Executive Pay Clawbacks and Their Taxation

Executive pay clawback provisions require executives to repay previously received compensation under certain circumstances, such as a downward adjustment the financial results upon which their incentive was predicated. The use of these is on rise, and SEC expected soon finalize rules implementing mandatory, no-fault requirement enacted part Dodd-Frank legislation. tax issue raised by clawbacks this: should be allowed recover taxes paid that returned company result provision? This Article argues full offset regime most in keeping with evolving rationales for clawbacks, consistent treatment subject encouraging even-handed implementation minimizing clawback-induced distortions other unintended consequences associated would not provide offsets. But payments has been uncertain, enactment Tax Cuts Jobs Act adds uncertainty. Meanwhile, adoption legislation ensure are fully compensated recouped probably political non-starter. Given that, this IRS courts interpret relevant laws liberally maximize recovery clawed back compensation.