- 72 -
parachutes will be satisfactory. Otherwise, the acquirer would
not proceed with the transaction.36 Thus it would appear that in
any case where an acquisition of a publicly traded corporation
has been consummated, triggering the payment of golden parachutes
contingent thereon, the amounts so paid (at least where connected
to services) would tend to be found reasonable compensation under
an independent investor test. Accordingly, applying the
independent investor test to segregate reasonable from
unreasonable compensation in the acquisition context may not
produce results that are meaningful in light of the intent of
section 280G.37
Instead, we believe the touchstone of reasonable
compensation that Congress intended for section 280G(b)(4) is, as
phrased in the legislative history, the amount that would be paid
“outside of an acquisition context.” Staff of Joint Comm. on
36 A would-be acquirer will typically have knowledge of the
existence of golden parachute contracts, as did Schneider in this
case, because such compensation arrangements are generally
required to be disclosed in a publicly traded corporation’s proxy
statements filed with the Securities and Exchange Commission.
See 17 C.F.R. sec. 229.402(b)(2)(v)(A)(2) (2000).
37 One can imagine other situations where reasonable
compensation must be determined, yet an independent investor test
may not be readily applied. For example, the payment of
unreasonable compensation to an employee of a sec. 501(c)(3)
organization may constitute private inurement in violation of
that section. See, e.g., B.H.W. Anesthesia Found., Inc. v.
Commissioner, 72 T.C. 681 (1979). However, the concept of an
appropriate return on investment would appear inapposite in the
case of a nonprofit enterprise.
Page: Previous 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 NextLast modified: May 25, 2011