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"