Punishing the Victim: IRC §162(m) and the Limitation on Deducting Executive Compensation

(Source) The phenomenon of punishing the victim is unfortunately a familiar one. Too often, a person in need of protection discovers that those whose ostensible task it is to assist not only do not offer the necessary protection but in fact exacerbate the harm. Here is a current example. Section 162(m) of the Internal Revenue Code provides that a publicly held corporation may not deduct compensation in excess of $1,000,000 paid to its principal executive office, its principal financial officer, or any of its three other most highly compensated employees (if the compensation paid to that employee is required to be reported to its shareholders under the Securities Exchange Act of 1934). Until 2017, IRC §162(m) was fairly easy to avoid as it did not apply to performance-based compensation: bonuses, stock options, and so forth. However, the 2017 Tax Cuts and Jobs Act eliminated this escape route. Today, regardless of how the compensation package is structured, the corporation can deduct a maximum of $1,000,000 for each of its covered employees. Underlying IRC §162(m) is the concern that the entrenched power of corporate management and the lack of effective oversight foster excessive executive compensation. The issue addressed by this provision is [read more]

Go Fund Me Tax-Free: A Discussion of the Federal Tax Treatment of Funds Generated on Personal Crowdfunding Platforms such as GoFundMe from an Individual Tax Perspective

(Source) In 1913, Congress passed the Sixteenth Amendment to the United States Constitution which subjected all individuals to federal income taxation. According to the Center on Budget and Policy Priorities, income tax comprised 51% of all tax revenue in 2018 whereas payroll tax and corporate income tax comprised only 35% and 6% respectively. Because an individual’s income determines in large part their federal income tax liability, and federal tax revenue generally, the definition of what constitutes as income for federal taxation purposes has always been a hotly contested issue. Generally, however, the federal government defines income broadly. In fact, Section 61 of the Internal Revenue Code (IRC) defines income as “all income from whatever source derived[.]” Over the years, and as a result of much federal tax litigation, the definition of income has expanded to include sources of income that the average taxpayer might not recognize, including but not limited to social security, tuition scholarships, debt forgiveness, found property, big prizes, and yes, even fantasy football winnings. In fact, the Internal Revenue Service (IRS) even counts as income funds generated through illegal activities such as embezzlement, drug sale and trafficking, and theft. As Congress, the Internal Revenue Service (IRS), and [read more]