Executive Compensation

[Christine Roberts]

A privately held corporation that is winding up its operations wishes to compensate certain executives with stock in a separate, privately held corporation. The executives may ultimately be working for the separate corporation. Are there any ways to plan the gifts of stock so as to defer taxes?

[Guest derek]

One way to defer taxation on stock grants, and one that is typical in executive compensation arrangements, is to subject the stock to some type of restrictions (i.e. a vesting schedule). This defers the taxation under the provisons of Section 83 due to the restrictions - however, it does mean that when the vesting lapses, the individual has to pick up income (and sometimes at a higher stock price/value). There are some other issues that affect grants of stock to executives working for different entities in the controlled group when the stock granted is not the stock of the entity where they are employed. You want to be wary of those types of issues, as well as various accounting charges that may be triggered on equity based compensation.