Deferred Compensation Arrangements Under Section 83 of the Internal Revenue Code: Is Restricted Property Still a Viable Means of Compensation?

When faced with the problem of compensating key executives, employers have tended to avoid the exclusive use of current cash compensation, since this would result in an immediate and substantial income tax to highly paid employees. Deferred compensation plans have been utilized in order to maximize tax benefits for employees, such as deferred recognition of income and capital gains treatment. Although such plans are structured to meet the needs of the particular employer and employee, several forms of deferred compensation are common. Among these are qualified and unqualified pension, profit-sharing, and stock bonus plans; qualified, restricted, and employee stock purchase plans (the so-called statutory stock options); nonstatutory stock options; and the transfer of restricted property. This Note will be limited to an analysis of the new section 83 of the Internal Revenue Code, which was intended to eliminate the capricious variations in tax consequences that have accompanied the transfer of restricted property as compensation for over twenty-five years.