Interesting Associated Press article, IRS Clarifies Rule on Sale of Assets by Nominees; Paulson Avoids Tax Penalty as He Takes Treasury Job, by Martin Crutsinger:

The IRS issued a regulation Friday that will allow its new boss, incoming Treasury Secretary Henry Paulson, to sell his extensive Goldman Sachs stock holdings without incurring a tax penalty. The IRS guidance clarifies that any executive who is divesting a deferred compensation arrangement to comply with government rules on conflict of interest does not have to pay a 20%.

Treasury spokesman Sean Kevelighan said that the IRS had been working on the new tax guidance but accelerated that effort so it could be released in time to cover Paulson. Before President Bush nominated Paulson in May to succeed John Snow, the IRS had not made writing the new rule a priority because it covered so few people, Kevelighan said….

Kevelighan said that Paulson will still have to pay regular income taxes on deferred compensation but he will avoid paying the 20% .

Secretary Paulson should not have any difficulty in making the tax payment, as his net worth is over $700 million, and Goldman Sachs announced this morning that it has paid him a $18.7 million cash bonus for his six months of work this year as CEO. For prior TaxProf Blog coverage, see here and here.

Update:  Notice 2006-64 is available here.