Washington (August 6, 2003) -- New golden parachute regulations, issued in conjunction with a revenue procedure for valuing stock options that are treated as golden parachute payments, revise an earlier valuation method for stock options, according to the Internal Revenue Service.
Under the Internal Revenue Code, a company cannot deduct "excess" golden parachute payments, and an executive has to pay a 20 percent excise tax on the payments. A golden parachute payment is a payment made in connection with a change in ownership or control of a company.
The new regulations generally follow the proposed regulations published in February 2002. The valuation method continues to allow the use of certain option valuation methods, but it provides new flexibility to make certain adjustments for early termination of employment or changes in the volatility of stock prices.
The final regs are effective for payments made in connection with a change of ownership or control occurring on or after January 1, 2004. Taxpayers cannot rely on the 2002 proposed regs after that date.
-- WebCPA staff
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