§ 280G. Golden parachute payments

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 67(a) · 98 Stat. 494

   Enacted · 26 U.S.C. § 280G

   Added Pub. L. 98–369, div. A, title I, § 67(a), July 18, 1984, 98 Stat. 585

   Source evidence

   Code source credit
   Added Pub. L. 98–369, div. A, title I, § 67(a), July 18, 1984, 98 Stat. 585

   Enacted provision · exact public law section
   (a) Denial of Deduction.— Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 280F the following new section: “SEC. 280G. GOLDEN PARACHUTE PAYMENTS. “(a) General Rule.— No deduction shall be allowed under this chapter for any excess parachute payment. “(b) Excess Parachute Payment.— For purposes of this section— “(1) In general.— The term ‘excess parachute payment’ means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment. “(2) Parachute payment defined.— “(A) In general.— The term ‘parachute payment’ means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if— “(i) such payment is contingent on a change— “(I) in the ownership or effective control of the corporation, or “(II) in the ownership of a substantial portion of the assets of the corporation, and “(ii) 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. “(B) Agreements.— The term ‘parachute payment’ shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is pursuant to an agreement which violates any securities laws or regulations. “(C) Treatment of certain agreements entered into within 1 year before change of ownership.— For purposes of subparagraph (A)(i), any payment pursuant to— “(i) an agreement entered into within 1 year before the change described in subparagraph (A)(i), or “(ii) an amendment made within such 1-year period of a previous agreement, shall be presumed to be contingent on such change unless the contrary is established by clear and convincing evidence. “(3) Base amount.— “(A) In general.— The term ‘base amount’ means the individual’s annualized includible compensation for the base period. “(B) Allocation.— The portion of the base amount allocated to any parachute payment shall be an amount which bears the same ratio to the base amount as— “(i) the present value of such payment, bears to “(ii) the aggregate present value of all such payments. “(4) Excess parachute payments reduced to extent tax-payer establishes reasonable compensation.— In the case of any parachute payment described in paragraph (2)(A), the amount of any excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered. For purposes of the preceding sentence, reasonable compensation shall be first offset against the base amount. “(c) Disqualified Individuals.— For purposes of this section, the term ‘disqualified individual’ means any individual who is— “(1) an employee, independent contractor, or other person specified in regulations by the Secretary who performs personal services for any corporation, and “(2) is an officer, shareholder, or highly-compensated individual. For purposes of this section, a personal service corporation (or similar entity) shall be treated as an individual. “(d) Other Definitions and Special Rules.— For purposes of this section— “(1) Annualized includible compensation for base period.— The term ‘annualized includible compensation for the base period’ means the average annual compensation which— “(A) was payable by the corporation with respect to which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs, and “(B) was includible in the gross income of the disqualified individual for taxable years in the base period. “(2) Base period.— The term ‘base period’ means the period consisting of the most recent 5 taxable years ending before the date on which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs (or such portion of such period during which the disqualified individual was an employee of the corporation). “(3) Property transfers.— Any transfer of property— “(A) shall be treated as a payment, and “(B) shall be taken into account as its fair market value. “(4) Present value.— Present value shall be determined in accordance with section 1274(b)(2). Ante, p. 538. “(e) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section (including regulations for the application of this section in the case of related corporations and in the case of personal service corporations).”

2. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(6) · 100 Stat. 2085

   Inserted · 26 U.S.C. § 280G(b)(2)(A)

   Pub. L. 99–514, § 1804(j)(6), inserted “For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account.”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(A). Pub. L. 99–514, § 1804(j)(6), inserted “For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account.”

   Enacted provision · exact public law section
   (6) Excluded amounts not taken into account in determining whether threshold amount is met.— Subparagraph (A) of section 280G(b)(2) (defining parachute payment) is amended by adding at the end thereof the following new sentence: “For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account,”

3. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(7) · 100 Stat. 2085

   Amended · 26 U.S.C. § 280G(b)(2)(B)

   Pub. L. 99–514, § 1804(j)(7), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘parachute payment’ shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is pursuant to an agreement which violates any securities laws or regulations.”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B). Pub. L. 99–514, § 1804(j)(7), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘parachute payment’ shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is pursuant to an agreement which violates any securities laws or regulations.”

   Enacted provision · exact public law section
   (7) Limitation on treatment of payment pursuant to securities law violation as parachute payment.— Subparagraph (B) of section 280G(b)(2) (defining parachute payments) is amended to read as follows: “(B) Agreements.— The term ‘parachute payment’ shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is made pursuant to an agreement which violates any generally enforced securities laws or regulations. In any proceeding involving the issue of whether any payment made to a disqualified individual is a parachute payment on account of a violation of any generally enforced securities laws or regulations, the burden of proof with respect to establishing the occurrence of a violation of such a law or regulation shall be upon the Secretary.”

4. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(2) · 100 Stat. 2085

   1. Substituted · 26 U.S.C. § 280G(b)(4)

      Pub. L. 99–514, § 1804(j)(2), substituted “Treatment of amounts which taxpayer establishes as reasonable compensation” for “Excess parachute payments reduced to extent taxpayer establishes reasonable compensation” in heading

   2. Amended · 26 U.S.C. § 280G(b)(4)

      Pub. L. 99–514, § 1804(j)(2), amended text generally. Prior to amendment, text read as follows: “In the case of any parachute payment described in paragraph (2)(A), the amount of any excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered. For purposes of the preceding sentence, reasonable compensation shall be first offset against the base amount.”

   Source evidence

   Code amendment note
   Subsec. (b)(4). Pub. L. 99–514, § 1804(j)(2), substituted “Treatment of amounts which taxpayer establishes as reasonable compensation” for “Excess parachute payments reduced to extent taxpayer establishes reasonable compensation” in heading and amended text generally. Prior to amendment, text read as follows: “In the case of any parachute payment described in paragraph (2)(A), the amount of any excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered. For purposes of the preceding sentence, reasonable compensation shall be first offset against the base amount.”

   Enacted provision · exact public law section
   (2) Treatment of reasonable compensation.— Paragraph (4) of section 280G(b) (relating to excess parachute payments reduced to extent taxpayer establishes reasonable compensation) is amended to read as follows: “(4) Treatment of amounts which taxpayer establishes as reasonable compensation.— In the case of any payment described in paragraph (2)(A)— “(A) the amount treated as a parachute payment shall not include the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services to be rendered on or after the date of the change described in paragraph (2)(A)(1), and “(B) the amount treated as an excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered before the date of the change described in paragraph (2)(A)(1). For purposes of subparagraph (B), reasonable compensation for services actually rendered before the date of the change described in paragraph (2)(A)(1) shall be first offset against the base amount.”

5. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(1) · 100 Stat. 2085

   Added · 26 U.S.C. § 280G(b)(5)

   Pub. L. 99–514, § 1804(j)(1), added par. (5)

   Source evidence

   Code amendment note
   Subsec. (b)(5). Pub. L. 99–514, § 1804(j)(1), added par. (5).

   Enacted provision · exact public law section
   (1) Exemption for small business corporations, etc..— Subsection (b) of section 280G (defining excess parachute payment) is amended by adding at the end thereof the following new paragraph: “(5) Exemption for small business corporations, etc.— “(A) In general.— Notwithstanding paragraph (2), the term ‘parachute payment’ does not include— “(i) any payment to a disqualified individual with respect to a corporation which (immediately before the change described in paragraph (2)(A)(i)) was a small business corporation (as defined in section 1361(b)), and “(ii) any payment to a disqualified individual with respect to a corporation (other than a corporation described in clause (i)) if— “(I) immediately before the change described in paragraph (2)(A)(i), no stock in such corporation was readily tradeable on an established securities market or otherwise, and “(II) the shareholder approval requirements of subparagraph (B) are met with respect to such payment. The Secretary may, by regulations, prescribe that the requirements of subclause (I) of clause (ii) are not met where a substantial portion of the assets of any entity consists (directly or indirectly) of stock in such corporation and interests in such other entity are readily tradeable on an established securities market, or otherwise. “(B) Shareholder approval requirements.— The shareholder approval requirements of this subparagraph are met with respect to any payment if— “(i) such payment was approved by a vote of the persons who owned, immediately before the change described in paragraph (2)(A)(i), more than 75 percent of the voting power of all outstanding stock of the corporation, and “(ii) there was adequate disclosure to shareholders of all material facts concerning all payments which (but for this paragraph) would be parachute payments with respect to a disqualified individual.”

6. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(3) · 100 Stat. 2085

   Added · 26 U.S.C. § 280G(b)(6)

   Pub. L. 99–514, § 1804(j)(3), added par. (6)

   Source evidence

   Code amendment note
   Subsec. (b)(6). Pub. L. 99–514, § 1804(j)(3), added par. (6).

   Enacted provision · exact public law section
   (3) Exemption for payment under qualified plans.— Subsection (b) of section 280G (defining excess parachute payment) is amended by adding at the end thereof the following new paragraph: “(6) Exemption for payments under qualified plans.— Not-withstanding paragraph (2), the term ‘parachute payment’ shall not include any payment to or from— “(A) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), “(B) an annuity plan described in section 403(a), or “(C) a simplified employee pension (as defined in section 408(k)).”

7. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(5) · 100 Stat. 2085

   Inserted · 26 U.S.C. § 280G(c)

   Pub. L. 99–514, § 1804(j)(5), inserted provision defining “highly-compensated individual”

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 99–514, § 1804(j)(5), inserted provision defining “highly-compensated individual”.

   Enacted provision · exact public law section
   (5) Limitation on number of individuals treated as highly compensated.— Subsection (c) of section 280G (defining disqualified individual) is amended by adding at the end thereof the following new sentence: “For purposes of paragraph (2), the term ‘highly-compensated individual’ only includes an individual who is (or would be if the individual were an employee) a member of the group consisting of the highest paid 1 percent of the employees of the corporation or, if less, the highest paid 250 employees of the corporation.”

8. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(8) · 100 Stat. 2085

   Substituted · 26 U.S.C. § 280G(d)(2)

   Pub. L. 99–514, § 1804(j)(8), substituted “performed personal services for the corporation” for “was an employee of the corporation”

   Source evidence

   Code amendment note
   Subsec. (d)(2). Pub. L. 99–514, § 1804(j)(8), substituted “performed personal services for the corporation” for “was an employee of the corporation”.

   Enacted provision · exact public law section
   (8) Clerical amendment.— Paragraph (2) of section 280G(d) (defining base period) is amended by striking out “was an employee of the corporation” and inserting in lieu thereof “performed personal services for the corporation”.

9. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1804(j)(4) · 100 Stat. 2085

   Added · 26 U.S.C. § 280G(d)(5)

   Pub. L. 99–514, § 1804(j)(4), added par. (5)

   Source evidence

   Code amendment note
   Subsec. (d)(5). Pub. L. 99–514, § 1804(j)(4), added par. (5).

   Enacted provision · exact public law section
   (4) Treatment of affiliated groups.— Subsection (d) of section 280G is amended by adding at the end thereof the following new paragraph: “(5) Treatment of affiliated groups.— Except as otherwise provided in regulations, all members of the same affiliated group (as defined in section 1504, determined without regard to section 1504(b)) shall be treated as 1 corporation for purposes of this section. Any person who is an officer or any member of such group shall be treated as an officer of such 1 corporation.”

10. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1018(d)(6) · 102 Stat. 3342

    1. Substituted · 26 U.S.C. § 280G(b)(5)(A)

       Pub. L. 100–647, § 1018(d)(6), substituted “section 1361(b) but without regard to paragraph (1)(C) thereof)” for “section 1361(b))” in cl. (i)

    2. Inserted · 26 U.S.C. § 280G(b)(5)(A)

       Pub. L. 100–647, § 1018(d)(6), inserted at end “Stock described in section 1504(a)(4) shall not be taken into account under clause (ii)(I) if the payment does not adversely affect the shareholder’s redemption and liquidation rights.”

    Source evidence

    Code amendment note
    Subsec. (b)(5)(A). Pub. L. 100–647, § 1018(d)(6), substituted “section 1361(b) but without regard to paragraph (1)(C) thereof)” for “section 1361(b))” in cl. (i) and inserted at end “Stock described in section 1504(a)(4) shall not be taken into account under clause (ii)(I) if the payment does not adversely affect the shareholder’s redemption and liquidation rights.”

    Enacted provision · exact public law section
    (6) Subparagraph (A) of section 280G(b)(5) of the 1986 Code is amended— (A) in clause (i) by striking out “section 1361(b))” and inserting in lieu thereof “section 1361(b) but without regard to paragraph (1)(C) thereof)”, and (B) by adding at the end thereof the following: “Stock described in action 1504(a)(4) shall not be taken into ac-count under clause ((j)(1) if the payment does not adversely affect the shareholder’s redemption and liquidation rights.”

11. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1018(d)(7) · 102 Stat. 3342

    Inserted · 26 U.S.C. § 280G(b)(5)(B)

    Pub. L. 100–647, § 1018(d)(7), inserted at end “The regulations prescribed under subsection (e) shall include regulations providing for the application of this subparagraph in the case of shareholders which are not individuals (including the treatment of nonvoting interests in an entity which is a shareholder) and where an entity holds a de minimis amount of stock in the corporation.”

    Source evidence

    Code amendment note
    Subsec. (b)(5)(B). Pub. L. 100–647, § 1018(d)(7), inserted at end “The regulations prescribed under subsection (e) shall include regulations providing for the application of this subparagraph in the case of shareholders which are not individuals (including the treatment of nonvoting interests in an entity which is a shareholder) and where an entity holds a de minimis amount of stock in the corporation.”

    Enacted provision · exact public law section
    (7) Subparagraph (B) of section 280G(b)(5) of the 1986 Code (relating to shareholder approval requirements) is amended by adding at the end thereof the following new sentence: “The regulations prescribed under subsection (e) shall include regulations providing for the application of this subparagraph in the case of shareholders which are not individuals (including the treatment of non voting interests in an entity which is a shareholder) and where an entity holds a de minimis amount of stock in the corporation.”

12. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1018(d)(8) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 280G(d)(5)

    Pub. L. 100–647, § 1018(d)(8), substituted “officer of any member” for “officer or any member”

    Source evidence

    Code amendment note
    Subsec. (d)(5). Pub. L. 100–647, § 1018(d)(8), substituted “officer of any member” for “officer or any member”.

    Enacted provision · exact public law section
    (8) Paragraph (5) of section 2800(d) of the 1986 Code is amended by striking out “officer or any member” and inserting in lieu thereof “officer of any member”.

13. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 title I § 1421(b)(9)(A) · 110 Stat. 1755

    Added · 26 U.S.C. § 280G(b)(6)(D)

    Pub. L. 104–188 added subpar. (D)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(D). Pub. L. 104–188 added subpar. (D).

    Enacted provision · exact public law section
    (A) Section 280G(b)(6) is amended by striking “or” at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting “, or” and by adding after subparagraph (C) the following new subparagraph: “(D) a simple retirement account described in section 408(p).”.

14. 2008

    Emergency Economic Stabilization Act of 2008

    Pub. L. 110–343 div. A title III § 302(b) · 122 Stat. 3765

    1. Added · 26 U.S.C. § 280G(e); 26 U.S.C. § 280G(f)

       Pub. L. 110–343 added subsec. (e)

    2. Redesignated · 26 U.S.C. § 280G(e); 26 U.S.C. § 280G(f)

       Pub. L. 110–343 redesignated former subsec. (e) as (f)

    Source evidence

    Code amendment note
    Subsecs. (e), (f). Pub. L. 110–343 added subsec. (e) and redesignated former subsec. (e) as (f).

    Enacted provision · exact public law section
    (b) Golden Parachute Rule.— Section 26 USC 280G. 280G of the Internal Revenue Code of 1986 is amended— (1) by redesignating subsection (e) as subsection (f), and (2) by inserting after subsection (d) the following new subsection: “(e) Special Rule for Application to Employers Participating in the Troubled Assets Relief Program.— “(1) In general.— In the case of the severance from employment of a covered executive of an applicable employer during the period during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 of such Act), this section shall be applied to payments to such executive with the following modifications: “(A) Any reference to a disqualified individual (other than in subsection (c)) shall be treated as a reference to a covered executive. “(B) Any reference to a change described in subsection (b)(2)(A)(i) shall be treated as a reference to an applicable severance from employment of a covered executive, and any reference to a payment contingent on such a change shall be treated as a reference to any payment made during an applicable taxable year of the employer on account of such applicable severance from employment. “(C) Any reference to a corporation shall be treated as a reference to an applicable employer. “(D) The provisions of subsections (b)(2)(C), (b)(4), (b)(5), and (d)(5) shall not apply. “(2) Definitions and special rules.— For purposes of this subsection: “(A) Definitions.— Any term used in this subsection which is also used in section 162(m)(5) shall have the meaning given such term by such section. “(B) Applicable severance from employment.— The term ‘applicable severance from employment’ means any severance from employment of a covered executive— “(i) by reason of an involuntary termination of the executive by the employer, or “(ii) in connection with any bankruptcy, liquidation, or receivership of the employer. “(C) Coordination and other rules.— “(i) In general.— If a payment which is treated as a parachute payment by reason of this subsection is also a parachute payment determined without regard to this subsection, this subsection shall not apply to such payment. “(ii) Regulatory authority.— The Secretary may prescribe such guidance, rules, or regulations as are necessary— “(I) to carry out the purposes of this subsection and the Emergency Economic Stabilization Act of 2008, including the extent to which this subsection applies in the case of any acquisition, merger, or reorganization of an applicable employer, “(II) to apply this section and section 4999 in cases where one or more payments with respect to any individual are treated as parachute payments by reason of this subsection, and other payments with respect to such individual are treated as parachute payments under this section without regard to this subsection, and “(III) to prevent the avoidance of the application of this section through the mischaracterization of a severance from employment as other than an applicable severance from employment.” .

    Effective date note
    Pub. L. 110–343, div. A, title III, § 302(c)(2), Oct. 3, 2008, 122 Stat. 3806, provided that: “The amendments made by subsection (b) [amending this section] shall apply to payments with respect to severances occurring during the period during which the authorities under section 101(a) of this Act [enacting section 5211(a) of Title 12, Banks and Banking, and amending section 5315 of Title 5, Government Organization and Employees, and section 301 of Title 31, Money and Finance] are in effect (determined under section 120 of this Act [12 U.S.C. 5230]).”

17 of 17 references resolved to an enrolled provision