An Appreciation for Hedging Your Bets on Deferred Compensation

August 18, 2014

Under Section 457A of the U.S. Internal Revenue Code of 1986 (the “Code”), certain offshore and other entities are limited in their ability to provide tax-effective deferred compensation to providers of services to those entities. Recently, in Revenue Ruling 2014-18 (the “Ruling”), the Internal Revenue Service (the “IRS”) confirmed that certain equity-based compensation arrangements are not subject to Section 457A. This article will discuss how the Ruling may present an opportunity for investment funds and their sponsors and managers to explore the use of certain types of equity-based compensation arrangements as a workable solution to avoid the restrictions of Section 457A and simultaneously accomplish their compensation-related goals.

Click to read "An Appreciation for Hedging Your Bets on Deferred Compensation."