The Decline and Fall of the 280G
Excise Tax Gross-Up: Managing
Equity (and Other) Compensation
After the Gross-Up Is Gone
2010 NASPP Annual Conference
September 23, 2010

Marshall Scott, Towers Watson

Laura Thatcher, Alston & Bird LLP

Mike Cyran, Microsoft Corporation

Terry Adamson, Radford Valuation Services
30,000 Foot Overview of Golden Parachutes

Internal Revenue Code §4999 imposes a 20% excise tax on “excess
parachute payments”

“Parachute payments” are change-in-control payments that equal or exceed
3 times a person’s “base amount” (average taxable compensation over the 5
years ending prior to the year in which the change in control occurs)

An “excess parachute payment” is the amount by which a parachute payment
exceeds the portion of the base amount allocated to that payment

Internal Revenue Code §280G prohibits the company’s corporate tax
deduction for excess parachute payments under IRC §4999

As the two Code sections go hand in hand, these are often referred to
collectively (although inaccurately) as “280G” consequences
1
Gross-Up Protection

Historically, it has been common for public companies to provide a tax
gross-up payment to executives to cover both (i) the golden parachute
excise tax, and (ii) the resulting income and excise taxes on the grossup payment

Due to the tax-on-tax compounding effect of the gross-up obligation, as
a general rule of thumb, the gross-up payment is approximately 2.5
times the amount of the excise tax

In addition, the company loses its income tax deduction for the excess
parachute payment, which compounds the overall expense to the
company of providing gross-up protection

Because of this, excise tax gross-ups are becoming increasingly
unpopular with investors
2
Tax Gross-Up Provisions – 2009

Recent data (generally 2009) for the largest 500 U.S. corporations
reveal that 48% of CEOs and 38% of other named officers are provided
full excise tax gross-ups

Some companies provide adjustments or address the excise tax in other
ways
1%
1%
3%
CEO
1%
7%
2%
4%
10%
Other NEOs
38%
12%
48%
37%
Full
Conditional
Capped
Partial
Conditional & Capped
Range
Full
Partial
36%
Conditional
Best of Net
Conditional & Capped
Capped
Range
3
* Tax gross-up definitions in the key can be found in the next slide.
Tax Gross-up Definitions
Full Tax Gross-up
Tax gross-up that completely offsets the impact of excise taxes imposed on the
parachute recipient by IRC 4999
Conditional Tax Gross-up
With these provisions, the full gross-up is provided only if total parachute payments
exceed the statutory limit imposed by IRC 280G by an arbitrary amount (e.g., 10%,
$100,000); otherwise, the parachute payments are capped at the IRC 280G limit
Partial Tax Gross-up
The excise tax gross-up only indemnifies for a portion (e.g., 50%) of the excise tax
incurred, and the executive is liable for the balance
Capped
The parachute payments are limited or capped so that no excise tax is incurred
Conditional & Capped
An excise tax gross-up is paid only if the parachute payment exceeds a certain
threshold, and the amount payable will be capped at a certain amount (e.g.,
parachute payments must exceed the safe harbor by at least ten percent, but no
excise tax gross-up will be more than $1 million)
Best of Net
No excise tax gross-up, and parachute payments may be limited or reduced if the
amount as adjusted or reduced is greater than the amount of parachute payments
determined net of all taxes
4
Tax Gross-Ups Provision – 2010


Most recent data (generally 2009) for the largest 200 U.S. corporations reveal that
approximately fifty percent (50%) of those corporations (i.e., 101) provide or have
historically provided some sort of contractual change-in-control protection, including
excise tax gross-ups or other adjustments
Prevalence of Types of Gross-ups; Reflective of
Grandfathered Arrangements
#
%
Full
41
41%
Conditional
42
42%
Partial
3
3%
Best of Net
15
15%
Total
101
100%
At the present, eighty-five percent (85%) of those companies report that they have not
adjusted their traditional approach to excise tax protection (other than for seven
companies who moved to a best-of-net practice)
Prevalence of Types of Gross-ups; Reflective of
On-going Practices
#
%
Full
29
34%
Conditional
31
36%
Partial
3
4%
Best of Net
22
26%
Total
85
100%
5
Tax Gross-Up Provisions – 2010

On-going “largest 200 U.S. corporations” reflect recent changes


Sixteen (16) companies have eliminated the use of excise tax gross-ups
going forward (although most of the companies have grandfathered the use
for executives who had such protection at the time of the change). Seven (7)
companies now offer a “best-of-net” replacement
Looking behind the data, most companies are electing to grandfather
existing designs for current executives, but are not providing CIC
protection to new or promoted executives

As a result of the grandfathering, market statistics may understate the rate at
which company policy is changing

Also, many companies are trying to manage the expense associated with the
excise tax, which reflects the move away from full gross-ups to alternatives
designed to eliminate or minimize excess parachute payments
6
Business Reasons for 280G Tax Protection

The business case for Change in Control (CIC) benefits, including excise tax protection,
has not changed

Boards claim – not incorrectly – that a CIC is distracting to executives, and that, by
providing severance and tax protection, the executive can be assured that compensation
is sure. This allows the executive to focus on leading the company through the CIC,
without worrying about personal consequences

However, many factors are now dissuading companies from continued parachute tax
protection. Negative pressure from shareholder advisory groups like ISS, significant
expense to the company, and pressure from shareholders have induced many
companies to eliminate parachute tax gross-ups

The following companies have elected no longer to provide gross-ups of parachute tax
payments for some or all of their current or future executives:
Advanced Micro Devices
J. C. Penney
Ameren Corp
Medco Health Solutions
American Electric Power
Newell Rubbermaid
Borg Warner
Sherwin-Williams
Freeport-McMoRan Copper & Gold
Textron
Goodyear
Verizon Communications
Honeywell
7
Reasons to eliminate CIC Tax Protection

A company’s failure to eliminate CIC tax protection can result in
negative votes for directors on select committees, or in some cases, all
directors standing for re-election

Institutional shareholders have expressed strong disfavor of CIC tax
protection

Institutional Shareholder Services (“ISS”, a division of RiskMetrics
Group) has taken a specific stand on excise tax gross-up protection
— ISS will render a negative vote recommendation on a say-on-pay
proposal, or a “withhold” vote recommendation for directors, when
a CIC excise tax gross-up is included in a new CIC agreement or
plan, or maintained in an amended agreement or plan

New developments in corporate governance (majority voting standards
for directors and limitation on discretionary voting by brokers) increase
the likelihood that negative vote recommendations will be successful
8
Reasons to Eliminate CIC Tax Protection

Majority voting standard
— Majority voting requires a director to tender resignation if majority votes in favor of
re-election are not received (if majority is “against” or “withhold”)
— A large majority of S&P 500 firms have already adopted majority voting; most mid-
and small-cap companies have not done so
— Senate version of the 2010 Financial Reform legislation contained a majority voting
standard in uncontested director elections at public companies (but as of June 17,
Senate conferees reportedly had agreed to drop this provision)

Broker non-votes
— In 2009, broker non-votes were eliminated from the vote count for director
nominations, making any election more dependent upon the votes of institutional
shareholders
— As of June 24 while still in conference, the 2010 Financial Reform legislation would
also eliminate broker discretionary voting on say-on–pay proposals
9
Courting Institutional Investor Votes: ISS Poor Pay Practices

Any of the following “poor pay practices” substantially increase the likelihood of a
withhold vote recommendation from Institutional Shareholder Services:
ISS Poor Pay Practices in CIC
Commentary
Severance payments exceeding three times
base salary and target bonus
Emerging practice is to align the CIC severance multiple with the period of the
non-compete. This will typically bring CIC severance into the safe harbor (typically
to a to a 1 to 2 times multiplier, depending on the executive’s level). CIC
severance multiple may remain higher than for other involuntary terminations.
CIC payments without job loss or
substantial diminution of duties (“single
triggers”)
Single triggers that allow for a CIC severance payment even though the executive
remains employed in a job at a comparable level and with comparable pay have
become atypical. Single trigger severance is generally inconsistent with the
income protection goal of severance pay. In the 2010 ISS guidelines, singletriggers account for more than 20% of the overall GRId index score.
New or materially amended agreements
that provide for “modified single triggers,” in
which an executive may voluntarily leave for
any reason and still receive the CIC
severance package
This refers primarily to “walk away” provisions. An executive may leave
voluntarily during a window period, usually the 13 month period following the CIC,
without loss of severance pay. The original intent was to allow the acquiring
company time following the CIC to negotiate to retain an executive, but not bind
the executive longer-term to the new company.
New or materially amended agreements
that provide for an excise tax gross-up
(including “modified” / “conditional” grossups)
ISS will, however, support provisions that provide for a “sunset” of the existing
excise tax gross-up protection over time, typically 12 to 24 months, if the Company
also commits not to add excise tax gross-ups in any subsequent agreements
10
Courting Institutional Investor Votes: Institutional Perspective

Three large institutional investors, Fidelity, Vanguard and CalPERS, have expressed the
following opinions on CIC protection:
Investor
Fidelity
Major Views Expressed on CIC Provisions
Fidelity will generally withhold authority for the election of all directors, or directors on responsible
committees, if a golden parachute was introduced, extended, or adopted upon the expiration of an
existing contract or plan without shareholder approval. Fidelity defines a golden parachute as
employment contracts, agreements, or policies that include an excise tax gross-up provision or may
result in a lump sum payment of cash and acceleration of equity that may total more than 3X annual
compensation in the event of a termination following a change in control.
Vanguard
Any new or amended change in control arrangement under which the beneficiary receives more than
three times salary and bonus—or where severance is guaranteed absent a change in control—should
be submitted for shareholder approval
CalPERS
Companies should not compensate executives for any excise or other additional taxes payable as a
result of any employment, severance, or other agreement
11
Effect of Public Disclosure of CIC Severance

The required proxy disclosure of the dollar value of excise tax protection and the total
severance payment for CICs highlights the issue and fuels shareholder concern. Below
is an actual example from a 2010 proxy statement, which illustrates this disclosure.
Chief Executive Officer
Executive Benefits & Payments
Upon Termination
Compensation
Severance
Short-Term Incentive Plan
Long-Term Incentive Plan
Stock Options (Unvested & Accelerated)
Restricted Stock (Unvested & Accelerated)
Restricted Stock Units (Unvested & Accelerated)
Benefits
Benefits Continuation
280G Tax Gross-Up
Other Benefits
TOTAL
Involuntary
Termination
Change in
Control
$3,300,000
—
$500,000
—
$29,466
—
$3,300,000
—
$500,000
—
$139,966
$4,000,014
$108,471
—
$44,290
$91,079
$3,783,409
$44,290
$3,982,227
$11,858,758
12
Company Advantages for Removing CIC Tax Gross-Ups

Positive public proxy disclosure now, both in tabular and narrative form

In some cases, may receive positive benefits of disclosure even when
potential tax liability is small or non-existent (and when the risk is small that
elimination of the gross-up will actually lead to talent loss)

Limited disclosure value if change were to occur later, after likely required

Increased director retention – minimizes potential embarrassment of low
shareholder support of re-election

Reduced change-in-control costs, and potential for increased shareholder value

This may also increase the tax deductibility of compensation paid as a result
of a change in control
13
Considering a Decision to Change

Each of the elements below should be part of any decision to change or
remove parachute excise tax protection

Market conditions: Companies rarely want to be first in adopting a new
practice or going against the broader prevalent practice

Business/strategic rationale: Boards will always be concerned with
whether limiting benefits will affect the ability to attract and retain talent

Benefit to executives: Change is easiest before excise tax liability exists;
by altering provisions early, there is no actual immediate financial take-away
from executives

Performance Trend: Boards will face easier choices in an environment of
strong historical performance and pay trending up (historical weak
performance tends to yield lower “base amounts” and increase chance of
excise taxes)

Cost of parachute provisions: Usually not a stand alone reason for
change, but can add to the strength of a recommendation when incorporated
with other factors
14
Considering a Decision to Change

Market context can be ascertained through researching peer group CIC
severance practices and published survey sources
Example Summary of CIC Provisions
Provision
Peer Group Prevalent Practice
Cash severance
payments

Severance multiple ranging from 2x to 3x base salary
plus annual incentive, with a trend toward 2x

Provide a pro-rata payout of current performance plan
cycles

Accelerated vesting of stock options and restricted
stock

Excise tax gross-ups are provided, with a trend toward
only providing gross-ups if payments exceed 110% of
the excise tax threshold; otherwise, payments are
reduced to avoid excise taxes
Treatment of outstanding
long-term incentive
awards
CIC excise taxes
General Industry Prevalent Practice

Severance multiple ranging from 2x to 3x base salary plus annual
incentive, with CEOs typically receiving 3x and direct reports
receiving 2x

Accelerated vesting of all outstanding long-term incentives

Full tax gross-up prevalent practice for the CEO and direct reports
to the CEO

Trend toward only providing gross-ups if payments exceed 110% of
the excise tax threshold; otherwise, payments are reduced to avoid
excise taxes

Business / strategic rationale for certain CIC provisions require input from an
organization’s management team and board

More detailed analysis is required for surfacing issues regarding the benefit to
executives, the implications of historical performance and the cost of CIC
provisions; examples are on the pages that follow
15
Considering a Decision to Change

Limited tenure, which provides a shorter W-2 history and less opportunity to have
realized gains from equity awards, bonus payouts, etc., can result in small 280G “safe
harbors” relative to the severance otherwise provided


In this respect, excise tax protection can be validated for purposes of retaining executives that are
newly hired and have limited tenure
Exhibit A: Tenure plays a major role in the size of the 280G limit – cash severance alone
(i.e., without consideration for vesting of equity awards and other CIC related payments)
in this example is sufficient to exceed the 280G limit and generate excise taxes
Exhibit A
CEO with 3.0x CIC severance multiple and limited tenure
Year
W-2 Value
Base Amount
$698,895 1
Base Salary
$750,000
2009
$1,127,114
280G Limit
$2,096,684
Average Bonus
$175,000
2008
$307,474
$2,775,000
2007
-
3.0 x (Base +
Average Bonus)
2006
-
2005
-
1
Adjusted for one-time payment in year
of hire of $350,000
16
Considering a Decision to Change

Similar to limited tenure, a history of poor company performance (in terms of financial and shareholder
returns) can – over time – lead to lower 280G “safe harbors” for executives, as smaller incentive
payouts are captured in W-2 histories; if excise tax protection is provided, this creates a “double
bogey” of an increased likelihood of excise taxes in the face of poor returns to shareholders


This challenges the rationale for providing any sort of excise tax protection
Exhibit B: A decline in W-2 earnings (corresponding to a protracted decline in stock price over the
same period) drives down the 280G limit; as with the prior example, cash severance alone would be
sufficient to exceed the 280G limit and generate excise taxes (particularly since the use of “target”
bonus in the severance formula avoids aligning severance with actual bonus history)
Exhibit B
Executive with 2.0x CIC severance multiple and declining W-2 Earnings from poor performance
Year
W-2 Value
2009
$227,656
2008
$249,821
2007
$343,152
2006
$342,368
2005
$361,963
Base Amount
$304,992
Base Salary
$300,000
280G Limit
$914,975
Target Bonus
$180,000
2.0 x (Base +
Target Bonus)
$960,000
Stock Price History
12/31/2005: $25.05
12/31/2009: $2.21
17
Considering a Decision to Change

While limited tenure and sustained poor performance increase the potential for parachute payments
exceeding the 280G threshold, strong historical performance has the opposite effect; above-target
bonus and equity award payouts from healthy financial results and shareholder returns can increase
W-2 histories and 280G limits, reducing the likelihood that CIC severance payments will generate
excise taxes


Consequently, even if excise tax protection is provided, it may be unnecessary (apart from perceived value to
executives)
Exhibit C: While performance has declined following the market downturn, longer-term historical
performance provided substantial W-2 earnings to the CEO, raising the 280G limit and insulating the
substantial severance package (including accelerated equity) from approaching the 280G limit
Exhibit C
CEO with 3.0x CIC severance multiple and high W-2 Earnings and performance
Year
W-2 Value
2009
$16,351,485
2008
$56,563,937
2007
$39,183,500
2006
$10,831,298
2005
$11,033,044
Base Amount
$26,792,653
Base Salary
$1,403,780
280G Limit
$80,377,958
Average Bonus
$2,060,920
3.0 x (Base +
Average Bonus)
$10,394,100
12/31/2007: $111.69
Stock-Based
Awards
$10,265,704
12/31/2009: $81.75
Total
$20,659,804
Stock Price History
12/31/2005: $77.53
18
Techniques for Change

Organizations that are making change rarely eliminate the CIC tax protection
from existing participants immediately. Instead, organizations typically adopt
one of the following methods

A prospective change, meaning CIC tax protection is not included in any new
or amended agreement or plans; or

A “sunset” provision, eliminating CIC tax protection after a specified period of
time.
— Example:
The employment agreement provides that if Mr. XXX receives any payments that are subject to the excise tax
imposed on “parachute payments” under the Code on account of a transaction occurring within 18 months
following the effective date of the employment agreement, we will pay him a gross-up payment so that he
retains an amount of the gross-up payment equal to the excise tax, after payment of all taxes on that gross-up
payment. This provision modifies the right Mr. XXX had in his original offer letter to receive this form of grossup payment throughout his employment with us. Mr. XXX is not entitled to any such gross-up payment for
transactions occurring after such 18 month period.
— This sunset provision was supported by ISS (though the company was
required to make a public statement that no further CIC excise tax
benefits would be added in the future)
19
Techniques for Change

The following additional techniques are being used to minimize the potential
and size of excise tax liability:

Cut-back to safe harbor limit (or variations thereof)

Increased allocation of payment to restrictive covenants

Providing damages for breach of contract, rather than severance

Identifying CIC payments as “reasonable compensation” for prior services

Double-trigger vesting (probability analysis of termination actually occurring)

Cancellation of unvested equity with little or no intrinsic value

Accelerated exercise of vested options in year prior to CIC
20
Techniques for Change: Cut-Back to Safe Harbor

This technique involves cutting back the parachute payment until it falls within the 2.999x safe harbor.

Consider the following parachute payment:
Total parachute payments
$300,000
Base amount
$100,000
Safe harbor
$299,999
Excess parachute payment ($300,000 $100,000)
$200,000
Excise tax liability ($300,000 - $100,000) x 20%
$40,000

Note, by cutting back the parachute payment by to the safe harbor amount, the tax is
avoided. Here, a $1 cutback eliminates the excise tax liability entirely.

Cutbacks benefit both the executive and the company without an expensive gross-up:
The executive nets $299,999 of payments before tax withholding (rather than $260,000,
with the excise tax) and the company can deduct the entire amount, rather than just the
$100,000 base amount.
21
Techniques for Change: Restrictive Covenants

Compensation paid for a restrictive covenant, such as a covenant not to
compete is not a parachute payment (to the extent it is “reasonable
compensation” for future services)

Companies have typically only assigned a limited value to the restrictive
covenant

Companies can provide extra “severance” by allocating more of the payment as
consideration for the restrictive covenant

For example, the executive may be entitled to one or two years of severance
without regard to the restrictive covenant, and if he or she agrees to a
restrictive covenant, one additional year of severance

Following ISS’s new policy, companies must approach restrictive covenants
with more rigor

Generally must get an expert valuation of the restrictive covenant, which is
based on the facts and circumstances
22
Techniques for Change: Restrictive Covenants

Valuation experts typically meet with the executive to understand:
— the scope of the executive’s position
— the executive’s ability to influence or set company strategy
— the executive’s ability to affect revenue or cost
— and his or her skills and background

Unique for each executive at each company

Based on the set of circumstances, valuation experts estimate cash flow and
net present value to the company as a result of the continued employment of
that executive
23
Techniques for Change: Restrictive Covenants

Challenges to the covenant valuation process

Managing the process: HR typically has to manage the valuation process,
including
— discussing the valuation with the executive before the interview
— managing communication among executives
— communicating the results to the Compensation Committee or Board

Buy in: executives typically want to understand the methodology and
assumptions behind the valuations before the interviews
— many will want to discuss with their own legal and/or tax counsel
— some will be uncomfortable discussing their value to the company, especially during a CIC

Timing: given the complexity of the issue, the valuation process can take time
— if the valuation is taking place during a potential CIC, it can be even more difficult to carve out
time for interviews and valuations
24
Techniques for Change: Damages for Breach

This technique involves characterizing CIC payments as damages for breach of contract,
rather than as severance*

The following factors are generally considered clear and convincing evidence that the
payment constitutes damages for breach of contract (i.e., reasonable compensation for
personal services to be rendered after the CIC):

The contract was not entered into, amended or renewed in contemplation of the CIC

The compensation the executive would have received under the contract absent a CIC
would have qualified as reasonable compensation under IRC §162

The damages do not exceed the present value (as of the date of receipt) of the
compensation the person would have received under the contract if he or she had
continued to perform services for the company until the end of the contract term

The damages are received because executive’s offer to continue providing personal
services was rejected by the employer (including involuntary termination or
constructive discharge)

The damages are reduced by compensation earned during the original contract term
(mitigation)
* Treas. Regs. §1.280G-1, Q&A-42(c)
25
Techniques for Change: Damages for Breach, continued
Illustration
Damages for Breach
Severance
Damages for Breach
$300,000
Severance
$300,000
Accelerated Vesting of Equity
$200,000
Accelerated Vesting of Equity
$200,000
Total
$500,000
Total
$500,000
Base
$100,000
Base
$100,000
Total Parachute
$200,000
Total Parachute
$500,000
Payment in Excess of Base
$100,000
Payment in Excess of Base
$400,000
Safe Harbor
$299,000
Safe Harbor
$299,999
Parachute Payment
$500,000
No excise tax
-100,000
$400,000
Excise Tax ($400,000 x 20%)
$80,000
26
Techniques for Change:
Reasonable Compensation for Prior Services

If there is clear and convincing evidence that a payment is reasonable
compensation for services rendered prior to a CIC, they may be excluded from
the excise tax and loss of deduction consequences*

Factors relevant to such determination include, without limitation, the
following:**


The nature of the services rendered

The individual’s historic compensation for performing such services

The compensation of individuals performing comparable services in situations
in which the compensation is not contingent on a CIC
If an individual’s actual total direct compensation has consistently been below
the market competitive pay level (e.g., 50th percentile), may some of the CIC
pay be characterized as compensation for past services?
* Treas. Regs. §1.280G-1, Q&A-39
**Treas. Regs. §1.280G-1, Q&A-40
27
Techniques for Change:
Double-Trigger Vesting; Probability of Employment Termination

Double-trigger vesting and payment provisions allow individuals to disregard
unlikely future payments in calculating present taxes

If a payment (including the value of accelerating vesting of such payment) is
based on an event that has less than a 50% probability of occurring, it may be
excluded from the parachute payment calculation unless or until the event
(typically termination of employment) actually occurs*

This approach may help reduce the excise tax if the individual is not likely (i.e.,
less than 50% probability) to be terminated as a result of the CIC
— A person who does not experience a termination of employment, and thus
does not receive a payment pursuant to the double trigger may not have
excise taxable compensation
— However, if the person later terminates and receives the payment, the
parachute tax will need to be recalculated and adjusted
* Treas. Regs. §1.280G-1, Q&A-33
28
Techniques for Change:
Cancellation of Unvested Stock Options That Have Little or No
Intrinsic Value

Treasury regulations provide that the accelerated vesting of a stock option or
restricted stock upon a CIC is treated as a payment in the nature of
compensation

The “parachute” value of the CIC vesting of a time-based option or restricted
stock award depends on the intrinsic value of the award at the time of the CIC
and number of months the vesting was accelerated by virtue of the CIC

The acceleration of vesting of even underwater options can have “parachute”
value (although usually minimal)

One way to marginally reduce the total parachute payment is to cancel (rather
than accelerate) unvested underwater options; but this could be an inefficient
choice to eliminate a small amount of parachute value – especially if the
options have a long remaining time to recover value
29
Techniques for Change:
Exercise Vested Options in Year Before CIC

In cases where a CIC is expected to occur early in a calendar year,
executives may consider exercising vested nonqualified options before
the beginning of that year

The option gain will be taxable compensation in the year before the
year in which the CIC occurs and, therefore, will increase the person’s
base amount and provide a higher 280G limit before the excise tax
applies
30
Tips for Consideration

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Plan ahead to address the elimination of gross-ups
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Agreements with CIC tax protection usually have notice periods of 6 months or more
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Monitor / check competitor (peer) company actions relative to excise tax protection; if you don’t
want to be the leader, at least avoid being the laggard
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Easiest to consider when excise liability is not expected to arise in the foreseeable future
Focus on opportunities for the Company
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Demonstrate the quantitative impact of a change over a range of stock prices and incentive plan
performance levels
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This is a chance to make a very positive change that may not be a direct financial take away
Critical to demonstrate the potential tax risk, or lack thereof, for the current covered group
Discuss an implementation strategy
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Use provisions, such as sunset clauses, to establish the principle of CIC tax treatment while
controlling the timing of its effective date
— Company may get “credit” for the making the change now, even though implementation could
be delayed until all others are “required” to eliminate gross-ups
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