Monday, December 29, 2008

NFL - 409A Update

NFL - 409A Update from National Football Post - "Language Has Been Vetted by NFLPA and NFL Management Council"

"There was a bit of activity on the contract front last week when the Cowboys formalized a deal with tackle Marc Colombo for four years and $22M, with about half guaranteed. The deal was being held up by the 409a tax code issue, which I discussed earlier. There is now language that has been vetted by the NFLPA and the NFL Management Council that allows teams to amend contracts as needed so the player does not suffer tax consequences on deferred bonus money, which virtually all bonus money is."

Article Also Discusses Dallas Cowboys Recent Free Agent Signings and Potential Salary Cap Issues

Dallas Cowboy Performance 12/28 Here.

409A Urban Myths from Feld

Silicon Valley Mythbuster - Here

"Perhaps the only upside to the 409A panic in the start up world has been some of the urban legends that have already popped up. Jason and I aren’t your lawyers, so don’t take this as formal advice, but if your lawyers are advising you of the following, at least ask some questions. We’ve personally heard some senior partners at big-name law firms say some crazy things regarding 409A. The following are actual quotes. We will not disclose names to protect the innocent, er.. guilty."

Wednesday, December 24, 2008

Companies Busy with Year End 409A Amendments - Sample 8-Ks

Palm, Inc.

Grubb & Ellis Company

3M Company

Pep Boys

Loral Space and Communications

American Eagle Outfitters

The Timberland Company

Chuchill Downs

Cray Inc.

Sysco Corporation

Abercrombie & Fitch

Additional 409A Thoughts For Sports Agents

From Connecticut Sports Law Blog

"A signing bonus is compensation earned by joining a team, but it is frequently paid out over time. For example, let’s say that Jim is an in-demand pitcher. On January 1, 2009 he signs with a team that offers him a $10 million signing bonus to be paid over a five year contract term. Without making sure that the bonus fits within an exception in the 409A regulations, Jim would be receiving non-qualified deferred compensation subject to 409A. That means that Jim would have to pay taxes on $10 million of income in 2009 and be subject to a 20% excise tax on top of that. The result? Jim is only paid the $2 million due for the first year’s payment, and already owes the IRS $2 million in excise tax plus income taxes of approximately $3 million."

Monday, December 15, 2008

NFL Player Agents Warned of 409A Peril

Players Association Sends Urgent Memo

"The NFLPA was clear about the importance of this provision in its memo to all agents: “This memorandum identifies an extremely important tax issue that may affect your player-clients and requires your immediate attention. The NFL has just informed the NFLPA that NFL clubs did not draft or amend many NFL player contracts in order to bring them into compliance with Section 409A of the Internal Revenue Code. As a result, many player contracts that include certain deferred compensation arrangements may not comply with the new tax provisions, thereby resulting in accelerated taxable income and/or an additional 20% tax, imposed on the player-client, unless the contracts are amended on or before December 31, 2008.”"

XtremERISA Blog Discusses 409A and 457A - - Forms the "A" Team

From XtremERISA Blog

Wednesday, December 10, 2008

IRS Provides Guidance on Withholding under 409A

IRS Notice Here

"This notice provides interim guidance to employers and payers on their reporting
and wage withholding requirements with respect to amounts includible in gross income
under §409A of the Internal Revenue Code. This notice also provides interim guidance
to employers and payers on their reporting requirements with respect to all deferrals of compensation under §409A of the Internal Revenue Code. This notice does not affect the application of §3121(v)(2) or an employer’s reporting obligations under §31.3121(v)(2)-1 of the Employment Tax Regulations. In addition, this notice provides guidance to service providers on their income tax reporting and tax payment requirements with respect to amounts includible in gross income under §409A."

Sunday, December 7, 2008

IRS Issues Final 409A(a) Relief Procedures

From PlanAdvisor: IRS Issues Final 409A(a) Relief Procedures

The IRS Notice Here

"According to the IRS notice, the new procedures include:

Methods for correcting certain operational failures during the service provider's taxable year in which the failure occurs and, for certain service providers also during the subsequent taxable year, to avoid income inclusion under § 409A(a).

Relief limiting the amount includible in income under § 409A(a) for certain operational failures during a service provider's taxable year that involve only limited amounts.

Relief limiting the amount includible in income under § 409A(a) for certain operational failures regardless of whether the failure involves only limited amounts, but subject to further required actions to correct the failure.
Special transition relief for certain operational failures occurring before January 1, 2008."

Friday, November 21, 2008

EMCORE Corporation Launches Tender Offer to Fix Employee Stock Options Subject to 409A

"As a result of the Company's previously announced voluntary inquiry into its historical stock option granting practices, which was concluded in 2006, the Company determined that an incorrect grant date was used in the granting certain options. As a result, the options were granted at an exercise price below the fair market value of the Company's common stock as of the correct date of grant. Consequently, employees holding these options face a potential tax liability under Section 409A of the Internal Revenue Code and similar sections of certain state tax codes, unless remedial action is taken to adjust the exercise price of these options prior to December 31, 2008."

EMCORE Press Release

Tender Offer

Monday, November 10, 2008

409A Valuation Calculator From VC

"With the launch of the new 409A calculator, companies can now calculate their stock option prices so that they meet the requirements under Internal Revenue Code Section 409A. The 409A calculator was designed to provide a comprehensive list of "comparable" companies (i.e. similar companies based on industry, valuation and/or geography) and to assist in offsetting the rising cost of outside consultants and auditors as the company CFO's determine fair value."

Press Release


Thursday, November 6, 2008

Coming Soon to Theaters - Documentary "An Inconvenient Tax"

I received this email from the producer of an upcoming documentary about taxes and tax reform. I thought some might enjoy the movie trailer which is linked below.

Hello, this is Nathan Padgett with Life Is My Movie Entertainment. I'm writing to let you know about the upcoming feature length documentary about taxes and tax reform, "An Inconvenient Tax".

This film sheds light on one of America’s messiest problems — a fundamentally broken tax code that affects every part of people's lives. With the U.S. Congress making over 16,000 changes to the tax code in the last two decades alone, many Americans want something better, but few know where to start. This feature-length documentary film reveals the many ways Congress uses the tax code to achieve political goals that have nothing to do with raising revenue. It also tackles the controversial issue of tax reform through a non-partisan presentation of U.S. tax history and current proposals to fix the code. In a time when America faces fiscal crisis, An Inconvenient Tax brings a crucial exploration of the tax code to the big screen.

We know that the subject matter within this film is a hot topic for your viewers and all Americans alike. While we have yet to begin our major marketing campaign, we are currently contacting specific tax and accounting outlets in hopes that they will be willing to inform their viewers of the film's newly redesigned website and possibly showcase the teaser. I'm including links to the website, press packet, and the teaser.

Feel free to contact us if you have any questions or comments about the film. 770-881-7500 ext: 2

Thank you for your interest in our film. Now sit back, relax and enjoy the show,
Nathan Padgett


Press Packet:

Film Teaser:

Nathan Padgett

[o] 770-881-7500 ext: 714
[f] 678-748-3106
[c] 404-405-1617

440 South Perry Street Suite #8
Lawrenceville, Georgia 30045

Monday, November 3, 2008

409A Video Clip - Brief Summary From BNA

Not much information, but this is the first (and only?) YouTube offering relating to 409A.

Tuesday, October 28, 2008

IRS May Waive 2008 Form Y Reporting

IRS May Waive 2008 Form Y Reporting

According to a BNA news report, Treasury Deputy Benefits Tax Counsel Helen H. Morrison said in a recent Clark Consulting Webinar that the IRS expects to issue a notice before the end of 2008 waiving the requirement for reporting this year, "and until such time as we have issued regulations on how to calculate the amount that would be included in income."

Morrison also said the Treasury expects to soon issue proposed regulations on how to calculate amounts that would be included in income due to a failure to meet 409A requirements. The proposed regulations will also "serve as a foundation for providing guidance as to what would be reported for compliant plans," using Code Y on Form W-2, she said.

Friday, October 24, 2008

Thursday, October 16, 2008

UnitedHealth Group Incurs Costs for 409A Violation

Company Slammed with 409A Tax Reimbursements

Financial Statement Footnote:

"Includes $87 million of pre-tax Operating Costs for the settlement
of Internal Revenue Code Section 409A (IRS Section 409A) surtax
liabilities on behalf of non-officer employees who exercised certain
options in 2006 and 2007, and $89 million of non-cash Operating Costs
for the modification charge due to repricing unexercised options
subject to IRS Section 409A."

WuXi PharmaTech Executives Face 409A Penalty Taxes

Company Executives to sell Stock to Cover Penalty Taxes from in-the-money Options

"...we expect up to 350,000 ADSs may be sold by other management members and employees prior to year-end for 409A purposes. Prior to 2008, a number of our management members and employees who were U.S. taxpayers were granted options with an exercise price potentially below fair market value on the date of grant, as determined under Section 409A of the U.S. Tax Code. To avoid the adverse tax consequences imposed under Section 409A to these U.S. taxpayers, the options were amended previously to require that they be exercised, if at all, on or prior to December 31, 2008 (no other changes were made). If unexercised by year-end those options will expire, and those individuals may need to sell ADSs to pay related taxes and the purchase price payable upon exercise."

Wednesday, September 24, 2008

Wachtell Lipton Calls for 409A Relief.

Wachtell Lipton Critical of 409A Tax; Calls for Relief

"At this point, it is clear that the government’s mandate of complete and error-free
documentary compliance by year end (or ever) is unattainable and unnecessary to achieve its original goals. Treasury and the IRS must take action to delay the documentary compliance requirements of Section 409A. In the absence of a delay, the burden on companies would be significantly eased if the application of the 2008 deadline was limited to the executive officers of public companies (i.e., the
Section 16 officers). Moreover, the IRS should announce that good faith efforts to comply with the final regulations, both in form and operation, will be acceptable. America’s corporate resources should be focused on business matters in this critical and uniquely difficult time, without the worry that a vast portion of its workforce will be subject to a punitive and draconian tax on New Year’s Day."

Others Agree

"It is submitted here that these unexpected and changed circumstances may well justify a reconsideration of the current deadline generally - not because the existing deadline did not confer sufficient time, but because things, simply put, have changed. The need to devote significant attention to Section 409A compliance may be inconsistent with the attention that will have to be devoted to the economic crisis. And, notwithstanding the ongoing bail-out efforts, query whether any exacerbation of the current crisis in the coming weeks might make broader relief downright necessary."

Rumor about a Rumor about a Rumor About Further Extension - from XtremeERISA Blog

Friday, September 5, 2008

CompensationStandardsBlog Notes That Repricing Options Upwards To Comply with 409A Could Trigger Rule 701 Limits

Repricing Options Upwards Could Trigger SEC Rule 701 Limitations

"Presumably, options whose exercise price is increased to avoid being treated as a discounted option under 409A must also be recalculated for purposes of Rule 701 using the higher option exercise price. Would the recalculation be retroactively performed for the period when the initial grant was made or would the value of the amended option be included in Rule 701 numerical analysis as of the date of the amendment?"

Tuesday, September 2, 2008

409A Valuations of Private Venture-Backed Companies

Valuation Methodology Explained

"In summary, to value the common stock of an early-stage, privately held company, the appraiser can value the company's BEV using traditional valuation methodologies including the cost, market, and income approaches. But then he must allocate the BEV amongst the company's various classes of securities, and although this may appear to be a complex task, it can be accomplished by a competent appraiser following the guidance of the AICPA."

Thursday, August 28, 2008

Article Suggests QSERP Practice May Be Problem Under 409A

Author notes potential 409A issue for QSERPS by virtue of removal of risk of forfeiture.

"These plans must be constructed under IRC §409A rules, which includes a requirement that the SERP funds remain an asset of the company, subject to substantial risk of forfeiture...Moving monies from non-qualified plans into qualified plans provides an immediate tax break for the company, and, in essence, removes the risk and virtually guarantees payment of the benefit to the executives. As deferred compensation, the executive maintains the tax-deferral advantage associated with the benefit, without the inherent risk of forfeiture. It will be interesting to see how this practice relates to 409A rules on deferrals."

Tuesday, August 26, 2008

Amending "Good Reason" at the last Minute - From CompensationStandards Blog

Interesting discussion on amending the definition of "good reason." Interesting difference of opinion.

"Max correctly notes that this paragraph of the Notice keys the ability to reform the good reason definition on whether the right to payment is “subject to a substantial risk of forfeiture” – not on whether the good reason condition is tantamount to an “involuntary termination” condition under Section 409A. He also points out that the final regulations (§1.409A-1(d)(1)) say that if a right to payment is conditioned on “involuntary termination” it will be subject to a “substantial risk of forfeiture” -- but do not say the converse – i.e., that if a right to payment is not conditioned on involuntary termination it is not subject to a substantial risk of forfeiture (because there other ways to be subject to a substantial risk of forfeiture).

Given that these are two distinct standards (with involuntary termination being a subset of substantial risk of forfeiture), he concludes that as long as the right to payment is still subject to a substantial risk of forfeiture, you can fix at will (for the rest of 2008)."

Monday, August 25, 2008

More From XremeERISA Blogger - Anti-Toggling Rule

Discussion of Anti-Toggling Rule and providing for alternative time and form of payments.

"Under what have come to be known as the anti-"toggling" rules (of Section 1.409A-3(c)), you can generally (unless an exception applies) only have one time and form of payment per particular type of cap-A triggering event.

There may be some emerging informal evidence (rely at your own risk) that, showing some flexibility, Treasury personnel are gravitating to what I'll call a permissible "subset" analysis."

Monday, August 18, 2008

Xtreme ERISA Blog Discusses Unclear Short Term Deferral Issue

Interesting Article Regarding Olympics and Short Term Deferral Rules. Unclear whether this approach is permitted under the regulations.

"So what of a stream of severance payments? If one is terminated on 12/31, only two-and-a-half months' of payments would be made within the S-TD period? Does that possibility doom all but two-and-a-half months' of payments to the Curse of Cap-A?

The answer seems a resounding "no." Under the Regulations as technically corrected, the focus is on whether vesting could occur too long before payment or, stated conversely, whether payment is contemplated to be deferred by too much after a possible vesting event. The focus is not on whether a payment stream might be other than the one that it is. Essentially, you test your stream of payments as it runs, not as it may run. Thus, if the termination is in fact early enough in the year, all of the payments could be S-TDs."

Friday, August 8, 2008

Article on 409A Valuations from Quist Valuation

Article relating to 409A valuations for start-up companies.

"The impact and pressure to appropriately price equity grants has just begun. While many companies will continue to price stock options using their own internal expertise, the proposed IRC 409A rules have created a signficant demand for independent valuations. Numerous law firms have concluded that the Independent Appraisal Presumption, which is a valuation performed by a qualified indepedent appraiser is the clearest presumption available under the regulations and provides the best protection against the consequences of IRC 409A."

Sunday, July 27, 2008

409A and "Regulatory Cousins" Leading Private Companies to Valuations

"The IRS recently threw down the gauntlet and placed pressure on private companies to get their valuations right at no matter what stage of development they are. The Service has backed up this gesture by exposing private companies to substantial tax liabilities and penalties if they do not."

Manpower Blog Posts 409A Cheat Sheet

409A Cheat Sheet from Manpower Blog

Wednesday, July 2, 2008

IRS May Soon Solve School Teacher 409A Problem

IRS expects that upcoming guidance will solve problem of recurring part-year compensation for school teachers.

"The regulations to be proposed are expected to address certain types of arrangements involving recurring part-year compensation, including common arrangements involving public school employees who provide services during a 10 month school year and elect to be paid ratably over 12 months. It is expected that the regulations would provide that if certain conditions described below are satisfied, §457(f) would not apply to such arrangements. It is also expected that a conforming change will be proposed for regulations under § 409A, so that § 409A also will not apply to such arrangements if such conditions are met."


Sunday, June 1, 2008

Law Firm Publishes Notes From IRS Meetings on 409A

409A Gossip

"Representatives from the IRS and the Treasury Department have been making rounds in recent weeks to talk about compliance with section 409A of the Internal Revenue Code transitional guidance. The presentations have been conversational in tone and have included deep drilling on technical niceties that make for dense reading. The following notes include information provided by Treasury in May to the AICPA National Conference on Employee Benefit Plans in Las Vegas and the ABA Section of Taxation conference in Washington, D.C."

Wednesday, May 28, 2008

ABA Comments to IRS Regarding 409A Correction Program

ABA Comment Letter

"Section 409A was enacted in part as a response to the issues identified in the Enron Report; however, section 409A is a broad and complex provision that covers
arrangements that were not the subject of the Enron Report. Inevitably, thousands of taxpayers will violate section 409A through honest errors, and not due to any form of abuse. We believe that the establishment of a permanent correction program would promote the efficient and equitable administration of the tax laws (including voluntary compliance) by permitting self-correction of inadvertent violations of the complex requirements of section 409A. Nothing in the Enron Report or other legislative history precludes such a program."

Tuesday, May 27, 2008

Black Box Corp Incurs 409A Costs

Earnings Release

"409A expenses
The Company incurred significant costs as a result of measures taken to address the application of Section 409A of the Internal Revenue Code of 1986, as amended, related to its stock options. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are generally non-recurring and cannot be changed or influenced by Management."

Tuesday, May 13, 2008

Sen. Clinton Introduces Bill to Amend 409A

Bill Seeks to Cap Deferred Compensation

The Bill

Corporate Executive Compensation Accountability and Transparency Act (Introduced in Senate)


(a) In General- Section 409A(a) of the Internal Revenue Code of 1986 (relating to inclusion of gross income under nonqualified deferred compensation plans) is amended--

(1) by striking `and (4)' in subclause (I) of paragraph (1)(A)(i) and inserting `(4), and (5)', and

(2) by adding at the end the following new paragraph:


`(A) LIMITATION- The requirements of this paragraph are met if the plan provides that the aggregate amount of compensation which is deferred for any taxable year with respect to a participant under the plan may not exceed the applicable dollar amount for the taxable year.

`(B) INCLUSION OF FUTURE EARNINGS- If an amount is includible under paragraph (1) in the gross income of a participant for any taxable year by reason of any failure to meet the requirements of this paragraph, any income (whether actual or notional) for any subsequent taxable year shall be included in gross income under paragraph (1)(A) in such subsequent taxable year to the extent such income--

`(i) is attributable to compensation (or income attributable to such compensation) required to be included in gross income by reason of such failure (including by reason of this subparagraph), and

`(ii) is not subject to a substantial risk of forfeiture and has not been previously included in gross income.

`(C) AGGREGATION RULES- For purposes of this paragraph, all nonqualified deferred compensation plans maintained by all employers treated as a single employer under subsection (d)(6) shall be treated as 1 plan.

`(D) APPLICABLE DOLLAR AMOUNT- For purposes of this paragraph, the term `applicable dollar amount' means, with respect to any participant, $1,000,000.'.

Friday, May 9, 2008

Marvell Technology Incurs 409A Penalties

Relates to Options Backdating

From the 10-K: "During the fourth quarter of fiscal 2007, the Internal Revenue Service notified our U.S. subsidiaries that fiscal 2004 through 2006 would be audited and would include an audit of Section 409A and payroll tax issues arising out of the stock option investigation. In fiscal 2007, we accrued $24.2 million of Section 409A liabilities for each of the restated years (including interest and penalties), accrued payroll taxes (including interest and penalties), where applicable. We elected to join and completed the IRS program Announcement 2007-18 and its California equivalent. Through the close of fiscal 2008 we paid $21.8 million for Section 409A liabilities under the available programs, including interest and penalties where applicable. During fiscal 2008, based on development of our IRS payroll tax audit, we accrued an additional penalty of $7.2 million related to the conversion of incentive stock options into nonstatutory stock options due to the mispricing of the original option grant."

The 10-K

Director Resigns

Another Director Resigns

Tuesday, April 1, 2008

$50 Million in 409A Additional Taxes Incurred by Lam Research

Lam (NASDAQ: LRCX) expects to record cash expenses for the quarter ended in March of $50 million to $55 million "to assume responsibility for the 409A tax liabilities of employees."

Lam Research 8-K

Lam Research Tender Offer to Optionees

Tuesday, March 18, 2008

409A and Non-U.S. Arrangements

"Although there are lengthy compliance requirements to avoid the tax consequences, a number of potential exemptions are available to non-US plans. These exemptions are quite complex and are discussed in the article."

Thursday, February 28, 2008

Tech CFOs Cite 409A Third on List of Biggest Challenges

"Forty-nine percent of the 100 CFOs surveyed identified Section 404 as the greatest challenge, 36 percent said FIN 48, and 12 percent cited 409A. "

Monday, February 18, 2008

Option Reprice Wave Builds

"With top executives and rank-and-filers at many U.S. companies holding now-worthless stock options, the time seems right for a round of repricing. New rules requiring companies to get the blessing of shareholders, themselves freshly gored by falling stock prices, will force boards to devise friendlier, or at least less objectionable, ways to pitch the controversial practice."

409A not discussed, but see Preamble to final regulations relating to re-pricing options.

Friday, February 15, 2008

IRS Reverses Position on 162(m); Public Companies Confused

"In earlier rulings, the IRS had treated payments upon an executive's involuntary termination or termination for good cause as coming within the death, disability, or change in control exception. In PLR 200804004 (1/25/2008), the IRS reversed course and ruled that an incentive pay award would not qualify as performance-based compensation exempt from the § 162(m) $1 million cap where the executive is entitled to the payment in the event of an involuntary termination or termination for good reason."




Wednesday, February 6, 2008

IRS Signals More Intense Scrutiny of Executive Compensation for Tax-Exempt Organizations

"Tax-exempt organizations face significantly expanded disclosure of executive compensation programs and related Board policies in the 2008 tax year under new IRS rules. As a result, potential donors are more likely to review pay programs with greater scrutiny."

Friday, January 25, 2008

Time to end the 'talent tax' in Silicon Valley

"President Bush wants to make the American work force globally competitive, but new government rules may soon push the best and brightest of Silicon Valley out of the country. Unless the U.S. wants to add talented professionals as a new national export, Congress should revoke the tax disaster known as Section 409A."

Thursday, January 24, 2008

Has Congress Stopped Executives from Raiding the Bank? A Critical Analysis of I.R.C. §409A

"This paper focuses on how §409A began largely as a reaction to the sizeable distributions to Enron executives from their nonqualified deferred compensation accounts shortly before Enron's collapse. The paper discusses how §409A represents a major shift in nonqualified deferred compensation planning but does little to remedy the exact problem at Enron that gave rise to §409A."

Tax Rules Governing Deferred Compensation, 409A, Focused on the Least Important Policy Considerations and Ignore the Most Important

"The tax rules governing deferred compensation, codified at section 409A, are harsh and complex. The rules are focused on the least important policy considerations and overlook the most important. Professors Halperin and Yale suggest a different approach, one that would make the law simpler, fairer, and more effective."

Sunday, January 13, 2008

Controlling Executive Compensation Through the Tax Code

Executive Compensation Reform and the Limits of Tax Policy

"But the legislation misses the mark for effective reform. It does little to address the long-standing improper tax subsidy for certain deferred compensation arrangements. Compounding matters, the legislation follows previous misguided efforts to regulate corporate governance through the tax code, almost certainly leaving shareholders worse off for the effort. In short, Congress not only let slip away an opportunity for meaningful tax policy reform, but it also took a large step backward on corporate-governance policy."

Regulation is Blocking Way for US Enterprise

"The US has long enjoyed multiple and largely uncongested exit avenues, a big factor in its entrepreneurial vibrancy. Now some in its technology communities fear those avenues are narrowing, perhaps closing."