Section 280G of the Internal Revenue Code (Golden Parachutes)
Appraisal Economics has experience performing valuations of non-compete agreements for Section 280G and Section 4999 of the Internal Revenue Code, which relate to excess parachute payments upon certain corporate events, such as a change in control. Section 280G disallows a deduction for excess parachute payments made to disqualified individuals. If an executive leaves a company and collects a parachute payment, which may consist of cash, stock, or options, and the total exceeds three times their annual compensation, then that individual may be subject to an excise tax on the excess amount. As a result, the components of the total parachute payment need to be valued to determine whether any levies under Section 280G and Section 4999 are applicable.
Typically we are engaged to value the non-compete agreements, as the value of abstaining from competition is a benefit to the company. Payments the executives receive from the company in return for agreeing to be bound by the NCAs are generally treated more favorably for tax purposes than other components of their severance packages. We have recently valued non-compete agreements for executives in industries such as agriculture, education, retail, and real estate.