Tillerson's exit won't affect the deal he struck with Exxon

Although Rex Tillerson spent just over a year as America's chief diplomat, he'll continue to benefit from an arrangement he crafted with his former employer, energy giant Exxon Mobil, that could generate millions of dollars in tax savings.

Tillerson, who was Exxon's chief executive officer when President Donald Trump selected him to be his secretary of state, worked out a $180 million retirement package with the company that also met the U.S. government's conflict of interest requirements. The arrangement won't be affected by Trump's decision to fire Tillerson, which the president announced on Tuesday.

The choice of Tillerson for the top State Department post had triggered conflict-of-interest concerns because Exxon has business interests around the globe. The exit package was intended to ease worries that Tillerson could make decisions as secretary of state that would financially help himself or Exxon.

Exxon Mobil announced in January 2017 an agreement to cut all ties with Tillerson. Once he was confirmed by the Senate, the value of more than 2 million deferred Exxon Mobil shares — owed to Tillerson over the next 10 years — was moved into a cash trust managed by a third party. Regular payments would be made to Tillerson.

"He got a sweetheart deal from Exxon," said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, who added that the arrangement remains unaffected by Tillerson's ouster.

The arrangement could be upended if Tillerson goes to work for an Exxon competitor. The Exxon deal included a forfeiture clause that barred Tillerson from being employed elsewhere in the oil and gas industry during the 10-year period. If he violated the terms of the clause, the money from the trust would be distributed to one or more charities.

Tillerson separately sold another 611,000 shares he owned, worth about $55 million at the time. A provision in federal ethics law permits executive branch employees to defer tax liabilities when they sell certain holdings to comply with conflict-of-interest requirements. The measure is intended to draw top-quality people from business to government.

Gary Cohn, who departed last week as Trump's top economic adviser, also took advantage of the tax deferral. Cohn, who left a top position at Goldman Sachs to join Trump, sold shares from the Industrial and Commercial Bank of China and Goldman Sachs, without immediately paying taxes on the capital gains.

Overall, the exit package with Exxon cost Tillerson about $7 million in compensation he would have otherwise received. But the deal drew howls from Democrats on the Senate Finance Committee. They said the arrangement would allow him to potentially defer paying tens of millions of dollars in federal taxes and they said the non-compete clause lacked teeth.

Democratic Sens. Ron Wyden or Oregon, Tom Carper of Delaware and Sherrod Brown of Ohio said in February 2017 the clause relied on Tillerson's own certification that he was complying with it.

"Therefore, it appears that the non-compete clause does not truly create a substantial risk of forfeiture and Mr. Tillerson should pay taxes currently on the full amount in the trust," they wrote.

But Paul Gutterman, director of the master of business taxation program at the University of Minnesota, said Tillerson won't make out as well as many seem to believe.

"Benefit is in the eye of the beholder," Gutterman said. If Tillerson had stayed at Exxon, he wouldn't have paid taxes or if he had just held onto his vested shares after retiring without entering government service he would have deferred taxes as well, according to Gutterman.

"Meanwhile, it is unlikely that he will keep it in funds drawing very low interest, so as soon as he moves those funds the deferral will be lost," he said. "Depending on how much he would have left in Exxon stock one could argue he comes out behind."