[glymor]

> Similarly, awards with vesting triggers based on exit events such as an initial public offering or change-in-control would be taxable on grant unless they require the recipient to be employed through the liquidity date

Double trigger RSUs are popular in late stage unicorns where the exercise price for ISOs have already hit a high level but the stock isn't liquid enough to sell to cover the tax as they vest.

A lot of people might be affected, I wonder if existing grants are grandfathered in?

[clairity]

there is a section in the document called "Grandfathering of Compensation Earned Prior to 2018" =)

[weaksauce]

These grandfather clauses irk me... if the policy is not good enough to stand on its own then it should not be policy.

[wpietri]

Not at all. It's a recognition that the people who made long-term arrangements under the old law shouldn't be punished for that. The safer people feel making commitments, the more we can pursue things that take time to pay off, which has broad societal benefits. And in practice, laws are much harder to change if you piss off a lot of people who didn't do anything wrong but now suddenly stand to lose big.

As an example, take the mortgage interest tax credit. Personally, I strongly believe it should go away; if the government is going to subsidize housing, it shouldn't spend most of that money on the already well off. But I think it would be wrong to screw all the homeowners who bought a house expecting the credit. We'd see a wave of disruption (short sales, foreclosures, people suddenly barely scraping by) that benefits nobody. So I'm fine with grandfathering existing mortgages and gradually phasing out the credit.

[jonahhorowitz]

It would be totally reasonable to phase out the mortgage interest deduction over ~10 years, giving people time to plan and decide how they wanted to handle it. The cap is currently $1M, let's reduce it by $100k/yr. (or $50k/yr over 20 years)

[1123581321]

There is an expectation of predictability in our legislation. Grandfather clauses preserve predictability for those who made decisions based on the old tax code. Sometimes binary grandfather status is not financially or politically possible and it's phased out instead. I think this kind of approach to legislation and regulation is fair and isn't commentary on the quality of the change.

[apendleton]

Without speaking to this particular grandfather clause, I think in general these kinds of clauses deal with the fact that a new policy, good or bad, might cause people to design their incentive structures differently, and they want to avoid screwing over people who in good faith designed their structures to work best under the old system, and instead give them time to make adjustments.

[alistairSH]

What irks me is that tax policy is such that complicated incentive programs used to defer compensation and tax obligation are a thing in the first place.

[sokoloff]

Deferred compensation plans are not solely to manage or modify tax treatment of compensation.

As a long-term shareholder, I want the CEO, board, and senior executive compensation to be tied to long term shareholder value creation. By far the easiest way to do that is to create a deferred compensation plan that ties their financial outcome to that of a long-term shareholder.

If I win big holding their shares, I want them to win big.

If they just match the market, they should get paid something for their time, but not anything exceptional.

[jdavis703]

ISOs aren't really a tax dodge. They're designed to encourage employees and management to put extra work and thought in to the company they're building. I can tell you if I received the value of my ISOs in cash I would not come in to work early and leave late in the hope of a payoff sometime in the future. Unless you're working at a company doing something truly interesting, I think most employees would fall in to my camp.

[sokoloff]

Should taxpayers be forced to amend prior years' returns based on a new tax policy? (I believe no.)

If this policy were passed and applied to retroactively vested (but not yet received due to a time, performance, or other double trigger), that's what would seem to need to happen.

Other people have made plans for retirement or other meaningful milestones based on the current tax law. There is value in having stability and being able to plan around tax and other long-term financial realities.

Further, due to performance-dependent multipliers, it's often not even possible to know what the amount should be (which I admit applies to both grandfathered and not grandfathered comp).

[delinka]

New laws shouldn't, in general, be retroactive. The fact that a grandfather clause is necessary to specify that a law isn't intended to be retroactive is bothersome.

[Tyrek]

You need to have clauses to specify retroactivity, otherwise you get into a world where the government has to wait for everyone alive to die before they're allowed to implement a new taxation plan. There have to be limits somewhere, and that's exactly what these clauses need to implement.

[delinka]

"...has to wait for everyone alive to die..."

Certainly not. It's all based on the purchase/exercise/offering date. Let's take it to the extreme: if homicide had been legal, and society decided we needed to outlaw it, it stands to reason that homicide committed before the law was enacted would not be prosecuted, but only those cases happening one or after that date.

[rosser]

A homicide law isn't ambiguous. Either you killed the dude before it was enacted or after. You know, to the second, whether or not you're a murderer.

Tax law isn't so clear. There's when you were granted the shares, when you acquired them (which may or may not be a taxable event, depending, among other things, on whether there's a spread between strike price and FMV), when you sold them (which is a taxable event), and when the law was enacted. There are probably yet other subtleties beyond those.

The grandfather clause covers the case when the enactment date falls amongst the others. ISOs purchased before the enactment but sold after. ISOs granted before the enactment, but purchased after. Double-triggers. Are you sure you know how the law applies, and what your tax liability is, without explicit statute to that effect, in all of those cases — or others I haven't listed, or even imagined? Is your accountant? Are you willing to bet an audit on that?

EDIT: phrasing

[rosser]

A grandfather clause like this doesn't make a law "retroactive". It exempts people who would be subject to the law because of things that happened before its passage from its effects, when the specific behavior in question (say, e.g., filing your taxes after the law's passage, on income earned before that passage) is newly affected. It prevents "punishing" people for behavior that wasn't contrary to the law, when they engaged in it.

It is, therefore, the exact opposite of retroactive.

EDIT: phrasing.

[delinka]

I think you've misunderstood me. I've reworded to help. I did not intend to imply that I thought such a clause made the law retroactive. I'm saying that by default, laws should not be retroactive and that needing a clause to specifically prevent retroactivity is annoying as it specifies what should already be the default.

[Pyxl101]

Ex post facto laws are anathema.

[matt4077]

criminal law != civil law. And the law in fact doesn't apply retroactively, but it would apply to events in the future, that were determined in the past, based on certain assumptions.

Yes, the only reason the government is hiding time machines from us is their inability to finish the tax laws that would apply :)

Analogy: If congress raises gas taxes (nobody said analogies have to be realistic), everyone would have to pay more at the pump. But that doesn't mean the tax is applied retroactively.

[rosser]

Ex post facto laws are also unconstitutional. And this isn't one, anyway.