportunity to weigh the costs and benefits of different courses of action and, as a result, to
Founder Can Still Be “Active” In The Business
In several previous posts, we noted the importance of determining, in the case of a family or other closely-held business, where the goodwill for the business resides: in the business, in the shareholder-employees, or in another employee. In the absence of an employment agreement or non-compete, we noted that it may be possible to
Separating A Foundation From The Family Business
When people hear about a family business dispute, what most often comes to mind are sibling rivalries and disagreements, or a falling out between a parent and a child, with each side seeking to go its own way. In fact, these are the usual scenarios. There is a set of circumstances, however, that arises with
Personal Goodwill & Estate Valuation
In a previous post, we noted that individual shareholders often seek to reduce the double income taxation (at both the corporate and shareholder levels) that accompanies a sale of assets by, and liquidation of, a C corporation by arguing that they own personal goodwill. By claiming goodwill as a business asset that is separate
S Corp. Trusts & the 3.8% Surtax on NII: Part IV
Planning for the Surtax
The best time to plan for any tax event is well before it occurs, and this also applies to the surtax. The trustee of a trust will almost always want the business income of the trust to be characterized as active income. The surtax may be addressed, at least partially, in
S. Corp. Trusts & the 3.8% Surtax on NII: Part III
The IRS’s Position on Material Participation by Trusts
According to the IRS, material participation for a non‑grantor trust should be determined solely by reference to the activities of the trustee acting as such; it should not include the trustee’s participation in any other capacity (e.g., as an employee of the corporation), nor should it consider