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Executive Bonus Tax Considerations

   

Added on  2019-09-16

1 Pages239 Words506 Views
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As a CPA with PWC, you advise the Compensation Committee of the Board of Directors of Mega Corporation, a NYSE listed company. Mega’s fiscal year end is nearing and the company is in a celebratory mood – based upon financial results to date, revenues and earnings should increase more than 40% for the fiscal year. The Compensation Committee has just voted to award a $3 million bonus to Mega’s Chief Executive Officer. The award was not planned earlier in the year as no one anticipated such great results, but the committee has determined the award is justified based upon the results achieved. Additionally, based upon the results, the Committee determined Mega could lose the CEO to a competitor if the bonus was not awarded. Consequently, paying the bonus was in the best interest of the shareholders.As Mega’s CPA, please advise the Compensation Committee whether any “tax issues” arise with respect to this level of executive compensation. Please advise the Committee on their belief that paying the bonus is in the best interest of shareholders. What are your recommendations to the Compensation Committee members? While communicating your advice, please cite the specific internal revenue service tax codes and any applicable tax cases, if any, which support your views.
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