Equity Compensation and Nonqualified Deferred Compensation: Reconciling What Constitutes a "Substantial Risk of Forfeiture" Under Sections 83 and 409A of the Internal Revenue Code

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Authors
Langdon, Peter M.
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2017
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Journal Article
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INTRODUCTION|Two provisions of the Internal Revenue Code ("Code") define "a substantial risk of forfeiture" regarding equity compensation and nonqualified deferred compensation. Code § 83 states that the excess of the fair market value of property over the amount paid, if any, for such property that is conveyed in exchange for services is excluded from the gross income of the service provider in the year of the transfer if a substantial risk of forfeiture is included as a restriction to the enjoyment of the property and the rights to property are nontransferable. Code § 409A similarly states that deferred compensation is excludable from a taxpayer's gross income if the compensation is subject to a substantial risk of forfeiture and has not previously been included in the gross income of the taxpayer, provided the requirements of § 409A are satisfied. The Internal Revenue Service ("IRS") has asserted, contrary to commentator suggestions, in the preamble to regulations under Code § 409A that the definition of what constitutes a substantial risk of forfeiture under Code §§ 409A and 83 is not the same. However, this Article will examine three specific examples where a substantial risk of forfeiture is interpreted inconsistently under Code §§ 83 and 409A, and will argue for a uniform interpretive approach as to the three specific examples of what may or may not constitute a substantial risk of forfeiture...
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Creighton University School of Law
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