Saturday, December 18, 2010

409A Valuation is Key Issue in Facebook Litigation

From All Things Digital - HERE

From Facebook's legal brief:

“First, the CU Founders try to leave this Court with the impression that the only valuation figure they knew was the $15 billion figure from the Microsoft press release, and that they, therefore, had reason to enshrine it as gospel. They also portray the one 409A valuation on which they rely here as some seismic event in the life of the company, as if an unexpected bolt of lightning from on high emblazoned $8.88 onto a couple of tablets. Both the impressions are false.”

409A Reference Guide from Principal Financial


Friday, November 19, 2010

Guidance on "Unforseeable Emergency" Distributions

IRS issues Rev. Rul. 2010-27 clarifying that events must be beyond the control of the participant.

Article from Spencer's Benefits Reports - HERE

"Three Situations Addressed

The three fact situations addressed in Rev. Rul. 2010-27 do not fit within any of the examples used in Reg. Sec. 1.457-6(c)(2)(i) nor those used by the plan.

In the first situation, an emergency distribution was requested to repair the participant’s principal residence because of significant water damage that is not covered by insurance but is substantially similar to the need to pay for damage to a home as a result of a natural disaster. This is a permissible emergency distribution because it is the result of events beyond the control of the participant, the IRS said.

In the second situation, an emergency distribution was requested to pay for the funeral expenses of an adult son who is not a dependent. The IRS stated that was a permissible emergency distribution because “the need to pay for the funeral expenses of a non-dependent adult son is an extraordinary and unforeseeable circumstance that arises as a result of events beyond the control of the participant and that is substantially similar to the need to pay for funeral expenses of a dependent.”

The facts in the third situation involve a participant who requests an emergency distribution to pay for accumulated credit card debt. This is not a permissible emergency distribution the IRS said because it not arise “due to any events that are extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.”"

Saturday, October 30, 2010

409A Changes the Game - No Post-IPO Profits for Facebook Employees

"The conventional wisdom is that you join a hot startup pre-IPO to get the low priced stock options. Techcrunch reports that some people are joining Facebook now to get in on pre-IPO shares.....The effect of the 409A requirement, and the new movement of private investors buying vested stock options from employees, is that the pre-IPO valuations, and thus the employee stock option price, are very close to the expected IPO price. So, how will there be a big bump in the stock price at IPO? My guess is there won't be a bump...and conventional wisdom will change."

Article from Don Dodge HERE

Thursday, October 28, 2010

Update on 409A Audits

"Even though the audit program is relatively new, practitioners have informally shared anecdotal evidence on which issues the IRS appears focused on so far. The list of issues below is not exhaustive and other issues may be raised, depending on the nature and identity of the employer and its NQDC arrangements.

In general, however, it appears that the IRS is requesting detailed documentation on the following areas (i) if a plan intends to rely on the “short-term deferral” exception, the plan clearly must disclose the relevant terms, including detailed information on any forfeiture risks, (ii) employees' initial and “second” deferral elections must include specific terms for making elections, and specify both the initial and new payment dates, (iii) plan documents must provide detailed information on any events that would trigger the acceleration of benefit payments, particularly events triggered by an employer's deteriorating financial condition, and (iv) plans’ treatment of “specified employees,” (certain senior executive officers of publicly traded companies) who are subject to the general rule that payments cannot begin earlier than six months after termination of employment."

Article From Jackson Lewis

Wednesday, October 27, 2010

Federal Bank Regulators Focus on 409A

"In June 2010 the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (together, the Regulatory Agencies) issued guidance on sound incentive compensation policies for banking organizations......Another potential area of regulatory focus is compliance with Internal Revenue Code (Code) Section 409A, which governs all types of nonqualified deferred compensation. By December 31, 2008, banking organizations should have reviewed and amended, if needed, all nonqualified deferred compensation arrangements (including all deferred compensation plans, employment agreements, severance and change in control agreements, equity compensation plans and similar types of arrangements) to ensure either compliance with Code Section 409A or an exemption from Code Section 409A."

Note from Troutman Sanders

Tuesday, October 12, 2010

"Startup Company Blog" Calls for Repeal of 409A

"Repeal Section 409A as it applies to startups and small companies. Startups should not have to spend a bunch of money on lawyers, accountants and valuation experts in order to grant stock options and otherwise comply with this very complex and onerous law. Startups and small companies ought to be exempted. Better yet, Congress, just repeal Section 409A in its entirety."

From Joseph M. Wallin - HERE

Thursday, September 23, 2010

Shock: 409A Central to Silicon Valley Price-Fixing Conspiracy

According to Felix Salmon, writing for Seeking Alpha Blog, powerful Silicon Valley angel investors may have attended a meeting to discuss the pricing of 409A equity valuations, colluding to apply downward pressure on the pricing.

"It seems to me that Arrington is right, and that this dinner was an attempt by some very powerful angel investors, led by Ron Conway, to collude with each other on a number of different fronts. Quite possibly including 409a stock option pricing. Arrington’s a lawyer by training, and if he says this is illegal, then it’s worth investigating the accusation seriously, rather than trying to dismiss it in a blog entry featuring lots of swearing along with multiple font colors and sizes."


Tuesday, September 21, 2010

Court Rejects Federal Jurisdiction for 409A Dispute

Executive Claims Potential Breach of Employment Agreement Raises 409A and ERISA Issues. Court remands to state court.

"Scharnweber is attempting to enforce the employment security agreement as he views it. And whether the employment security agreement is to be enforced according to his views does not depend on section 409A of the Internal Revenue Code. A state court's handling of Scharnweber's claims that entails references to the fact that Scharnweber might be subjected to a federal tax penalty would not disturb the "congressionally approved balance of federal and state judicial responsibilities." See id. at 914 (internal quotations and citation omitted) ("[I]nsofar as the state court may have occasion to consider the [federal issue] in adjudicating [the plaintiff's] state law claims, we do not think that the state court's consideration of the [federal issue] disturbs the `congressionally approved balance of federal and state judicial responsibilities[.]'"). Thus, the court finds that the complaint's references to a potential federal tax penalty do not raise a sufficient federal issue for purposes of establishing federal jurisdiction."

Court Decision Here

Saturday, September 11, 2010

IRS Presents Informal Guidance on 409A

The Service Presents to ABA Joint Committee on Employee Benefits

Disagrees with ABA on certain issues. Non-compliant plans that expire worthless still subject to a additional tax.

Tuesday, August 31, 2010

409A Called "Nuclear Option" - Societal Cost Outweighs Benefit

Law Review Article by Andrew Wayne Stumpff HERE

"The article reviews the tax historical background that led to enactment of Internal Revenue Code Section 409A, particularly the history of weak judicial enforcement of the constructive receipt doctrine which had left open the door to significant tax timing abuse. The author argues, however, that in Section 409A Congress nonetheless overreacted, creating a statute whose overbreadth and penalty structure imposed its own societal cost (in the form of compliance and transaction expenses) that possibly outweighs the cost of the tax abuse the section was designed to correct. More generally, he argues that "binary," high-risk enforcement schemes, where the only two possible taxpayer states are full compliance and ruinous noncompliance, lead to inefficient results and are bad tax policy. Two other examples of this type of binary enforcement approach in U.S. employee benefits law are the qualified retirement and prohibited transaction regulatory regimes. The article shows that under such a regime it will be rational for a taxpayer to undertake a transaction only if the probability, P, that the transaction fully complies with all Code requirements satisfies: P x B > (1-P) x C, where B is the benefit expected from the transaction and C is the expected cost should the transaction be found not to be fully tax-compliant. In the 409A context, if one makes the assumptions, for example, that the benefits associated with deferring compensation have value equal to 15% of the amount deferred, and the penalty associated with violation of 409A is 2,000% of the amount deferred (plausible assumptions, given the 409A penalty structure), it will be rational to defer compensation only if the probability of full compliance is at least 99.3%, which approaches absolute certainty and is in practice often unattainable at reasonable cost."

Friday, July 23, 2010

M&C Spots 457A Trap for Multinational Corps

Multinationals view 457A as irrelevant for US employees serving foreign parents -- this view may cause lost deductions -- should re-evaluate -- M&C ARTICLE HERE.

"Many multinationals have adopted the view that the harsh income inclusion rules of Code section 457A are essentially irrelevant. Basically, this attitude stems from the belief that that the company's US employees providing services abroad to related foreign entities are doing so as employees of a US-based company pursuant to the terms and conditions of a secondment agreement. This article points out that while a secondment agreement, that is properly worded and implemented, may act as an effective shield against Code section 457A, it may also inflict a detrimental blow to the US company's subpart F income. Accordingly, any US company that seconds its employees to related foreign-based entities should re-evaluate that arrangement to assure that it is obtaining the desired tax outcome."

Friday, July 16, 2010

Attorney Ponders the Lebron James Fray and 409A

"As the ink dries on James’ new employment agreement, as well as those of Dwayne Wade and Chris Bosh, the Miami Heat and James’ attorneys will have inevitably contemplated and believed, in good faith, to have satisfied the requirements contained in the statute and in the accompanying regulations."

Article From Fed Tax Developments Blog HERE

Friday, July 9, 2010

Contraversy Developing over 409A Valuations

Some suggest valuation work going to "overseas" appraisers and valuation "chop shops."

Houlihan Lokey says "high profile" enforcment cases may be coming soon.

BVWire News on the story - HERE.

Tuesday, July 6, 2010

CFO's: 409A Valuation is Commodity Service, Care about Price, Not Quality

From BV Wire News - HERE

"“An amazing 67% of survey respondents single out cost as the key factor in making the decision to go forward with a 409A vendor,” writes Davis. Lest we kid ourselves, only 12% of respondents say that “quality” determines their choices. The majority of CFOs still see 409A as a “commodity service, [with] little value derived from the report beyond a compliance checkmark,” Davis says. In fact, the word “evil” was mentioned in 15% of the CFO responses (with only a few adding the qualifier “necessary.”)"

409A Hits Hollywood Workers

Payment amounts deferred and based upon future box office receipts - independent contractor exception to no avail - READ HERE

"The basic problem is that many service providers in the entertainment industry will not qualify under Section 409A’s exclusion for “independent contractors.” In the entertainment industry, agreements often require the talent to provide services in one year in exchange for compensation in a later year based on box office receipts. Absent compliance with the strict requirements of Section 409A, the talent might be required to include income in the year he acted rather than the year he was paid (assuming the payment is not subject to a “substantial risk of forfeiture”). To go one step further, suppose the motion picture is widely successful, leaving the audiences clamoring for a sequel. The actor might then renegotiate his agreement with the production company for a bonus against the contingent payments to be paid under the original agreement. In essence, the movie star has renegotiated his rights to future earnings and accelerated his receipt of amounts previously earned and deferred. Section 409A punishes this type of renegotiation."

Thanks to Roger Royse, Esq.

Wednesday, June 30, 2010

Pre-IPO Stock Sales Creating 409A Valuation Chaos

"The potential impacts of private secondary market sales on 409A valuations are, in a word, complex. Transactions may reflect discounts or premiums for marketability, liquidity, and/or control, each of which impact the fair market value of private company stock. Fur ther, purchasers may be willing to pay a premium for access to private stock they would not otherwise have, thus overpaying vis-à-vis fair market value. Such overpayments are sometimes referred to as a posturing or access premium, and are difficult to quantify. Similarly, sellers may be willing to take a lower-than-fair price due to extenuating financial exigencies. These issues are just the tip of the iceberg. When Arcstone is engaged to value equity securities where secondary sales have occurred (or are contemplated), we take a close look at the facts and circumstances surrounding the transactions themselves."

Article from

Tuesday, June 22, 2010

Optcapital Lobbying for Modifications to IRC 457A

"K&L Gates is lobbying for Optcapital, an executive benefits consulting firm, on supporting “modification of Internal Revenue Code section 457A to be included in technical corrections legislation,” according to lobbying disclosure records. Daniel Crowley, a Republican and former general counsel to the House Speaker’s office, and Patrick Heck, a former aide to Sen. Max Baucus (D-Mont.), are working on the account."


Wednesday, June 16, 2010

Shrewd Comments on 409A Valuations from Pro Appraiser

Focus on Evidence and More Bashing of Foreign Valuation Companies - Here

"Several clients ask us questions about what types of information is collected and why. You see, 409A valuations have got more to do with substantiation and evidence and less to do with valuation techniques and number crunching. One of the things we have noticed, especially, in valuation work from overseas is use of data sources, enumeration and explanation of data, and calculation methods that dont quite fit in with US Tax Court lingo or evidentiary standards. We collect information that is more appropriate to pass the evidentiary standards set out in usual IRS court cases and US GAAP standards. This also makes the audit work a breeze as most information they are looking for is set in in the manual"

Wednesday, May 26, 2010

409A Lawyer, Tom Kirschbaum, Dies Tragically, Lost at Sea

"We are deeply saddened by the news that Tom Kirschbaum, our friend and long-time partner, appears to have been lost in a tragic accident at sea this weekend.
Tom was a first-rate human being. He was widely recognized as one of California’s leading employee benefits attorneys and scholars. Tom was also a world-class sailor with a passion for solo sailing. In 2008, he successfully competed in the Singlehanded Transpac Race, a grueling 2,120-mile race from San Francisco to Hanalei Bay on the island of Kauai in Hawaii. Tom quipped at the time he was glad to show the world that lawyers “were not monomaniacs whose recreation consisted of memorizing the regulations under Internal Revenue Code Section 409A.”"

News Here


Tuesday, May 25, 2010

Tuesday, May 18, 2010

Exciting Comments from the JP Morgan Chase Exec Comp Trends Conference (Did 162(m) Cause the Tech Stock Bubble?)

Thanks to JP Morgan Chase for sponsoring the Executive Compensation Trends Conference at Baltusrol Country Club in Springfield, New Jersey.

From speaker Brick Susko of Cleary Gottlieb: the implementation of Section 162(m) led to a significant increase in option grants and may have caused the Tech Stock Bubble. Notwithstanding the implementation of 409A, use of deferred compensation is on the rise; seeing "widespread deferrals" reaching lower levels of management. Some companies getting comfortable with informal corrections outside of the IRS procedure for "foot faults" - but sticking with the formal procedure for larger issues. Foreign companies struggle. Current IRS document correction procedure "not sufficient."

From speaker Claude Johnston of Fred W. Cook & Co: executive compensation is in a "recovery" and returning to "2008 levels" after dropping in 2009. Companies are being "less rigid" with respect to analyzing compensation survey data. Salary cuts are being reinstated.

From speaker Robert Barbetti of JP Morgan Chase: "west coast" companies are granting options, and "east coast" companies are granting stock and stock units. Section 83(b) elections are on the rise in anticipation of increasing tax rates.

Executive Compensation attorney in attendance, Michelle Capezza of Epstein Becker & Green, commented that the question of whether or not companies may informally correct 409A errors outside of the formal IRS procedure remains a contraversial question - and that the attorney-attendees at the conference "perked up" when the issue was discussed.

Thursday, May 6, 2010

Lawyers ask IRS to "Lighten Up"

Article by Financial Advisor

"Tax lawyers want the IRS to lighten up on corporate executives when honest mistakes are made in their deferred pay plans. Right now, those executives face heavy tax penalties from even small, and often widely occurring, errors. So the American Bar Association's tax group is asking that the Internal Revenue Service relax parts of the tax code's section 409A, which covers deferred compensation plans."

Thursday, April 29, 2010

"6 Month Delay" Crushes Executive

Bankruptcy Court orders Sharper Image CEO to return $6 million of severance

"Thalheimer resigned from the board of directors in December 2006. However, tax consideration, 26 U.S.C.A. § 409A ("IRS Rule 409A"), prevented Debtor from paying Thalheimer's $6,055,000 severance until April 2007. In April 2007, Thalheimer received his severance from Debtor and less than a year later, Debtor commenced this bankruptcy case by filing a voluntary Chapter 11 petition."

Wednesday, April 28, 2010

Expert: Hire U.S. Appraiser for 409A Valuation Work

In light of IRS audits and litigation risk, Badruswamy of Accuserve suggests problem with expert testimony if using foreign appraiser.

"One of the main issues with working in an outsourced manner is the lack of an expert that can be relied upon as expert testimony in such cases. As we all know, the IRS imposes penalties if the tax liabilities have not been measured under a fair market value standard under the 409A regulations. Given the size of IRS penalties and the nature of add-on penalties, it is important to work with US based firms that have a good understanding of the legal systems here, an understanding of what it takes to be an expert witness and have solid relationships with audit firms. We have been concerned a bit by the outsourced model, where foreign analysts compute and calculate the valuations with no experts out here to back such values."


Thursday, April 22, 2010

409A Causing Dismay in South Carolina

"Large payments to members of the Santee Electric Cooperative Board of Trustees that prompted some public backlash were the result of a one-time payment from a terminated financial plan, according to officials from the electrical co-op.

Santee Electric CEO Floyd Keels said the termination of a financial plan for board members who were non-employees of the co-op caused the inflated numbers on the organization’s 2008 report of board member compensation.

An IRS 409a Nonqualified Deferred Compensation Plan funded by contributions made from each of the members of the board who were not co-op employees was first implemented in 1989, Keels said. Tax advantages associated with the plan changed under new IRS regulations implemented in 2008, causing the co-op to cease using in the plan and distribute the balance to participating members.

Keels provided a March 23 memo to the board from Ronnie A. Sabb, the co-op’s attorney, explaining the changes. The memo states Santee Electric terminated the 409a plan and distributed the net value of the benefits to the participants in a one-time payment, the large amounts listed on the co-op’s 990-form from 2008.

“Those individuals were participants under the plan,” Keels said, referring to the people on the 990-form, posted online by the IRS, which received payment. “It was a self-funded plan not funded by the co-op.”"

Article One

Article Two

Tuesday, April 13, 2010

Ivins, Phillips Expands on Novel Theory of Informal 409A Corrections

More on IRS 2010-6 From Ivins, Phillips. Summary of article from Rosina Barker and Kevin O'Brien here.

Link to full article here.

We are following the articles from these authors with particular interest towards their novel view that corrections may be possible outside of the formal IRS procedures.

"Scrivener’s error and other precepts of contract construction applicable when the written documents do not reflect the “plan,” arguably allowing document correction to conform with the parties’ intent outside of Notice 2010-6, at least in some circumstances."

Friday, April 2, 2010

More on 409A Audits and IRS "IDR" Requests

Provided by Tara Silver-Malyska of Grant Thornton HERE

"IDRs have included requests such the following:

Provide a list of all plans and arrangements that provide an employee with a legally binding right to compensation in one year, but payment in a subsequent year

Provide the basis for the position that the arrangement(s) is not subject to Section 409A, e.g., the short-term deferral rule, if applicable

Identify the terms of the nonqualified deferred compensation plan’s elections, including the deadline for the elections

If a payment was deferred beyond the originally scheduled payment date, identify the terms, including the payment date and the rescheduled payment date

Identify any acceleration in payments, including transition relief elections and deadlines, the original payment and actual payment dates

Identify “specified employees” and any payments of nonqualified deferred compensation made to specified employees within six months after separation from service

Provide a description of the plan and each modification made to comply with Section 409A

Identify and describe Section 409A violations and if such amounts were reported on a W-2 or Form 1099

Identify participation in any correction programs

Provide certain information on stock options and SARs that may be subject to Section 409A

Provide a description of any nonqualified deferred compensation funding resulting from a decline in the company’s financial condition"

Monday, March 29, 2010

Thursday, March 25, 2010

409A Forces Facebook to Value Itself ($35 Billion?)

"Prior to the enforcement of IRC 409A, many companies might have used a default discount such as 80% for the pricing of options. These days with IRC 409A in place, the companies now have to “show their work” when pricing these options. With that being said, we have reviewed numerous option filings by Facebook, and some of those prices of the common listed on these typically fell within a 75% to 80% discount as to the most recent round of Preferred Stock that had been issued."

Article from Clusterstock HERE

Wednesday, March 10, 2010

More on 409A Corrections - Cracking the Code

Presentation from Ivins, Phillips & Barker to DC Bar Tax Section on making corrections OUTSIDE of IRS Formal Programs: "409 Failures: Correcting Outside of the IRS's Formal Correction Programs" HERE

Flashback: Is it permitted to correct 409A failures outside of formal IRS programs? Lawyers say "yes." See Rosina B. Barker & Kevin P. O’Brien (both of Ivins, Phillips & Barker, Washington, D.C.) have published 409A Failures: Correcting With and Without Notice 2008-113, 124 Tax Notes 557 (Aug. 10, 2009).

"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 § 409A. We set forth a better view of § 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 § 409A will underlie this and no doubt other disputes about § 409A compliance and administration for years to come."

Wednesday, March 3, 2010

"409A is not Horseshoes" - IRS Will Audit Wall Street Payouts

"The U.S. Internal Revenue Service is taking a look at compensation plans that hold a lot of the big money Wall Street firms pay out to executives. Major accounting firms and tax attorneys are instructing firms on how to prepare for a wave of audits they expect for deferred compensation plans. Executives themselves face stiff tax penalties when employers run afoul of the rules. Susan Lennon, managing director of the human resources service group at PricewaterhouseCoopers LLP, predicts that IRS audits of deferred compensation plans will increase in "number and scope."

Section 409A went into full swing last year and the tax authority apparently wants to make sure employers are obeying it. There is still a lot of confusion on the part of companies and their tax advisors over how to comply. Nonetheless, an audit is a "very binary" process, according to Hogans. "This is not horseshoes," he said. "Close does not count, as a matter of pure legality.""

Article from Financial Advisor Magazine HERE

Wednesday, February 24, 2010

Sports & Talents Lawyers Discuss 409A

It was interesting to listen in on a 409A discussion that was geared towards a specific industry. The ABA-CLE Program noted some interested points:

* The sports and talent industry, including attorneys, were indeed late to the game and for the most part started addressing 409A only as the transition period was ending.

* Section 409A is only 4 pages, but the IRS needs over 200 pages of regulations and guidance to explain those 4 pages.

* Copyrights and similar intellectual property rights are "property" and therefore not subject to 409A. Therefore, it is important that documents with artists and other industry providers are drafted with language that discuss "property transfers" rather than as "providing services."

Questions to Professor Sobel

Bookmark and Share

Wednesday, February 17, 2010

Sports and Entertainment Agents Gearing up for 409A

File under "better late than never" as sports and entertainment agents are gearing up for Section 409A through an upcoming ABA Webcast. Welcome to the party, and we are happy to help spread the word. But our advice is to seek an expert for 409A assistance.

Below is a summary of the webcast and information on how to register. Also, see our prior posts from last year regarding the NFL and its struggle with 409A and other tax law issues.

"Among other things, the program will explore:

·What kinds of athletes and entertainers are exempt or may be 409A, and why they are or may be exempt

·What few kinds of compensation arrangements are exempt, and why most are not

·How non-exempt compensation arrangements must be structured in order to comply with 409A's requirements

·When compensation must be paid in order to comply with 409A's requirements

·Why the use of loan-out corporations does not eliminate the risk of 409A non-compliance, and may even increase that risk

·Why advances against deferred compensation -- even as part of a contract renegotiation or extension -- result in non-compliance

·Why the use of deferred compensation as loan collateral results in non-compliance (according to the Regulations)"

ABA Webcast Information - HERE

Thursday, January 28, 2010

BNA Webinar Provides Some Clarity on Notice 2010-6

Guidance provides reasonable solutions as to how to fix plan document problems, and possibly avoid or limit tax penalties. However, rules are complex and even more guidance will be needed to outline the correction procedures. Mr. Tackney indicated a revenue procedure may be issued down the road.

BNA - Groom Law Release HERE

Monday, January 25, 2010

Exec Comp Audits to leave "No Stone Unturned"

6,000 audits will be "deeper" and "more intensive" than typical audits - Article HERE

"The 6,000 exams, to be conducted over three years, will be deeper than typical audits and look at fringe benefits such as executive use of corporate jets, company cars and other reimbursements arrangements, Arcidiacono said.

"The examiners have been instructed to leave no stone unturned," he said on a recent call with clients.

The IRS has not taken a systematic focus on employment issues in decades, according to tax lawyers. The agency will examine a cross section of companies by size and industry.

"We've had quite a few clients who have had more intensive employment tax and executive compensation audits," in recent months, said Anne Batter, an attorney at Miller Chevalier who previously worked in the IRS chief counsel office, which interprets the tax code."

Friday, January 22, 2010

Webinar on 409A Audits and Enforcement

I wanted to share this information regarding a BNA webinar relating to the IRS' audit activities on January 28, 2010.


"The IRS is signaling more §409A enforcement. The agency's recent audit activity and document requests requiring comprehensive disclosures about plans and individuals subject to §409A confirm this trend. Plan document and operational errors should be identified and corrected to avoid heavy tax penalties.

Our panel of experts from the IRS and a leading law firm will analyze new IRS guidance on correcting §409A plan document failures and will discuss opportunities and potential pitfalls under the guidance. The panel will identify commonly occurring hazards -- including ambiguous plan terms and impermissible definitions and payment events, to name just a few -- and will offer practical solutions to help you avoid costly and damaging results.

Program highlights include:

• Identifying opportunities to correct certain document failures with limited or no income inclusion or additional taxes
• Reviewing the scope of this relief based on whether the correction affects plan operation within one year of the correction
• Analyzing common document correction scenarios and any related operational correction requirements
• Highlighting clarifications in the new guidance that certain common plan provisions do not result in document failures
• Noting clarifications to the operational correction program in the new guidance
• Discussing any alternatives to the operational and document correction programs

The objectives of this Webinar include providing participants with an understanding of the IRS’s new correction program for certain types of failures of nonqualified deferred compensation plans to comply with §409A. Upon completion of the program, participants will be able to:

• Describe the correction program guidance
• Understand how the new program fits with earlier IRS guidance on plan corrections
• Identify commonly occurring §409A failures to comply
• Understand the risks associated with §409A noncompliance and the possible opportunities created by the IRS guidance
• Apply correction principles to client plans"

Tuesday, January 12, 2010

409A Case Law Arrives (Slater vs. IRS)

This is the first case that I am aware of. Please use to comments to cite any other cases, or to comments on the case.

Link to Slater vs. IRS HERE

Thursday, January 7, 2010

More on Corrections under IRS Notice 2010-6

Experts believe companies may "tweak" documents. Guidance seems to "give a pass" on non-technical language.

Article from Financial Advisor quotes Drigotas and Hogans - HERE

A brief summary by Liza Hecht of Nukk-Freeman & Cerra HERE

"What Should Employers Do?

Given the opportunity to avoid accelerated taxes for the affected participant, as well as the IRS' stated intent to increase audit activity in this area, employers should review any and all agreements that could be considered deferred compensation under Code §409A. If any document failures are uncovered the employer should make any and all corrections before December 31, 2010."

IRS Issues Guidance on 409A Corrections - Notice 2010-6

IRS Notice 2010-6 Here

"This notice provides methods for taxpayers to voluntarily correct many types of failures to comply with the document requirements applicable under § 409A of the Internal Revenue Code (Code) to nonqualified deferred compensation plans and thereby avoid or reduce the current income inclusion and additional taxes under § 409A. This document correction program is intended to encourage taxpayers to review nonqualified deferred compensation plans to identify provisions that fail to comply with the requirements of § 409A and § 1.409A-1(c) of the Income Tax Regulations (a document failure), and to correct those plan provisions promptly, while also not providing an advantage to taxpayers participating in plans that initially fail to comply with § 409A over taxpayers participating in plans drafted in compliance with § 409A."