Executive Compensation

One of the more controversial and complex provisions of the Tax Cuts and Jobs Act has been the 21 percent excise tax on certain nonprofit executive compensation. On December 31, 2018, the IRS issued interim guidance that addresses how this tax will apply in various situations that commonly arise for tax-exempt employers. Establishing internal systems to comply with this guidance will be challenging.

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Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC both recently issued their annual proxy voting guideline updates. As revised, these guidelines have important implications for companies preparing for the 2019 proxy season.

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Andrew Liazos presented on 162(m) deduction limitations and transition rules at NYU’s 77th Institute on Federal Taxation. Amongst other topics, he discussed key changes for employers under the 2017 Tax Cuts and Jobs Act, the guidance provided under Notice 2018-68 and the potential impact of such changes on incentive compensation practices.

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Given the rise of the #MeToo movement, companies are having to deal with many issues when drafting employee agreement contracts. In a presentation, Evan Belosa discussed these issues, including triggering events, nondisclosure agreements and restrictive covenant changes. He also addressed latest trends in state and local law affecting hiring and management of the workforce.

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The Employee Retirement Income Security Act of 1974 (ERISA) has long been a source of complex and often-expensive litigation for employers. However, as the number of actions brought by employees under ERISA have surged, employer-defendants have often relied on the so-called top-hat exemption to dismiss certain claims involving executives. Now, several federal courts of appeals have addressed the disputed contention that the presence of employee bargaining power is required for a plan to fall under the top-hat exemption. In this article, Elizabeth Rowe, J. Christian Nemeth and Joseph Urwitz look at recent appeals court decisions and their effects on this exemption.

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Originally published in Benefits Law Journal, Autumn 2018

Tax reform made many structural changes to our tax system. Changes to Code Section 274, however, sent shudders through corporate America. As amended, Code Section 274 eliminated the 50 percent deduction for “entertainment” expenses that are related to business activities. Sadly, gone are the days of companies deducting the cost of box tickets to games for the local sport’s team. Gulp! But, in its haste, Congress left what constitutes entertainment expenses substantially undefined. Accordingly, a strict reading of the statute meant—along with the box seats—went the hot dogs and beer! Ugh! So, under this strict interpretation, taking your client to the fancy restaurant to encourage her to buy your product or services would no longer be deductible.

Thankfully, the IRS has recently clarified that meals are not entertainment under amended Code section 274. IRS Notice 2018-76 explains that business meals arestill eligible for the 50 percent deduction if they are not lavish and extravagant. And an IRS press release, IR-2018-195, explains that the IRS will release proposed regulations explaining what “entertainment” means.

Practice Point: We can all sigh with relief that Uncle Sam will continue to underwrite the “wining and dining” of our clients. Although eating is officially not entertainment (at least for tax purposes), the recent IRS guidance acknowledges that America does a lot of its business while breaking bread.

Evan Belosa, Tony Bongiorno and Andrew Liazos summarize key changes and important issues associated with Massachusetts Noncompetition and Trade Secret Law and next steps to consider as the date of effectiveness approaches.

The Massachusetts Noncompetition Agreement Act and Trade Secret Law will become effective October 1, 2018.

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Join us on Thursday, September 6 at 1:00 PM EDT for a webinar designed to address questions around the Massachusetts Noncompetition Agreement Act (the Act), signed into law by Governor Baker on Friday, August 10. The Act, which takes effect on October 1, requires all employers doing business in Massachusetts to change the way they establish and structure noncompetition agreements and related forfeiture provisions under compensation arrangements.

Our panel of lawyers focused on litigation, employment and employee benefits law from Massachusetts and other states, will discuss key aspects of this legislation, strategies and best practices. Questions that will be addressed by the panel include:

  • What changes should be made to support noncompetition agreements going forward?
  • How can a noncompetition agreement be used in connection with providing severance benefits?
  • What is the status for existing non-competition agreements? When is grandfathering available?
  • Are there other available types of agreements that can adequately protect employers’ interests?
  • Might ERISA preempt the new Massachusetts noncompetition law as related to benefit plans?
  • How will the changes to Massachusetts law impact corporate transactions?
  • How will the changes in Massachusetts law affect restrictive covenant litigation in Massachusetts courts?
  • What approaches to address the Massachusetts changes will make sense for multi-state employers?

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The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) made some significant changes to the executive pay area for tax-exempt organizations with the imposition of a new excise tax on certain amounts paid to some employees of the tax-exempt organization. Imposing taxation in areas which previously had no such result will warrant tax-exempt organizations reviewing their compensation structures in light of the new rules to ensure not only an understanding of the new rules but to evaluate feasible options in minimizing any taxes.

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On August 21, 2018, the IRS issued guidance regarding recent statutory changes made to Section 162(m) of the Internal Revenue Code. Overall, Notice 2018-68 strictly interprets the Section 162(m) grandfathering rule under the Tax Cuts and Jobs Act.

Public companies and other issuers subject to these deduction limitations will want to closely consider this guidance in connection with filing upcoming periodic reports with securities regulators. Further action to support existing tax positions or adjustments to deferred tax asset reporting in financial statements may be warranted in light of this guidance.

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