Stringent tax rules on deferred compensation have sent companies scouring through their compensation plans in recent years and making fixes to assure that their employees won’t be penalized. A recent judicial victory for the Internal Revenue Service, however, has left tax experts wondering if those efforts were adequate.
The U.S. Court of Federal Claims recently sided with the IRS in its $5.28 million dispute with Sehat Sutardja, CEO of semiconductor company Marvell Technology Group, and his wife and co-founder, Weili Dai. The couple sparred with the IRS over whether a stock option grant fell within the reach of Internal Revenue Code Section 409A, enacted to impose penalties on certain types of deferred compensation that were considered abusive tax shelters. That rule was meant to include the awarding of any discounted or backdated stock options, or options that were already “in the money” when awarded.
