An Appreciation for Fund-Based Deferred Compensation

Under Section 457A of the Internal Revenue Code of 1986, as amended (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. Last week, on June 10, in Revenue Ruling 2014-18 (the ‘‘Ruling’’), the Internal Revenue Service confirmed that certain equity-based compensation arrangements are not subject to Section 457A. The Ruling could lead to increased interest on the part of investment funds and their sponsors to explore the use of certain types of equity-based compensation arrangements.

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