When a change in control (CIC) is on the horizon, one of the key areas to evaluate is the tax impact of the Golden Parachute rules under Internal Revenue Code (IRC) Sections 280G.

Alvarez & Marsal’s Compensation and Benefits practice has extensive experience in assessing the tax impact on corporations and employees when golden parachutes are triggered by a CIC of the employer.  Our team can help not only quantify any potential tax exposure, which is often times quite large, but also navigate the various planning alternatives that should be considered to reduce or even eliminate any adverse tax consequences.

280G Change in Control Process

• Parachute Payment Calculation: Prior to or in anticipation of an actual CIC, it is critical to identify any parachute payments (such as severance, equity vesting, deal bonuses, health & welfare benefits, etc.) and the amount of any excess parachute payments that would trigger excise tax consequences under various scenarios.  Usually, the various inputs (such as stock price, closing date, etc.) are constantly changing up until (and even after) closing, so sensitivity analyses are oftentimes needed to ascertain when issues may arise for certain employees.
• Planning Considerations: A&M can identify planning opportunities and implement proven techniques that can help mitigate the excise tax and lost tax deduction.  One common opportunity to mitigate tax consequences under Section 280G is to attribute value to an employee’s non-competition agreement. Alvarez & Marsal’s dedicated tax valuation specialists have in-depth experience conducting valuations of non-competition agreements for Section 280G and understand the sensitivities associated with valuing a non-competition agreement in this context.
• Employee Communications: The Golden Parachute rules are quite complex and can often lead to confusion and worry from affected individuals in the absence of proper employee communications.  A&M can help navigate when and how to communicate to key employees in an understandable way with minimal tax jargon. A&M’s comprehensive approach and robust experience helps reassure employees that this tax compliance area is being handled with the upmost care.