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Opportunity for Comment on IRS Tax Agenda and “Burdensome” Compensation-Related Tax Regulations

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On April 21, 2017, the Trump Administration issued Executive Order 13789, which instructed the IRS to review all “significant tax regulations” issued on or after January 1, 2016 to identify as targets for modification, rescission or delayed effectiveness any regulations that (i) impose an undue financial burden on U.S. taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the IRS. Having completed this review, earlier this month, the IRS issued Notice 2017-38 identifying eight regulations for burden reduction, none of which directly relate to compensation.

In addition, pursuant to Executive Order 13777, Presidential Executive Order on Enforcing the Regulatory Reform Agenda, issued on February 24, 2017, the IRS is conducting a broader review of existing regulations. In Notice 2017-38, the IRS reiterated that it is inviting public comment concerning regulations that should be modified or eliminated in order to reduce unnecessary burdens, as well as comment on recommendations for the IRS’s 2017-2018 Priority Guidance Plan.

We will be taking this opportunity to comment on various tax regulations and other IRS guidance relating to compensation, including among other things:

  • Problematic aspects of the income inclusion regulations and error correction programs under Code Section 409A;
  • Difficulties with the tests for identification of “nonqualified entities” for purposes of Code Section 457A;
  • Desired liberalization of the rules around withholding rates to be applied to supplemental wages, including with respect to an employee’s election of a specific withholding rate;
  • Grounds for abandonment of the IRS’s proposed changes to the “next-day rule” as they apply to stock option and other equity compensation deductions of a corporation that joins or leaves a consolidated group; and
  • Simplification of certain aspects of the per diem rules applicable to employees who travel for business.

If your company would like us to comment on any other compensation-related tax regulations or guidance that you consider burdensome, please let us know. We plan to submit our comments by July 31, 2017.

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Narendra Acharya focuses his practice on matters relating to US and international employee benefits and executive compensation — including global stock plans and pensions, as well as matters pertaining to pensions, executive compensation and employment issues in mergers and acquisitions. Mr. Acharya assists US and non-US companies – both publicly traded and private – in the design and implementation of employee stock plans. He has extensive experience advising clients on income tax, social security, payroll withholding and reporting, local corporate tax deduction, employment law, securities and other regulatory issues applicable to equity awards in numerous jurisdictions.

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Anne Batter is a partner in Baker McKenzie's Tax Practice Group with over 35 years of tax experience. She focuses her practice on the tax treatment of executive compensation and fringe benefits arrangements. She also handles excise tax matters, particularly those involving the air transportation excise tax. She previously served as an attorney in the Income Tax & Accounting Division of the IRS’s Office of Chief Counsel and as attorney-advisor with the US Tax Court.

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Victor Flores is a partner in Baker McKenzie’s Employment & Compensation Practice, with a focus on Executive Compensation and Employee Benefits. Victor advises global US and non-US companies – both public and private – on all aspects of executive compensation and benefits matters, including the corporate, securities and tax law, and ERISA issues arising in the implementation and administration of compensation programs. He regularly helps clients with the design and implementation of equity and non-equity based incentive compensation programs and nonqualified deferred compensation programs. Victor also has extensive experience advising on compensations and benefits issues in mergers and acquisitions, corporate reorganizations, private equity and other corporate transactions.

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Christopher G. Guldberg has been practicing in the employee benefits and executive compensation areas since 1992 and is a senior member of the Firm’s benefits practice. Mr. Guldberg advises on a wide range of benefits issues including design, implementation, operation and termination of tax-qualified retirement plans and welfare benefit plans. He assists with all aspects of regulatory compliance associated with employee benefit plans and regularly advises clients on ERISA's fiduciary and prohibited transactions provisions. He also has helped clients correct benefit plan defects through DOL and IRS voluntary correction programs and has assisted clients with negotiated settlements with regulatory authorities.

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Sinead Kelly is a partner in Baker McKenzie’s Compensation practice in San Francisco. She advises on U.S. executive compensation and global equity and has practiced in the compensation field since 2005. In her practice, Sinead counsels U.S. and non-U.S. public and private companies on all aspects of equity and executive compensation plans and arrangements, including plan design, drafting, administration and governance. In this regard, Sinead advises on and assists companies with compliance with U.S. federal and state securities and tax laws relating to compensation arrangements, as well as with preparing SEC disclosures, complying with stock exchange rules and addressing non-U.S. tax and regulatory requirements. She has been repeatedly recognized by Legal 500 as a leading lawyer for Executive Compensation and Employee Benefits.

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Maura Ann McBreen is a partner in the Firm’s Chicago office and has over 30 years' experience in executive compensation and employee benefits. Maura Ann focuses on executive compensation and employee benefits, especially with regard to single employer, multi-employer, and multinational benefits. She addresses operational and fiduciary issues as they arise under tax-qualified retirement plans, including employee stock ownership plans, and leads our global pensions practice. She designs deferred compensation and equity-based incentive compensation plans, advises on issues under Code Sections 162(m), 280G, 409A and 457A and negotiates executive employment agreements.

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