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

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

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

"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

IRS Turns to Private Sector Analysis to Train its Agents

White Paper prepared by Dominick Pizzano of Milliman used as IRS agent training tool.

Statistical Analysis of 409A Valuation Data

Accurserve: "Stellar Team and Solid Growth" command great valuations.