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Abstract: 

Deferral of the duty to pay federal income tax is one of the holy grails of tax planning. Income tax deferral arrangements have existed almost from the day the modern Internal Revenue Code was enacted in 1913. Deferred compensation arrangements have also existed almost from this date. A deferred compensation arrangement generally involves payments for services that are earned in one year but are made in a later year. Deferred compensation arrangements are generally between an employer and employee, but can also apply to an independent contractor. In the majority of cases, deferred compensation arrangements are driven by nontax reasons; nevertheless, tax planning is an important driver of deferred compensation arrangements. The paramount federal income tax issue with respect to deferred compensation arrangements is whether the service provider (i.e., employee or manager) should recognize income prior to the actual receipt of the compensation, or can he or she defer the income recognition until it is paid.

Keywords: Deferred compensation

Affiliations:  1: Greenberg Traurig; 2: Greenberg Traurig.