What is Section 4999 of the Internal Revenue Code 1986?

Answer 1

Section 4999 of the Internal Revenue Code (IRC) pertains to the excise tax on "excess parachute payments" made to certain executives or employees in connection with a change in ownership or control of a corporation. Specifically, it imposes a 20% excise tax on the portion of any payment that exceeds a defined threshold, which is typically three times the individual's average annual compensation over the prior five years. This section aims to discourage excessive compensation arrangements that may incentivize executives to favor short-term gains over long-term corporate health during mergers or acquisitions.