More on “RSUs: New IRS Memo Creates Payment Date & Tax Opportunities”
A couple of weeks ago, I wrote about planning opportunities that may arise for RSUs and performance awards under the “Generic Legal Advice Memorandum 2020-004,” which was issued by the IRS in May. NASPP Executive Director Barbara Baksa shared these additional thoughts:
The GLAM doesn’t change existing law (and can’t be relied on a precedent), although it does certain clarify it. It is an internal IRS memorandum to clarify the tax treatment to other persons at the IRS (in this cause, auditors). It was issued to support an update to the audit procedures in the Internal Revenue Manual relating to when taxes need to be deposited for RSUs and SARs when the IRS’s next-day deposit rule is triggered. Thus, the process Troutman Pepper recommends was always possible under the Internal Revenue Code (provided all awards are paid out within the 409A short-term deferral period) but the GLAM clarifies and draws attention to this opportunity.
Particularly for performance awards, it’s not uncommon for companies to have a short administrative delay before issuing the shares after the comp committee certifies performance. A delay of more than a day or so would generally also delay the taxable event for the award (if it didn’t, there would be no way for the tax deposit to be timely). According to a 2019 NASPP/Deloitte Survey, only 44% of companies pay out performance awards immediately upon certification by the comp committee, even though the awards are considered fully vested at that time. The remaining respondents are delaying payout for anywhere from a week to over six months (24% pay out awards within a couple of weeks of certification and 20% within a month).
The NASPP has seen a general trend to consolidate RSU vest dates for grants to non-insiders. This is most often accomplished by consolidating grant dates (e.g., everyone hired during a quarter receives a grant on the same date), but I’m not aware that this practice has extended to Section 16 insider grants—most likely because, under most companies’ procedures, insider grants generally have to be approved by the comp committee and are thus tied to the committee’s meeting schedule. The procedure Troutman Pepper suggests provides an interesting solution that I expect would be helpful to a number of companies. It will be interesting to see if companies adopt it.
-Liz Dunshee, CompensationStandards.com August 11, 2020
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