Vesting of Deferred Compensation: When Words are More Taxing than Deeds

Posted: 3 Feb 2006

See all articles by Kevin P. O'Brien

Kevin P. O'Brien

Ivins, Phillips & Barker

Rosina B. Barker

Ivins, Phillips & Barker

Abstract

In this article the authors explore the sweeping consequences of the narrow vesting concept under the deferred compensation rules of Internal Revenue Code section 409A. Their goal is both theoretical and practical. They compare vesting under section 409A with that under section 83 and conclude that, paradoxically, the naked promise is often taxed before the funded one. The new vesting concept thus unsettles longstanding principles of income receipt and even of tax accounting. The practical result, according to the authors, is that employers might prefer to run their promises through section 83 instead of section 409A for its more favorable tax treatment.

Suggested Citation

O'Brien, Kevin P. and Barker, Rosina B., Vesting of Deferred Compensation: When Words are More Taxing than Deeds. Tax Notes, Vol. 110, No. 5, February 6, 2006, Available at SSRN: https://ssrn.com/abstract=880985

Kevin P. O'Brien (Contact Author)

Ivins, Phillips & Barker ( email )

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Suite 600
Washington, DC 20006
United States

Rosina B. Barker

Ivins, Phillips & Barker ( email )

1700 Pennsylvania Avenue, NW
Suite 600
Washington, DC 20006
United States

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