Abstract
Executive pay clawback provisions require executives to repay previ¬ously received compensation under certain circumstances, such as a downward adjustment to the financial results upon which their incen¬tive pay was predicated. The use of these provisions is on the rise, and the SEC is expected to soon finalize rules implementing a mandatory, no-fault clawback requirement enacted as part of the Dodd-Frank leg¬islation. The tax issue raised by clawbacks is this: should executives be allowed to recover taxes previously paid on compensation that is returned to the company as a result of a clawback provision? This Arti¬cle argues that a full tax offset regime is most in keeping with the evolving rationales for clawbacks, with consistent treatment of execu¬tives subject to clawbacks, with encouraging even-handed implemen¬tation of clawbacks, and with minimizing clawback-induced distortions and other unintended consequences associated with a tax regime that would not provide full offsets. But the tax treatment of clawback pay-ments has been uncertain, and the enactment of the Tax Cuts and Jobs Act adds to that uncertainty. Meanwhile, adoption of legislation to ensure that executives are fully compensated for taxes previously paid on recouped compensation is probably a political non-starter. Given that, this Article argues that the IRS and courts should interpret the relevant tax laws liberally to maximize recovery of taxes paid on clawed back compensation.
Recommended Citation
Walker, David I.
(2023)
"Executive Pay Clawbacks and Their Taxation,"
Florida Tax Review: Vol. 24:
No.
2, Article 3.
Available at:
https://scholarship.law.ufl.edu/ftr/vol24/iss2/3