Stock Rights as Compensation Alternative for Investment Fund Managers

February 10, 2015
Journal of Taxation and Regulation of Financial Institutions

Seward & Kissel tax partner Jon Brose recently authored an article titled “Investment Fund Managers’ Use of Stock Options and Stock Appreciation Rights Under Section 457A in the Wake of Revenue Ruling 2014-18″ that many of you may find interesting. The article, which appears in the November/December 2014 volume of the Journal of Taxation and Regulation of Financial Institutions, discusses using stock options and stock appreciation rights as a deferred compensation alternative for offshore funds. The article also summarizes the past and current state of the tax law regarding deferred compensation. In particular, we believe that some of you may want to read the final section of the article, which sets forth several numerical examples and compares various usages of stock rights with traditional deferred compensation arrangements.

The background to this article is Revenue Ruling 2014-18 (released on June 10, 2014), which holds that nonstatutory stock options and physically-settled stock appreciation rights are not nonqualified deferred compensation plans under Section 457A of the Internal Revenue Code. We distributed a client alert summarizing the ruling and discussing its potential implications for the fund industry with respect to manager compensation arrangements soon after its release.

If you would like to discuss the article or compensation issues generally, please contact Jon Brose at (212) 574-1615, Ron Cima at (212) 574-1471, Jim Cofer at (212) 574-1688, Daniel Murphy at (212) 574-1210, or Peter Pront at (212) 574-1221.