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."