Rex Tillerson will not be liable to pay income tax for the whole sum at once

Published By: Myrna Salomon on January 11, 2017 09:44 am EST

Former Chief Executive of Exxon Mobil Corporation (NYSE:XOM) Rex Tillerson finalized a package for his deferred compensation with the company a few days back. He is set to get a sum of $180 million so that no questions of ethics are raised against him if his post as Secretary of State is confirmed. This deal is said to have made him avoid a federal tax for as much as $72 million according to a report on Bloomberg.

This arrangement was also reviewed by federal authorities to check its compliance with ethics policies of the US. He would have to give up his unvested shares as a part of this deal. In normal cases the cash payments awarded for unvested stocks is subject to an income tax liability. However, in the case of Mr. Tillerson, the plan is such that a trustee is involved which would disburse payments to him according to a planned schedule for the next ten years. This schedule will be similar to the policy of the company regarding the vesting schedule.

This means that Rex Tillerson would receive payments as parts for a period of ten years. Therefore, he would have to pay ordinary tax as he receives the sum. The company can take a corporate tax deduction but will only do so when the payments are made.

A tax partner Michael Kosnitzky while commenting on the situation said: “It’s unusual in that he’s getting a special arrangement that will allow him to continue the value of his deferred compensation through the trust while deferring taxes.”

However, experts have said that there is nothing illegal or unethical regarding the arrangement. Whereas, the Internal Revenue Service might question the move. A spokesman for Exxon has confirmed to this news. The lawyer for Tillerson also confirmed this news and was quoted as saying that this payout package does not break any law governing deferred taxation.