Although prop. regs. add clarifications, golden parachutes can still lose their luster

Article Abstract:

The Technical and Miscellaneous Revenue Act (TAMRA) of 1988 clarified the tax provisions for golden parachute compensation arrangements. Payment of parachutes must be contingent upon change in ownership or control of the entire corporation of substantial part of the assets. Golden parachute payments are predicated on a base amount, which is the average of compensation in the five previous years. An excess parachute is recognized if the payments are three times the base amount, the excess being the amount by which present value exceeds the base, not the excess over three times base amount. The amount which exceeds the base amount is the nondeductible excess payment, and is subject to an excise tax. To avoid the excise tax, corporations can include a formula in golden parachute packages that insures the amount of payments does not exceed three times the base amount. A corporation can reduce the present value of payments to an amount less than three time base amount by providing payment over the shortest feasible time period.

Taxation, Golden parachutes

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Debt restructure more likely to result in recognized income

Article Abstract:

The tax effects of debt restructuring are determined by the type of restructuring undertaken. The Revenue Reconciliation Act of 1990 (RRA) has changed the way in which debt discharge income is calculated. Debt discharge income is the difference between the the issue price of the new debt instrument and the adjusted issue price of the old debt instrument. Section 382 of the RRA restricts the use of previous net operating losses (NOL) if a change in ownership occurs during the three-year period ending on the day of change of ownership. The timing of income may be crucial in preserving existing NOLs if the restructuring plan includes the creation of debt discharge income.

Management, External debt relief, Debt relief

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