Exxon Mobil Corporation (NYSE:XOM) has structured a payment method to reimburse its former CEO Rex Tillerson in such a manner that could save him an immediate tax charge of roughly $72 million. The Irving, Texas-based oil giant intends to hold onto the payment of nearly $180 million for the 64-year old executive as deferred compensation. However, tax experts think that the plan devised by Exxon Mobil could come under serious scrutiny by the Internal Revenue Service (IRS).
The plan has been formulated to break any relations between Mr. Tillerson and Exxon Mobil and meet the requirements of the federal ethics law prior to his confirmation as Secretary of State. He was the CEO and chairman of the company for the past ten years and has been an employee for over four decades.
Exxon Mobil intends to put the cash payment of roughly $180 million into an independent trust, which would be managed by Northern Trust Corp. on behalf of Mr. Tillerson. On the other hand, Mr. Tillerson would forfeit his right to nearly two million shares, which he has not been allowed to sell yet.
In normal circumstances, when shares are substituted with cash payments, a tax charge is immediately due for the recipient of the cash payment. However, in this case, the cash payment from Exxon Mobil will be transferred into an independent trust that will transfer funds to Mr. Tillerson slowly. On the transfer of funds, ordinary taxes would be applicable, which would be significantly lower than a tax charge on lump-sum charge. Presently, the top bracket of individual income tax stands at 39.6%. The independent trust would hold on to some part of the payment for as much as ten years.
Although there is nothing illegal or unethical about this plan, the IRS can still raise queries on how deferred compensation is converted into property using an independent trust. Deferred compensation is taxed under stricter regulations as compared to property.
Queries regarding the proposed plan may be raised by the Senate Foreign Relations Committee. President-elect Donald Trump’s cabinet heavily comprises several high-ranking executives from top corporations. This has caused an increased focus on how they would be dealing with their assets so that they comply with federal ethics laws.
Mr. Tillerson can also be questioned about his close relationship with Russian President Vladimir Putin. Both Republicans and Democrats are increasingly worried about Moscow’s role in the Trump administration. He can also questioned about his lack of experience regarding governmental affairs, as he has been a part of the corporate sector.