409A Dismay

Constructive Receipt Effective, Appropriate; 409A "Micromanages" - Should be Repealed

2012-01-24T04:56:00.000-08:00

Article Here

"To survive and thrive, businesses need a regulatory system that is predictable and fair, but does not micromanage. Constructive receipt is a time-tested doctrine that accomplishes those ends. By contrast, Section 409A is neither predictable nor fair, and micromanages the relationship between businesses and their executives. Section 409A should be repealed."

Going Concern Blog Says 409A is Tax Policy Scam

2012-01-04T10:28:00.000-08:00

Penalties for foot-faults insane; akin to shooting jaywalkers; ranked #2 on list of top tax policy scams.

Article HERE

IRS Will "Clean Up" 409A

2011-12-09T12:16:00.000-08:00

Plans on using 457A regs to clean up 409A. Click Here.

According to Sherman & Patterson:

"A key IRS attorney said last week that the § 457(f) regulations will be used as a vehicle to do some § 409A “clean-up.” He also referred to the initial guidance being proposed rules. These comments seem to indicate that the regulations are moving forward, are broader than originally thought, and have a better chance of receiving earlier rather than later attention. The indication that they will come out in proposed form is positive news as it will not only give a chance for comment, but a longer period for easing into the new rules."

409A Tax Hits Income Earned Overseas

2011-11-30T05:13:00.000-08:00

Article by EisnerAmper Here

Attorney Barker Shares the Roadmap for 409A Corrections

2011-10-05T11:52:00.000-07:00

The secret recipe for 409A Corrections - HERE

Professor Lazar Urges Congress to Refrain from Regulating Executive Compensation

2011-09-05T16:31:00.000-07:00

Buffalo Law Review Here

IRS Focusing 409A Audits on Do-It-Yourself Valuations

2011-08-19T05:17:00.000-07:00

Article from Matt Armanino via AccountingToday.com

3rd Circuit Affirms Strange 409A Case

2011-08-14T17:54:00.000-07:00

Plaintiff claimed imposing 409A 6-month-wait was illegal retaliation under the New Jersey Law Against Discrimination (LAD).

TV Show "Suits" Jokes about 409A

2011-07-08T05:17:00.000-07:00

Hat Tip to xtreme Erisa blog.

New Regs on Deferred Comp for Non-Profits and Government

2011-06-17T05:03:00.000-07:00

457(f) to be updated to in line with 409A

Mintz Levin Article HERE

Pillsbury Article HERE

Stockholder "Say On Pay" Initiatives Blocked by 409A

2011-06-17T04:56:00.000-07:00

409A Wreaks New Havoc

"To illustrate the complexity of the interaction between Section 409A and corporate governance, let's say there's a negative say-on-pay vote against XYZ Corp. that appears to result, in part, from the CEO having accrued a $20 million vested SERP benefit. In order to convince shareholders that their concerns have been properly taken into account, the compensation committee negotiates a $5 million reduction to this SERP benefit with the CEO. This reduction, if implemented, would result from disregarding certain types of incentive pay that had counted as eligible compensation when calculating the SERP.

As a practical matter, XYZ's compensation committee intends to make larger annual equity compensation awards in future years based on the company meeting objective and challenging performance goals. The awards would allow the executive an opportunity to make up for the loss of the $5 million through future performance. It would seem that this type of negotiation and restructuring is what Congress had in mind when it enacted the say-on-pay provisions in Dodd-Frank.

Well, not so fast. The CEO could be stuck with a significant tax bill. As noted above, the SERP is nonqualified deferred compensation subject to Section 409A. So, if the later performance share awards are viewed as a substituted payment for the forfeited portion of the CEO's SERP, then there will be a Section 409A violation."

Article from CFO Magazine HERE

Start-Up America Says: 409A Stymies Access to Talent and Gain Sharing

2011-06-03T04:58:00.000-07:00

The problem is that many regulations assume — or almost mandate — a traditional workaday paycheck relationship between company and labor. In particular, IRS tax code elements (e.g., contractor/employee tax rules and Section 409A deferred compensation) and SEC regulations (e.g., on secondary markets of shares in private companies and stock-option accounting rules) stymie the kind of flexible access to skilled talent and gain-sharing that high-growth companies need.

Article Here

Private Equity Investors Demanding Strict 409A Compliance and Indemnifications

2011-05-24T05:03:00.000-07:00

Article Here

409A Common Errors

2011-05-20T05:02:00.000-07:00

Trucker Huss Article via Plansponsor.com

Treasury Counsel Says No Re-Write of 409A Regs - But Willing to Help Taxpayers

2011-05-11T11:09:00.000-07:00

"Treasury Department and Internal Revenue Service officials do not intend to rewrite regulations issued under tax code Section 409A but the agencies do want to hear about specific compliance problems that employers and practitioners have encountered, George Bostick, Treasury benefits tax counsel, said May 6."

click Here

409A Nominated for Repeal under "Just Plain Dumb" Initiative

2011-04-24T05:08:00.000-07:00

By Donald Kalfen on Boardmember.com:

"Imagine a day when the President of the United States tells federal regulators to conduct a government-wide review to “root out regulations that conflict, that are not worth the cost, or that are just plain dumb.” That day arrived on January 18, 2011. President Obama penned an op-ed piece appearing in the January 18th issue of The Wall Street Journal in which he announced the signing of an executive order directing regulators to toss in the trash bin ill-advised regulations of commerce...

...It is time to mark for extinction three well-known, often written about and little admired tax sections that have been wreaking havoc for some time – 162(m), 280G and 409A. The first two sections represent the misguided attempts by Congress to dictate the design of officer compensation through the heavy hand of the tax code. The last section represents a case of Congressional overreaching."

ARTICLE HERE

Secondary Market May Impact 409A Valuations

2011-04-12T20:11:00.000-07:00

Article by Greenstein, Rogoff, Olson & Co.

xtremErisa: Dividend Equivalent Rights and 409A

2011-03-02T20:00:00.001-08:00

Discussion Here

"Dividend equivalent rights ("DERs") were specifically addressed in the 162(m) regulations regarding the question of whether the grant thereof in connection with an option grant disqualifies the option from favorable treatment as performance-based compensation. Not a whole lot of fuss was made about it at the time. Now we get DER II, set in 409A-Land, and, just when you thought it was safe to go back in the water (thanks, Jaws II), things get a little scary."

VentureBeat Discusses 409A Valuations - Why is My Common Stock Worth So Much?

2011-02-03T06:51:00.000-08:00

See Article HERE

Hollywood Stars Hot Over 409A - Lobby for Change

2011-02-01T08:05:00.000-08:00

Stars turn down cash advances - advances come to a "screeching halt;" stars turn away TV contracts; studios in a pinch; 409A "killed a mosquito with a cruise missile; "percentage of profits" or "points" is deferred compensation.

Article Here

409A Valuation is Key Issue in Facebook Litigation

2010-12-18T10:47:00.000-08:00

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

2010-12-18T09:39:00.000-08:00

HERE

409A: Top 100 Questions

2010-12-10T19:36:00.000-08:00

IRS Releases Notice 2010-80 - Additional Relief Provided

2010-12-07T12:51:00.000-08:00

Summary from Charles Shulman, Esq. - HERE

11th Circuit Rules on 409A - 6 Month Wait

2010-11-30T15:50:00.000-08:00

Plan was not clear as to when the RSU's should have been valued.

Guidance on "Unforseeable Emergency" Distributions

2010-11-19T10:03:00.000-08:00

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.”"

409A Can "Screw Up" Your Exit Strategy; "Incredibly Complex"

2010-11-17T20:06:00.000-08:00

VentureBeat Article - Curtis Smolar, Esq. - HERE

409A Lawyers (and clients) Cartooned - How to Price Startup Company Options

2010-11-04T05:04:00.000-07:00

XtraNormal Presents "A Short Video Explaining Option Pricing Under 409A" HERE

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

2010-10-30T16:23:00.000-07:00

"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

2010-10-28T15:04:00.000-07:00

"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

2010-10-27T17:24:00.000-07:00

"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

2010-10-12T10:52:00.000-07:00

"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

2010-10-02T08:55:00.000-07:00

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

Statistical Analysis of 409A Valuation Data

2010-10-02T08:47:00.000-07:00

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

Update on Angel-Gate (or 409A-Gate)

2010-09-24T08:51:00.000-07:00

Email Evidence Exists

Bombshell Evidence

"Valuations" of companies discussed by tech investors

Thus far, only the Felix Salmon article mentions the 409A issue.

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

2010-09-23T11:22:00.000-07:00

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."

ARTICLE HERE

Court Rejects Federal Jurisdiction for 409A Dispute

2010-09-21T05:31:00.000-07:00

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

IRS Presents Informal Guidance on 409A

2010-09-11T10:41:00.000-07:00

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.

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

2010-08-31T10:25:00.000-07:00

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."

M&C Spots 457A Trap for Multinational Corps

2010-07-23T07:45:00.000-07:00

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."

Attorney Ponders the Lebron James Fray and 409A

2010-07-16T06:43:00.000-07:00

"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

Contraversy Developing over 409A Valuations

2010-07-09T09:52:00.001-07:00

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.

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

2010-07-06T06:32:00.000-07:00

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

2010-07-06T04:54:00.001-07:00

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.

Pre-IPO Stock Sales Creating 409A Valuation Chaos

2010-06-30T06:51:00.000-07:00

"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 SecondMarket.com

Optcapital Lobbying for Modifications to IRC 457A

2010-06-22T08:04:00.000-07:00

"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."

HERE

Shrewd Comments on 409A Valuations from Pro Appraiser

2010-06-16T07:42:00.000-07:00

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"

Summary of 409A Issues in Severance Agreements

2010-06-09T09:27:00.000-07:00

Chuck Shulman's Article HERE

Skadden Partner Completes 409A Handbook

2010-06-08T13:15:00.000-07:00

Sneak Preview Here

Regina Olshan

Erica Schohn

Flashback: Regina Organizes Push for 409A Extension

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

2010-05-26T06:47:00.000-07:00

"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

Bio

AON Notes Problem with Linked Plan Guidance

2010-05-25T09:55:00.000-07:00

IRS Guidance not sufficient. Waiting for response to ABA comments.

Article by John Lowell - HERE

Pleased to Announce the Launch of Project Interactive

2010-05-21T06:38:00.000-07:00

PROJECT INTERACTIVE

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

2010-05-18T10:04:00.000-07:00

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.

Lawyers ask IRS to "Lighten Up"

2010-05-06T16:25:00.000-07:00

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."

"6 Month Delay" Crushes Executive

2010-04-29T19:38:00.000-07:00

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."

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

2010-04-28T12:58:00.001-07:00

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."

BLOG POST HERE

409A Causing Dismay in South Carolina

2010-04-22T15:59:00.000-07:00

"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

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

2010-04-13T11:33:00.000-07:00

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."

More on 409A Audits and IRS "IDR" Requests

2010-04-02T06:53:00.000-07:00

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"

409A Scuttles Silicon Valley Deal

2010-03-29T06:57:00.000-07:00

Experts concluded that valuation needs to reflect the implied value of preferred equities.

Deal Salvaged With Help from 409A Appraiser - from Teknos HERE

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

2010-03-25T10:58:00.000-07:00

"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

More on 409A Corrections - Cracking the Code

2010-03-10T06:06:00.000-08:00

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."

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

2010-03-03T13:06:00.000-08:00

"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

Sports & Talents Lawyers Discuss 409A

2010-02-24T08:44:00.000-08:00

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

Sports and Entertainment Agents Gearing up for 409A

2010-02-17T12:53:00.000-08:00

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

BNA Webinar Provides Some Clarity on Notice 2010-6

2010-01-28T11:44:00.000-08:00

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

Exec Comp Audits to leave "No Stone Unturned"

2010-01-25T13:57:00.001-08:00

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."

Webinar on 409A Audits and Enforcement

2010-01-22T07:53:00.000-08:00

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

HERE

"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"

Guide to 409A Business Valuations

2010-01-20T11:58:00.000-08:00

Written by Neil Beaton and published by Business Valuation Resources - HERE.

409A Case Law Arrives (Slater vs. IRS)

2010-01-12T07:21:00.000-08:00

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

More on Corrections under IRS Notice 2010-6

2010-01-07T12:07:00.000-08:00

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

2010-01-07T11:57:00.000-08:00

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."

IRS Preparing to Regulate Paid Tax Preparers

2010-01-04T12:27:00.000-08:00

Off Topic Article Here

Going Concern Blog Nominates 409A as Worst Tax of Decade

2009-12-21T06:44:00.000-08:00

"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"

Another Good Article Re: 409A Valuation Methods

2009-12-14T17:27:00.000-08:00

Article From Kenneth J. Pantoga Here

IRS Releases Guidance on Intersection of 409A and TARP

2009-12-14T15:55:00.000-08:00

"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."

409A Correction Period Ending Soon - Last Chance

2009-12-03T13:32:00.000-08:00

"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

Advice on 409A Valuations for Start Up Companies

2009-11-30T07:11:00.000-08:00

"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."

ARTICLE BY B. PATRICK LYNCH HERE

Student Law Article Re: 409A Correction Program

2009-11-28T09:32:00.000-08:00

"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

409A Audits - IRS Request List

2009-11-16T19:45:00.000-08:00

Information Document Request

409A AUDITS COMMENCE

2009-11-05T11:36:00.000-08:00

"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."

LINK FROM JONES DAY

Franchisors Using 409A Plans to Encourage Franchisee Store Remodeling

2009-11-04T13:04:00.001-08:00

"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."

ARTICLE HERE

xtremErisa Discusses Substantial Risk of Forfeiture Under 457A

2009-11-03T07:13:00.000-08:00

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

2009-11-03T07:09:00.000-08:00

"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

Year End Planning Issues for Exec Comp - Includes 409A

2009-10-22T08:38:00.000-07:00

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."

ABA and Skadden Get 409A Clarity from IRS

2009-10-14T06:46:00.000-07:00

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."

"An Inconvenient Tax" Documentary - Movie Trailer Released

2009-10-08T13:58:00.000-07:00

Move Web Site and Trailer

Press Packet

ERISA Discussion at "Above The Law"

2009-10-07T18:31:00.000-07:00

Here

NY Bar Reports to US Treasury on 457A

2009-10-07T17:02:00.000-07:00

Recommends changes and makes suggestions for new guidance.

NYSBA Documents

IRS Says it Will Guide on 457A

2009-10-05T08:01:00.001-07:00

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."

IRS Says Salary Advances May Cause 409A Issue

2009-09-17T11:41:00.000-07:00

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

Correcting 409A Failures

2009-08-21T12:43:00.001-07:00

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."

Supreme Court Will Hear Case on Executive Pay

2009-08-18T13:01:00.000-07:00

"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."
Link

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

2009-08-17T07:43:00.001-07:00

"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."

LINK

Backdating Returns to Spotlight; IRS GC Memorandum

2009-07-27T08:40:00.000-07:00

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

Is it Still Possible to Fix Unvested Arrangements?

2009-07-15T11:29:00.000-07:00

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."

Law Article Discusses 409A

2009-07-01T09:26:00.000-07:00

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."

Stock Option Exchange Programs

2009-06-19T11:00:00.001-07:00

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

From Footnoted.org: "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

2009-06-19T09:35:00.000-07:00

Good information on valuation techniques from Axiom Valuation

Glitch in 409A Regulations Caused by EESA - TARP Rules for Troubled Banks

2009-06-05T15:41:00.000-07:00

Scoop From BenefitsBlog

IRS Notice 2009-49 Clarifies

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