Monday, December 21, 2009

Going Concern Blog Nominates 409A as Worst Tax of Decade

"The Enron scandal featured elaborate deferred compensation plans to provide executives a gilded liferaft when the ship sinks. Congress responds with a code section affecting schoolteachers. They showed Ken Lay what for by designing a tax on folks on money they may never see because of somebody else’s foot fault.

Sec. 409A clobbers its victims two ways:

• It taxes employees on their deferred comp balances when the plan is out of compliance, even if the employee doesn’t get the money, ever.

• It hits them again with a 20% excise tax.

Worse, the code section imposing these penalties is so complicated that it took 3 years to complete the regulations that run to 200 pages, and are so complicated and intrusive that accidental noncompliance must be rampant.

This all makes Sec. 409A my choice as the worst tax enactment of the decade."

Article by Joe Kristan of "Going Concern"

Monday, December 14, 2009

Another Good Article Re: 409A Valuation Methods

Article From Kenneth J. Pantoga Here

IRS Releases Guidance on Intersection of 409A and TARP

"Notice 2009-92 provides that, subject to certain conditions, a financial institution that has received financial assistance under the Troubled Asset Relief Program (TARP) that complies with an advisory opinion of the Special Master determining that it is necessary to change the time or form of payment of compensation to a service provider of the TARP recipient, or to condition payment upon a TARP-related condition such as the prior repayment of some or all of the financial assistance, or both, will not result in a failure to comply with the requirements of § 409A(a) of the Internal Revenue Code."

Article Here

Further Thoughts From Stanley D. Baum

"Under the Notice, any changes made to the time or form of payment of compensation under a Tarp Recipient's Plan, as required by the advisory opinion, will not cause the Plan to fail to meet the requirements of section 409A, so long as a number of conditions are met. In general, these conditions are:
-- the advisory opinion is specifically addressed to that TARP Recipient and Plan;
--the TARP Recipient has fully disclosed to the Special Master the employees whose compensation will be affected by complying with the advisory opinion, and
any similarly situated employees;
-- the advisory opinion explicitly sets forth (1) a revised time and form of
payment for the compensation which complies with section 409A and/or (2) a condition on payment of compensation under the Plan that is directly related to the TARP financial assistance received by the TARP Recipient, or to the ability of the TARP Recipient to repay the TARP financial assistance;
-- the advisory opinion does not authorize the TARP Recipient or any recipient of compensation under the Plan to elect another time or form of payment of compensation due from the Plan, other than in a manner which complies with section 409A;
-- the TARP Recipient and any recipient of compensation under the Plan must enter into a written agreement containing the revised time and form of payment, and any applicable conditions on payment, not later than by the end of the compensation recipient's taxable year in which the advisory opinion is issued, or by the 15th day of the third month following the date on which the advisory opinion is issued, if later; and
-- the TARP Recipient and any recipient of compensation under the Plan
complies with the terms of the advisory opinion in all material respects."

Thursday, December 3, 2009

409A Correction Period Ending Soon - Last Chance

"We are just weeks away from the last chance for companies to rely on the transitional relief provided under IRS Notice 2008-113. I hope that your company has already taken action to complete a thorough review of compensation arrangements to identify and correct any arrangements that do not comply with Section 409A. Although it might be too late administratively to make major changes to correct errors under the transition relief, it is still a good idea for stock plan managers to do a final review and confirm that corrective action has been taken, especially when it comes to discounted options or SARS."

Article From NASPP

Monday, November 30, 2009

Advice on 409A Valuations for Start Up Companies

"With the advent of IRS Section 409A and the introduction of certain fair value accounting rules, valuation issues have become increasingly important for start-up companies. In the past, industry specific start-up “rules of thumb” may have been sufficient to serve as reasonable basis for any valuation concern. For example, the “Silicon Valley Rule” holds that the value of a common share is equal to 1/10 of the value of the preferred share pricing in the most recent capital round. While the simplicity of such rules can be appealing, the scrutiny of the IRS, SEC, and your auditors in combination with the potential liability associated with misreporting financial performance make it critical that value be determined and articulated in a credible fashion."


Saturday, November 28, 2009

Student Law Article Re: 409A Correction Program

"This article reviews the current Code §409A(a) correction program and analyzes several issues related to creating the program, including whether the Treasury Department and the Service have legal authority to create it. The first section of this article discusses the history of Code §409A(a) and its requirements. The second section reviews Notice 2007-100 and provides an analysis of several issues related to the Notice. The third section reviews a few authoritative and administrative issues related to the development of the Code §409A(a) correction program. The fourth section suggests measures that should accompany the creation of an effective correction program under Code §409A(a). The fifth and final section provides concluding thoughts on the issues discussed in this article"

Article By Brian A. Benko Here

Thursday, November 5, 2009


"The Internal Revenue Service ("IRS") has begun auditing companies' compliance with Section 409A of the Internal Revenue Code ("Section 409A"). This news may come as an unwelcome surprise to many who were hoping that the complexities and uncertainties of Section 409A might delay the IRS's enforcement efforts until more guidance was available and practices further developed. Information Document Requests ("IDRs") from the IRS to companies undergoing audits reveal that the IRS requires an audited company to disclose details of pay practices that could be subject to Section 409A and also to consider the possible application of Section 409A to these practices."


Wednesday, November 4, 2009

Franchisors Using 409A Plans to Encourage Franchisee Store Remodeling

"A key provision of 409A allows a manufacturer (franchisor) to sponsor a deferred compensation plan for a service provider or independent contractor (franchisee). The resulting plan enables the franchisee to save up to 100 percent of their franchisee income pre-tax and invest it tax-deferred for the needed remodel. When the date arrives for the remodel, the franchisee takes the distribution and pays ordinary income taxes on the money received. If used for remodeling, which is a business expense, the franchisee may be able to expense it again.

To encourage system-wide participation, the franchisor could even make a matching contribution, or could predicate the match to the franchisee resigning their contract. A vesting provision could be added stating the match be used only for a refresh, remodel, or rebuild.

By sponsoring a tax-favored savings plan and encouraging participation with a match, the franchisor is assured that needed updating will take place on schedule. An updated store assures a consistent, positive customer experience across the system. The franchisor has also contributed to the goodwill of the relationship between franchisor and franchisee. And finally, the franchisee is happy because he or she now has a vehicle to save pre-tax and tax-deferred for a large future expenditure."


Tuesday, November 3, 2009

xtremErisa Discusses Substantial Risk of Forfeiture Under 457A

Forfeitable Manager Compensation - Here

"A question is bouncing around the market regarding what type of substantial risk of forfeiture is necessary before compensation will be subject to a substantial risk of forfeiture. This particular question boils down to the question of whether there needs to be a substantial risk that a service provider will voluntary separate or be terminated in order for that SP to be considered unvested. If the SP is considered unvested, and if the compensation in question is paid while the service requirement continues in place, or immediately after it expires, then the compensation may be a S-TD and Section 457A will, as to that compensation, be much ado about nada."

Sysco Reports Material Accelerated Distributions Under 409A Transition Relief

"The net balances of other long-term liabilities and prepaid pension cost decreased $85,596,000 during the first quarter of fiscal 2010 and decreased $34,507,000 during the first quarter of fiscal 2009. The decrease in the first quarter of fiscal 2010 is primarily attributable to three items....Second, our liability for deferred incentive compensation decreased due to accelerated distributions taken by plan participants of all or a portion of their vested balances pursuant to certain transitional relief under the provisions of Section 409A of the Internal Revenue Code...."

Report in 10-Q

News Report

Thursday, October 22, 2009

Year End Planning Issues for Exec Comp - Includes 409A

Checklist of Year End Executive Compensation Issues

"Of unique importance for the 2009 calendar year, the Notice provides one-time transition relief for non-insiders. Under this transition relief, 2009 will be treated as the immediately following taxable year for correction of operational failures occurring prior to 2008, which should result in less severe tax penalties. In addition, companies should be cognizant that certain general income tax principles may provide opportunities to make same-year corrections to Code Section 409A violations without relying on the Notice for relief. Finally, Code Section 409A regulations occasionally provide relief from certain apparent operational failures. For example, a payment made up to 30 days prior to the scheduled due date may not be treated as a violation of Code Section 409A."

Wednesday, October 14, 2009

ABA and Skadden Get 409A Clarity from IRS

Skadden summarizes 409A Q&A session with IRS

"Annually, the American Bar Association's Joint Committee on Employee Benefits organizes a conference with IRS and Treasury officials to present written questions and proposed responses for reaction from the government panelists. Although the government's responses to these interpretive and practical questions do not constitute official guidance and cannot be relied upon, this year's responses to questions posed by Skadden, Arps and other practitioners help clarify the government's position on some of the difficult questions that remain unanswered by the Treasury regulations under Internal Revenue Code Section 409A relating to taxation of nonqualified deferred compensation arrangement."

Monday, October 5, 2009

IRS Says it Will Guide on 457A

Will provide guidance and issue private rulings on 457A.

"The IRS is planning to issue guidance on a number of issues involving Code Sec. 457 deferred compensation plans, officials from Treasury and the IRS indicated. In the meantime, the IRS is issuing private letter rulings and responses to congressional inquiries on hardship issues, grandfathered plans and other concerns, Cheryl Press, a senior attorney with the IRS Associate Chief Counsel (Tax Exempt and Government Entities), stated."

Thursday, September 17, 2009

IRS Says Salary Advances May Cause 409A Issue

Hat Tip from Stanley D. Baum - Article Here

"The IRS said that the doctrine of constructive receipt applies to the "salary advances" to employees. Accordingly, an employee would be required to include the amount available as a salary advance in gross income in the earliest open tax year in which the advance was available (even if not taken), and this amount would be subject to income tax withholding at such time as a constructive payment. The IRS continued by saying that, even if there was no constructive receipt, salary advances which an employee is expected to earn through future services are taxed as compensation, and are therefore included in gross income, at the time of receipt. The IRS conceded that an (unspecified) employment tax exception would apply to an employee, so that any advance would not be subject to employment tax. Further, if there is no constructive receipt, the salary advance program causes the Plan to violate IRC Section 409A, due to the permitted off-set feature described above. Apparently, the IRS felt that this offset, which is a pre-employment termination use of amounts deferred under the Plan, causes an acceleration of the payment of deferred compensation by the Plan, and this acceleration violates Section 409A."

IRS Memo

Friday, August 21, 2009

Correcting 409A Failures

Interesting/Contraversial Article Regarding Correcting Failures and Mistakes

"In Part Two, we explore how to correct failures
when the notice’s program is unavailable. We suspect
these will be legion. The IRS might not think that
correction outside the notice is permitted. If this is
their view, we do not agree. The IRS’s narrow view
appears based on the notice’s underlying and, we
believe, mistaken theory of section 409A. We set forth
a better view of section 409A, one more consistent
with the statute and regulations, and based on traditional
concepts of income receipt. On the basis of this
preferred view, we explore how 409A operational
failures might be corrected using rescission doctrine,
the longstanding rule of Couch v. Commissioner, and
other theories of income receipt derived from the case
law. The difference between these two opposing theories
of section 409A will underlie this and no doubt
other disputes about section 409A compliance and
administration for years to come."

Tuesday, August 18, 2009

Supreme Court Will Hear Case on Executive Pay

"The Supreme Court will hear the case this fall, as anger over huge bonuses paid to the executives of failing companies continues to grow. The case, Jones v. Harris Associates, may turn out to be the court’s first significant statement on the corporate culture that helped lead to the Great Recession."

Monday, August 17, 2009

"Ignorning 409A" Chosen Top "Classic and Costly" Mistake for Start-ups

"The introduction of this element of 409A has dramatically changed the practices of private start up company boards who historically had priced options using their business judgment and some simple rules of thumb based on discounts from the most recent preferred stock price."


Monday, July 27, 2009

Backdating Returns to Spotlight; IRS GC Memorandum

Link from CFO Magazine

"The IRS legal memorandum, AM 2009-006, released on July 6, 2009, addresses the issue of whether the compensation emanating from these discounted options constitutes "qualified performance based compensation." The answer is an unequivocal no...

Whether a stock option satisfies the requirements of Regulation Section 1.162-27(e)(2)(vi)(A) is determined as of the date of grant of the option. The regulations do not provide a mechanism to retroactively reprice an option to transform compensation resulting from the exercise of the option into performance based compensation. Because the compensation arising from the option grants in this case was not based solely on an increase in the price of the stock after the grant date, none of the compensation attributable to the options in question was qualified performance based compensation."

Link to IRS GC Memo

Wednesday, July 15, 2009

Is it Still Possible to Fix Unvested Arrangements?

Article suggests that it is not too late to fix arrangements if they are not yet vested.

Link From ComplianceWeek

"In most cases, an employer with a plan document failure can only report the violation, fix the problem so that it doesn’t affect any future deferrals, and possibly make a tax gross-up payment to an employee who gets hit with the tax, penalty, and interest for a violation. However, the authors note that employers may have a limited opportunity to correct errors for certain types of non-compliant plans that impose vesting conditions, such as severance arrangements."

Wednesday, July 1, 2009

Law Article Discusses 409A

Article by Joy Mullane of Villanova Law Review Article discusses regulation of Executive Compensation through the tax code, including 409A.

"Section 409A was also enacted in response to popular sentiment. The public was in an uproar over Enron’s pay practices in general and its deferred compensation practices in particular. Enron’s deferred compensation practices allowed executives to access their retirement plans and deplete Enron’s assets while rank-and-file employees were locked out of accessing their retirement plans. In response, Congress enacted section 409A to discourage companies from establishing nonqualified deferred compensation plans that would allow an executive to have a significant degree of control over amounts deferred. While it is too early to make any certain claims regarding section 409A, prior experience suggests that it will share the experience of its predecessors and thus do little to prevent executives from finding a way around the rules to whatever end they desire, or else their employers will pay any imposed penalties."

Friday, June 19, 2009

Stock Option Exchange Programs

Stock Option Exchange Programs (a.k.a. "repricings") on the Rise

From "A quick scan of Edgar shows that the pace of companies offering stock option exchange programs seems to be accelerating. We counted over 80 filings that mentioned stock option exchange programs in June 2009, compared to just 11 filings in 2008. Granted, many of those are multiple filings for the same company. Still, it’s hard to ignore the fact that option exchange programs seem to have really taken off lately."

Note on Legal and 409A Issues

From JP Morgan: "The final regulations indicate that such a re-pricing not below the fair market value of the stock on the date of the re-pricing will not, by itself, cause the program to be subject to 409A. Instead, it is treated as a new award exempt from 409A."

Primer on 409A Valuation Methodologies and FAS 157

Good information on valuation techniques from Axiom Valuation

Friday, May 29, 2009

Update on Costs and Practices for 409A Valuations

"Who's Doing 409A Valuations These Days?" From William Carleton, Esq.

"Industry practice is currently in flux right now. Generally speaking, early stage companies that are not venture backed are by and large not hiring independent valuation firms and instead are determining FMV in other ways. Venture backed companies, on the other hand, still appear to seek the extra comfort of an outside appraisal (depending on your point of view, this reflects an appropriately professional prudence, little different than insisting a startup purchase D&O insurance; or else it reflects an aversion to exposure of firm members who would appear to be qualified, under 409A, as persons “with significant knowledge and experience” at valuations). As Davis Wright attorney Joe Wallin points out on his firm’s startup blog, third party appraisals are not required. At the same time, a formal valuation may be better at shifting the burden to the IRS to prove that a particular valuation is not reasonable. Prices for such appraisals, at least from the “cottage industry” shops and programs, have come down now, within a range of from $3000 to $7000 (some of these providers will commit to doing annual updates at a lower rate). That’s still a lot for most startups to spend these days. And there’s also a question as to whether some investors will respect valuations from some of the lower end providers."

Wednesday, May 27, 2009

More from NFL on Compensation and Benefits (off topic)

Indy Colts and Peyton Manning run into ERISA Issues

"And that seems to be precisely what Mudd and Moore would be doing, based on this quote from Kennan: “As long as Howard and Tom pay their own taxes for the next six months, they can return to the Colts as paid consultants, I’d say effective right away, based on what the ERISA attorney just told me.”

The “ERISA attorney,” however, is merely a private specialist in the field of benefits law. The U.S. government might disagree with this approach, either as it relates to the lump-sum pension payments that Mudd and Moore have taken, or as it relates to the Colts’ likely intention to treat them as independent contractors, and to not withhold taxes (and not make matching FICA and FUTA payments) from their pay.

Bottom line? Like most things that seem too good to be true because they are, retiring on paper for the purposes of taking advantage of the pension laws likely entails a procedure far more complex than walking out the door one day as an “employee” and returning the next morning as a “consultant.”

Thursday, May 21, 2009

Status of 409A Corrections Program; Future of Code Y Reporting

Updates from BNA

"One issue that has arisen in connection with the documentation requirement under §409A is whether documents can be corrected in the first year in which the legally binding right to the deferred compensation arises. Under the §409A regulations, the legally binding right to deferred compensation must be set forth in writing. Also, under the §409A regulations, the deferred compensation plan is deemed to be established as of the date the participant obtains a legally binding right to the deferred compensation, provided the plan is otherwise established by the end of the employee's taxable year in which the legally binding right arises, or by the 15th day of the third month of the subsequent year in some cases. Thus, it would appear that a deferred compensation agreement could be entered into in Year 1, but that arrangement would not have to be documented under a plan until at least the end of that year."

Friday, May 1, 2009

Interesting Thoughts on "Good Reason" - 409A, TARP, 280G

Interesting Commentary from Xtreme ERISA Blog

"Now that the 409A regulations have opened up the door/floodgates (depending on what you may think of as a flood) to the consideration of "good reason' concepts in the law, there are several emerging GR issues affecting non-409A areas. Until 409A, GR was more a colloquial term of use than a term of art - describing a subset of the triggers comprising the "good leaver" notion (for, essentially, non-cause and other acceptable terminations) one sees overseas. As a result, the concept exists in the law itself, and is spreading. Interestingly, there may be the possibility that some of the non-409A uses of GR could circle back to having a practical effect under 409A."

Monday, April 20, 2009

Summary of Intersection of 409A and 457A

LINK From JP Morgan

"Both sections 409A and 457A will, in some cases, apply to the same nonqualified deferred compensation. When this occurs with regard to short-term deferrals, taxes under 457A will be considered a payment under both sections. And, in general, until Treasury and the IRS provide us with further guidance, taxes on earnings under 457A will be considered to pay the taxes under 409A as well."

Thursday, April 16, 2009

Further Reflections On NFL Tax Issues and 409A

From the National Football Post

"Since almost every NFL signing bonus of any significance is paid out over a period of at least a couple of years, 409A could have had dramatic consequences if the full value of these deferred payments could be taxed in the year negotiated, not earned, potentially affecting tens of thousands of dollars, even hundreds of thousands, depending on the size of the contracts. Those affected contracts were brought into compliance through language vetted by the NFL Management Council and the NFLPA to allow for the taxation of deferred guaranteed money in the year of receipt rather than in the year of negotiation of the contract. So the problem was solved, although not without additional headaches for players’ tax advisers."

Friday, April 10, 2009

ERISA Industry Committee Seeking Changes to 409A Regulations

ERIC Files Comment Letter

Sends Attorney to Testify on Proposed Changes

Comment Letter

"The comments are divided into the following six general topics:

Assumptions for calculating amounts deferred;

The date as of which amounts deferred during a taxable year must be calculated;

Safe harbors to calculate the premium interest tax;

Determining whether a previously included amount has been permanently forfeited or otherwise lost;

Code Y reporting; and

Other miscellaneous issues."

Friday, April 3, 2009

409A Deferred Comp Plans in Bankruptcy

Rethinking Executive Comp Plans When Cash is Tight

"As the U.S. economy sinks deeper into recession, cash-strapped small business are confronting tough decisions about the life insurance-funded, non-qualified executive compensation packages they’ve established to reward and retain their top talent. To ease the financial strain on their balance sheets, sources tell National Underwriter, firms may need to explore a range of options, from restructuring the plans to a suspension of funding. For many, the one option that isn’t available is to do nothing."

Thursday, April 2, 2009

Follow Up On NFL Compensation Issues (off topic)

Law Review Article Discussing Sign On Bonus Tax Issues and Solutions

Do NFL Signing Bonuses Carry a Substantial Risk of Forfeiture within the Meaning of Section 83 of the Internal Revenue Code?

Tuesday, March 31, 2009

NY Bar Responds to IRS Request for Comments on 409A Documentary Noncompliance

Responds to IRS Notice 2008-113

NY Bar Link

"[W]e propose below a three-pronged program. The first would set out specific, narrowly targeted types of violations which may be viewed as presenting a low probability of abuse and which we therefore view as appropriate for inclusion in a list of correctable violations. The second would relate to those circumstances in which errors are quickly discovered and corrected. The third involves the establishment of a policy of prospective enforcement and liberal transitional relief to allow taxpayers to adapt to new authorities interpreting Section 409A or changes in enforcement approach. Our proposals are intended to facilitate the establishment of a program consistent with Treasury's and the IRS's two identified general principles, while also addressing over the course of our discussion below the seven issues specifically identified by Treasury and the IRS for comment."

Friday, March 20, 2009

409A Too Hard For Law School

From The Conglomerate

"I'm trying to design an executive compensation syllabus. I hope the course accomplishes two things: getting students who are generally interested in the subject (and who isn't these days) thinking in a more rigorous way and preparing (a subset of) students to actually practice in the field. In fleshing out the syllabus, I've run up against a problem - Section 409A of the IRC which establishes rules for deferred compensation. 409A is perhaps the most important topic for compensation lawyers today, touching almost everything that they do. On the other hand, 409A is probably not such a big deal to the general audience. Moreover, the regulations are incredibly convoluted even by Treasury's standards (for just a taste, see Michael Doran's summary (hat tip: Paul Caron)). The rules are so difficult that they've even inspired a blog called 409A Dismay."

Wednesday, February 11, 2009

IRS Undecided About 409A Document Correction Program

Persons will document failures would be in better position to amend that Persons in compliance.

"Catherine Creech, principal, Ernst & Young LLP, Washington, D.C., who moderated the program, noted that a plan failure is not technically a violation of Code Sec. 409A if all of the deferred amounts are nonvested. Tackney responded that there is technically a violation, but that nothing is included in income, so there are not tax consequences. He indicated that the plan could be corrected in the current year if the nonvested amounts will not vest until a later year.

Morrison contrasted Code Sec. 409A with Code Sec. 457A . Under the latter provision, deferred amounts are not taxable if the amount is not determinable, she said. For example, an amount payable under a formula based on future profits might be vested but not taxable until the formula is applied. However, under Code Sec. 409A , the taxable amounts have to be estimated, if necessary, in the case of a violation. She said that this treatment reflects a congressional stance that does not favor nonqualified deferred compensation plans and requires inclusion at the earliest time."

Tuesday, February 10, 2009

More Dismay from 457A

Unanswered Questions Abound - From D&T

"Notice 2009-8 provides helpful information on compliance with IRC § 457A. Application of this section in practice, however, may be complicated for multinational corporations with operations and subsidiaries in different jurisdictions, including corporations that have a US corporation as the parent entity, and for tiered partnerships."

Thursday, February 5, 2009

Law Prof Blasts 409A - Should be Scuttled

Supports Curbs on CEO "Pirates" - But 409A Misses the Mark - Hurts All Except CEOs

Article Here

"The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled." William A. Drennan, Southern Illinois University School of Law

The government went off course when it attempted to stop outrageous CEO compensation schemes with new income tax rules on nonqualfied deferred compensation. IRC Section 409A should be scuttled.

Suggested Citation
William A. Drennan. 2008. "The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled"

"CEOs and their sidekicks resemble swashbuckling pirates emptying the coffers of vulnerable prey. Although some argue that CEOs, like professional athletes, must be worth their compensation or corporations would not pay it, structural deficiencies at publicly held corporations impede natural market forces. A Delaware Chancery Court judge stated, “executive compensation seems . . . to have come spectacularly unhinged from the market for corporate talent.”"

Tuesday, February 3, 2009

409A Dominates the Field of Exec Comp

Changing the Landscape for Years to Come

409A Does Not Require A Professional Valuation

Internal valuation is permitted, although the burden of evidence shifts.

"That is not to say that an independent appraisal may not be advisable or worthwhile. In fact, if done in the manner specified in the final regulations, a valuation will create a presumption that the valuation of the stock reflects the fair market value of the stock, which presumption is only rebuttable by a showing that the valuation is grossly unreasonably."

Wednesday, January 21, 2009

Tax Pros Make Grim Predictions for Companies that Missed 409A Deadline

Companies may need to offer employees cash make-whole bonuses, or face litigation.

"“If I’m an employee who for whatever reason is assessed a penalty because their employer did not meet 409A requirements, about the only remedy at this point — assuming that employer is willing because they might not have responsibility or liability — is to bonus the employee to cover the penalty and income tax from the bonus itself,” said Sonia Agee, a tax attorney at Hoge, Fenton, Jones & Appel Inc. in San Jose."

Wednesday, January 14, 2009

D.C. Insider Believes More Dismay for Executives in 2009

409A Draconian; More Compensation Legislation Coming

"First, Mr. Iwry discussed the near future of executive compensation legislation. After providing the great truism, “it is easier to afflict the comfortable than to comfort the afflicted,” Mr. Iwry explained how it is likely that Congress has yet to finish punishing executives for earning money. While providing no opinion as to whether limiting executive compensation is a laudable goal, Mr. Iwry was simply making the point that it is easier for Congress to hinder the rich through policy changes than it is to make life better for other. Certainly, it is easier to garner support from their constituents for such work. Therefore, despite the recent effectiveness of the Draconian 409A requirements, more is still to come. Ironically, around the time Mr. Iwry was talking , Barney Frank was introducing legislation to further limit executive compensation under the Emergency Economic Stabilization Act."

Monday, January 12, 2009

457A Dismay

Section 457A

From Plan Advisor:

Included in the guidance are answers to (and some examples of ) the following:
What is a nonqualified deferred compensation plan for purposes of § 457A?
What is a substantial risk of forfeiture for purposes of § 457A?
What is a short-term deferral for purposes of § 457A (a § 457A short-term deferral)?
To which types of service providers does § 457A apply?
What is a nonqualified entity for purposes of § 457A?
How is it determined whether an entity is a foreign corporation or a partnership for purposes of determining whether an entity is a nonqualified entity under § 457A?
How is it determined whether substantially all of a foreign corporation’s income is subject to a comprehensive foreign income tax?
How is it determined whether substantially all of a foreign corporation’s income is effectively connected with the conduct of a trade or business in the United States?
When is a foreign person eligible for the benefits of a comprehensive income tax treaty for purposes of § 457A?
How is it determined whether substantially all of a partnership’s income for a taxable year is allocated to persons other than (A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax and (B) organizations which are exempt from tax under Title 26 of the United States Code?
Does § 457A apply to deferred compensation that would have been deductible against income of a foreign corporation which is taxable under § 882 if the compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture?
When is the determination made whether an entity is a nonqualified entity?
How is it determined whether a nonqualified deferred compensation plan is a plan of a nonqualified entity?
Does § 457A apply to a right to earnings on deferred compensation that is subject to § 457A?
How is the amount includible in income under § 457A determined?
If an amount is included in gross income under § 457A before the amount is paid to the service provider, is the amount also includible in income when the amount is paid to the service provider?
If an amount is included in income under § 457A before the amount is paid to the service provider, and before such amount is paid the right to the amount is forfeited or otherwise permanently lost, is the service provider entitled to a loss?
When is the deferred amount to which a service provider is entitled treated as not determinable for purposes of § 457A?
When is a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A required to be included in income?
What additional taxes apply to a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A?
What is the effective date of § 457A?
For purposes of applying the effective date, how are the periods of service to which the compensation is attributable determined?
How does § 457A coordinate with § 409A?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed before January 1, 2009?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed after December 31, 2008?
What transition rules apply under § 409A with respect to certain back-to-back arrangements attributable to services performed before January 1, 2009?