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Definition of 280G Parachute Payment

Section 280G of the Internal Revenue Code imposes a hefty 20% excise tax on certain "excess parachute payments" made to key employees and executives in connection with a change in ownership or control of a corporation. These parachute payments are typically severance payments or golden parachutes that exceed a specified threshold. 

The purpose of Section 280G is to discourage excessive compensation arrangements that may incentivize executives to prioritize personal financial gain over the interests of shareholders during corporate mergers or acquisitions. Corporations often seek to structure their compensation packages to avoid triggering the 280G excise tax while still providing competitive compensation to their executives.