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US Treasury To Publish Deferred Compensation Guidance

by Leroy Baker, Tax-News.com, New York

14 December 2004


The US Treasury Department will release new guidance concerning changes to certain executive compensation rules brought about by recently passed tax legislation within the next two weeks, according to Reuters.

The legislation surrounding deferred compensation plans, a mechanism used by many US executives to lessen their tax bills in the run-up to retirement, was tightened as one of the revenue-saving measures contained in the corporate tax bill passed by Congress in October.

By placing access restrictions on monies contained in deferred compensation plans, lawmakers are hoping to prevent a repeat of some of the abuses witnessed in the Enron affair, when several executives siphoned off assets from deferred accounts shortly before the firm went bust.

The new rules will make it more difficult for a beneficiary to take out money from such a plan without incurring a 20% penalty.

To avoid this penalty, it is likely that the rules will stipulate that deferred payments must be made only at specified times, such as the end of employment or death, whilst executives classed as ‘key employees’ may not be able to receive deferred compensation for six months after ending their job with a company.

The new rules are expected to prompt a wholesale review of executive compensation schemes to determine what forms of pay will be caught by the revised legislation.

A Treasury official indicated to Reuters that the new guidance will be issued by December 21.

A comprehensive report in our Intelligence Report series examining expatriate taxation, executive compensation and reward structures is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report10.asp


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