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CLAWBACKS' TAX HEADACHE

Strategic finance (Montvale, N.J.), 2019-06, Vol.100 (12), p.16-18

Copyright Institute of Management Accountants Jun 2019 ;ISSN: 1524-833X

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  • Title:
    CLAWBACKS' TAX HEADACHE
  • Author: Pippin, Sonja ; Guo, Yuanyuan (Savannah
  • Subjects: Accounting ; Bonuses ; Chief executive officers ; Clawback ; Corporate profits ; Earnings management ; Stock options ; Tax rates ; Tax returns ; Taxable income
  • Is Part Of: Strategic finance (Montvale, N.J.), 2019-06, Vol.100 (12), p.16-18
  • Description: Several practical questions about the tax effects arise: * If Carp Corp. deducted the bonus as a business expense on its corporate tax return in the year when the bonus was paid in cash, should the company claim the reimbursement as income in the year when it activated the clawback? [...]if Maxwell included the bonus as income on his personal tax return in the year he received the bonus, does he deduct it from his taxable income when he repaid the bonus to Carp Corp.? * If the tax rates changed from the year when the company initially paid Maxwell the bonus to the year when it recouped the bonus, is there any opportunity for tax planning? * If the bonus was awarded in shares or stock options, does Maxwell give the shares or stock options back to Carp Corp., or should he repay the current value of the equity in cash? * If Maxwell sold the bonus shares at a profit before the clawback was activated and he needs to repay the bonus shares plus the profit he made on them, how much of the profit was illegally gained from manipulating the company's financials and how much was legitimate? TAX TREATMENT OF BONUSES Bonuses paid in cash are taxable income for the executive and deductible compensation expenses for the corporation up to the $1 million limitation under IRC ? [...]it may be difficult or impossible to determine how much of the change in Carp Corp.'s stock price was attributable to the manipulation of the financials. Because of the uncertainties associated with the tax consequences of a bonus repayment, consider the practicality of clawback provisions before adopting them.
  • Publisher: Montvale: Institute of Management Accountants
  • Language: English
  • Identifier: ISSN: 1524-833X
  • Source: ProQuest Central
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