Tuesday, March 3, 2009
Friday, February 27, 2009
Friday, February 13, 2009
Wednesday, February 11, 2009
IRS Undecided About 409A Document Correction Program
Persons will document failures would be in better position to amend that Persons in compliance.
"Catherine Creech, principal, Ernst & Young LLP, Washington, D.C., who moderated the program, noted that a plan failure is not technically a violation of Code Sec. 409A if all of the deferred amounts are nonvested. Tackney responded that there is technically a violation, but that nothing is included in income, so there are not tax consequences. He indicated that the plan could be corrected in the current year if the nonvested amounts will not vest until a later year.
Morrison contrasted Code Sec. 409A with Code Sec. 457A . Under the latter provision, deferred amounts are not taxable if the amount is not determinable, she said. For example, an amount payable under a formula based on future profits might be vested but not taxable until the formula is applied. However, under Code Sec. 409A , the taxable amounts have to be estimated, if necessary, in the case of a violation. She said that this treatment reflects a congressional stance that does not favor nonqualified deferred compensation plans and requires inclusion at the earliest time."
"Catherine Creech, principal, Ernst & Young LLP, Washington, D.C., who moderated the program, noted that a plan failure is not technically a violation of Code Sec. 409A if all of the deferred amounts are nonvested. Tackney responded that there is technically a violation, but that nothing is included in income, so there are not tax consequences. He indicated that the plan could be corrected in the current year if the nonvested amounts will not vest until a later year.
Morrison contrasted Code Sec. 409A with Code Sec. 457A . Under the latter provision, deferred amounts are not taxable if the amount is not determinable, she said. For example, an amount payable under a formula based on future profits might be vested but not taxable until the formula is applied. However, under Code Sec. 409A , the taxable amounts have to be estimated, if necessary, in the case of a violation. She said that this treatment reflects a congressional stance that does not favor nonqualified deferred compensation plans and requires inclusion at the earliest time."
Tuesday, February 10, 2009
More Dismay from 457A
Unanswered Questions Abound - From D&T
"Notice 2009-8 provides helpful information on compliance with IRC § 457A. Application of this section in practice, however, may be complicated for multinational corporations with operations and subsidiaries in different jurisdictions, including corporations that have a US corporation as the parent entity, and for tiered partnerships."
"Notice 2009-8 provides helpful information on compliance with IRC § 457A. Application of this section in practice, however, may be complicated for multinational corporations with operations and subsidiaries in different jurisdictions, including corporations that have a US corporation as the parent entity, and for tiered partnerships."
Thursday, February 5, 2009
Law Prof Blasts 409A - Should be Scuttled
Supports Curbs on CEO "Pirates" - But 409A Misses the Mark - Hurts All Except CEOs
Article Here
"The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled." William A. Drennan, Southern Illinois University School of Law
Abstract
The government went off course when it attempted to stop outrageous CEO compensation schemes with new income tax rules on nonqualfied deferred compensation. IRC Section 409A should be scuttled.
Suggested Citation
William A. Drennan. 2008. "The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled"
"CEOs and their sidekicks resemble swashbuckling pirates emptying the coffers of vulnerable prey. Although some argue that CEOs, like professional athletes, must be worth their compensation or corporations would not pay it, structural deficiencies at publicly held corporations impede natural market forces. A Delaware Chancery Court judge stated, “executive compensation seems . . . to have come spectacularly unhinged from the market for corporate talent.”"
Article Here
"The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled." William A. Drennan, Southern Illinois University School of Law
Abstract
The government went off course when it attempted to stop outrageous CEO compensation schemes with new income tax rules on nonqualfied deferred compensation. IRC Section 409A should be scuttled.
Suggested Citation
William A. Drennan. 2008. "The Pirates Will Party On! The Nonqualified Deferred Compensation Rules Will Not Prevent CEOs from Acting Like Plundering Pirates and Should Be Scuttled"
"CEOs and their sidekicks resemble swashbuckling pirates emptying the coffers of vulnerable prey. Although some argue that CEOs, like professional athletes, must be worth their compensation or corporations would not pay it, structural deficiencies at publicly held corporations impede natural market forces. A Delaware Chancery Court judge stated, “executive compensation seems . . . to have come spectacularly unhinged from the market for corporate talent.”"
Tuesday, February 3, 2009
409A Does Not Require A Professional Valuation
Internal valuation is permitted, although the burden of evidence shifts.
"That is not to say that an independent appraisal may not be advisable or worthwhile. In fact, if done in the manner specified in the final regulations, a valuation will create a presumption that the valuation of the stock reflects the fair market value of the stock, which presumption is only rebuttable by a showing that the valuation is grossly unreasonably."
"That is not to say that an independent appraisal may not be advisable or worthwhile. In fact, if done in the manner specified in the final regulations, a valuation will create a presumption that the valuation of the stock reflects the fair market value of the stock, which presumption is only rebuttable by a showing that the valuation is grossly unreasonably."
Monday, January 26, 2009
Friday, January 23, 2009
Wednesday, January 21, 2009
Tax Pros Make Grim Predictions for Companies that Missed 409A Deadline
Companies may need to offer employees cash make-whole bonuses, or face litigation.
"“If I’m an employee who for whatever reason is assessed a penalty because their employer did not meet 409A requirements, about the only remedy at this point — assuming that employer is willing because they might not have responsibility or liability — is to bonus the employee to cover the penalty and income tax from the bonus itself,” said Sonia Agee, a tax attorney at Hoge, Fenton, Jones & Appel Inc. in San Jose."
"“If I’m an employee who for whatever reason is assessed a penalty because their employer did not meet 409A requirements, about the only remedy at this point — assuming that employer is willing because they might not have responsibility or liability — is to bonus the employee to cover the penalty and income tax from the bonus itself,” said Sonia Agee, a tax attorney at Hoge, Fenton, Jones & Appel Inc. in San Jose."
Monday, January 19, 2009
Wednesday, January 14, 2009
D.C. Insider Believes More Dismay for Executives in 2009
409A Draconian; More Compensation Legislation Coming
"First, Mr. Iwry discussed the near future of executive compensation legislation. After providing the great truism, “it is easier to afflict the comfortable than to comfort the afflicted,” Mr. Iwry explained how it is likely that Congress has yet to finish punishing executives for earning money. While providing no opinion as to whether limiting executive compensation is a laudable goal, Mr. Iwry was simply making the point that it is easier for Congress to hinder the rich through policy changes than it is to make life better for other. Certainly, it is easier to garner support from their constituents for such work. Therefore, despite the recent effectiveness of the Draconian 409A requirements, more is still to come. Ironically, around the time Mr. Iwry was talking , Barney Frank was introducing legislation to further limit executive compensation under the Emergency Economic Stabilization Act."
"First, Mr. Iwry discussed the near future of executive compensation legislation. After providing the great truism, “it is easier to afflict the comfortable than to comfort the afflicted,” Mr. Iwry explained how it is likely that Congress has yet to finish punishing executives for earning money. While providing no opinion as to whether limiting executive compensation is a laudable goal, Mr. Iwry was simply making the point that it is easier for Congress to hinder the rich through policy changes than it is to make life better for other. Certainly, it is easier to garner support from their constituents for such work. Therefore, despite the recent effectiveness of the Draconian 409A requirements, more is still to come. Ironically, around the time Mr. Iwry was talking , Barney Frank was introducing legislation to further limit executive compensation under the Emergency Economic Stabilization Act."
Monday, January 12, 2009
457A Dismay
Section 457A
From Plan Advisor:
Included in the guidance are answers to (and some examples of ) the following:
What is a nonqualified deferred compensation plan for purposes of § 457A?
What is a substantial risk of forfeiture for purposes of § 457A?
What is a short-term deferral for purposes of § 457A (a § 457A short-term deferral)?
To which types of service providers does § 457A apply?
What is a nonqualified entity for purposes of § 457A?
How is it determined whether an entity is a foreign corporation or a partnership for purposes of determining whether an entity is a nonqualified entity under § 457A?
How is it determined whether substantially all of a foreign corporation’s income is subject to a comprehensive foreign income tax?
How is it determined whether substantially all of a foreign corporation’s income is effectively connected with the conduct of a trade or business in the United States?
When is a foreign person eligible for the benefits of a comprehensive income tax treaty for purposes of § 457A?
How is it determined whether substantially all of a partnership’s income for a taxable year is allocated to persons other than (A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax and (B) organizations which are exempt from tax under Title 26 of the United States Code?
Does § 457A apply to deferred compensation that would have been deductible against income of a foreign corporation which is taxable under § 882 if the compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture?
When is the determination made whether an entity is a nonqualified entity?
How is it determined whether a nonqualified deferred compensation plan is a plan of a nonqualified entity?
Does § 457A apply to a right to earnings on deferred compensation that is subject to § 457A?
How is the amount includible in income under § 457A determined?
If an amount is included in gross income under § 457A before the amount is paid to the service provider, is the amount also includible in income when the amount is paid to the service provider?
If an amount is included in income under § 457A before the amount is paid to the service provider, and before such amount is paid the right to the amount is forfeited or otherwise permanently lost, is the service provider entitled to a loss?
When is the deferred amount to which a service provider is entitled treated as not determinable for purposes of § 457A?
When is a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A required to be included in income?
What additional taxes apply to a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A?
What is the effective date of § 457A?
For purposes of applying the effective date, how are the periods of service to which the compensation is attributable determined?
How does § 457A coordinate with § 409A?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed before January 1, 2009?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed after December 31, 2008?
What transition rules apply under § 409A with respect to certain back-to-back arrangements attributable to services performed before January 1, 2009?
From Plan Advisor:
Included in the guidance are answers to (and some examples of ) the following:
What is a nonqualified deferred compensation plan for purposes of § 457A?
What is a substantial risk of forfeiture for purposes of § 457A?
What is a short-term deferral for purposes of § 457A (a § 457A short-term deferral)?
To which types of service providers does § 457A apply?
What is a nonqualified entity for purposes of § 457A?
How is it determined whether an entity is a foreign corporation or a partnership for purposes of determining whether an entity is a nonqualified entity under § 457A?
How is it determined whether substantially all of a foreign corporation’s income is subject to a comprehensive foreign income tax?
How is it determined whether substantially all of a foreign corporation’s income is effectively connected with the conduct of a trade or business in the United States?
When is a foreign person eligible for the benefits of a comprehensive income tax treaty for purposes of § 457A?
How is it determined whether substantially all of a partnership’s income for a taxable year is allocated to persons other than (A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax and (B) organizations which are exempt from tax under Title 26 of the United States Code?
Does § 457A apply to deferred compensation that would have been deductible against income of a foreign corporation which is taxable under § 882 if the compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture?
When is the determination made whether an entity is a nonqualified entity?
How is it determined whether a nonqualified deferred compensation plan is a plan of a nonqualified entity?
Does § 457A apply to a right to earnings on deferred compensation that is subject to § 457A?
How is the amount includible in income under § 457A determined?
If an amount is included in gross income under § 457A before the amount is paid to the service provider, is the amount also includible in income when the amount is paid to the service provider?
If an amount is included in income under § 457A before the amount is paid to the service provider, and before such amount is paid the right to the amount is forfeited or otherwise permanently lost, is the service provider entitled to a loss?
When is the deferred amount to which a service provider is entitled treated as not determinable for purposes of § 457A?
When is a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A required to be included in income?
What additional taxes apply to a deferred amount that is treated as not determinable at the time that the compensation is otherwise includible in gross income under § 457A?
What is the effective date of § 457A?
For purposes of applying the effective date, how are the periods of service to which the compensation is attributable determined?
How does § 457A coordinate with § 409A?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed before January 1, 2009?
What transition rules apply under § 409A with respect to amounts covered by § 457A that are attributable to services performed after December 31, 2008?
What transition rules apply under § 409A with respect to certain back-to-back arrangements attributable to services performed before January 1, 2009?
Thursday, January 8, 2009
Law Professor Blasts 409A - Questions Enforceability
Wednesday, January 7, 2009
Monday, December 29, 2008
NFL - 409A Update
NFL - 409A Update from National Football Post - "Language Has Been Vetted by NFLPA and NFL Management Council"
"There was a bit of activity on the contract front last week when the Cowboys formalized a deal with tackle Marc Colombo for four years and $22M, with about half guaranteed. The deal was being held up by the 409a tax code issue, which I discussed earlier. There is now language that has been vetted by the NFLPA and the NFL Management Council that allows teams to amend contracts as needed so the player does not suffer tax consequences on deferred bonus money, which virtually all bonus money is."
Article Also Discusses Dallas Cowboys Recent Free Agent Signings and Potential Salary Cap Issues
Dallas Cowboy Performance 12/28 Here.
"There was a bit of activity on the contract front last week when the Cowboys formalized a deal with tackle Marc Colombo for four years and $22M, with about half guaranteed. The deal was being held up by the 409a tax code issue, which I discussed earlier. There is now language that has been vetted by the NFLPA and the NFL Management Council that allows teams to amend contracts as needed so the player does not suffer tax consequences on deferred bonus money, which virtually all bonus money is."
Article Also Discusses Dallas Cowboys Recent Free Agent Signings and Potential Salary Cap Issues
Dallas Cowboy Performance 12/28 Here.
409A Urban Myths from Feld
Silicon Valley Mythbuster - Here
"Perhaps the only upside to the 409A panic in the start up world has been some of the urban legends that have already popped up. Jason and I aren’t your lawyers, so don’t take this as formal advice, but if your lawyers are advising you of the following, at least ask some questions. We’ve personally heard some senior partners at big-name law firms say some crazy things regarding 409A. The following are actual quotes. We will not disclose names to protect the innocent, er.. guilty."
"Perhaps the only upside to the 409A panic in the start up world has been some of the urban legends that have already popped up. Jason and I aren’t your lawyers, so don’t take this as formal advice, but if your lawyers are advising you of the following, at least ask some questions. We’ve personally heard some senior partners at big-name law firms say some crazy things regarding 409A. The following are actual quotes. We will not disclose names to protect the innocent, er.. guilty."
Wednesday, December 24, 2008
Additional 409A Thoughts For Sports Agents
From Connecticut Sports Law Blog
"A signing bonus is compensation earned by joining a team, but it is frequently paid out over time. For example, let’s say that Jim is an in-demand pitcher. On January 1, 2009 he signs with a team that offers him a $10 million signing bonus to be paid over a five year contract term. Without making sure that the bonus fits within an exception in the 409A regulations, Jim would be receiving non-qualified deferred compensation subject to 409A. That means that Jim would have to pay taxes on $10 million of income in 2009 and be subject to a 20% excise tax on top of that. The result? Jim is only paid the $2 million due for the first year’s payment, and already owes the IRS $2 million in excise tax plus income taxes of approximately $3 million."
"A signing bonus is compensation earned by joining a team, but it is frequently paid out over time. For example, let’s say that Jim is an in-demand pitcher. On January 1, 2009 he signs with a team that offers him a $10 million signing bonus to be paid over a five year contract term. Without making sure that the bonus fits within an exception in the 409A regulations, Jim would be receiving non-qualified deferred compensation subject to 409A. That means that Jim would have to pay taxes on $10 million of income in 2009 and be subject to a 20% excise tax on top of that. The result? Jim is only paid the $2 million due for the first year’s payment, and already owes the IRS $2 million in excise tax plus income taxes of approximately $3 million."
Monday, December 15, 2008
NFL Player Agents Warned of 409A Peril
Players Association Sends Urgent Memo
"The NFLPA was clear about the importance of this provision in its memo to all agents: “This memorandum identifies an extremely important tax issue that may affect your player-clients and requires your immediate attention. The NFL has just informed the NFLPA that NFL clubs did not draft or amend many NFL player contracts in order to bring them into compliance with Section 409A of the Internal Revenue Code. As a result, many player contracts that include certain deferred compensation arrangements may not comply with the new tax provisions, thereby resulting in accelerated taxable income and/or an additional 20% tax, imposed on the player-client, unless the contracts are amended on or before December 31, 2008.”"
Wednesday, December 10, 2008
IRS Provides Guidance on Withholding under 409A
IRS Notice Here
"This notice provides interim guidance to employers and payers on their reporting
and wage withholding requirements with respect to amounts includible in gross income
under §409A of the Internal Revenue Code. This notice also provides interim guidance
to employers and payers on their reporting requirements with respect to all deferrals of compensation under §409A of the Internal Revenue Code. This notice does not affect the application of §3121(v)(2) or an employer’s reporting obligations under §31.3121(v)(2)-1 of the Employment Tax Regulations. In addition, this notice provides guidance to service providers on their income tax reporting and tax payment requirements with respect to amounts includible in gross income under §409A."
"This notice provides interim guidance to employers and payers on their reporting
and wage withholding requirements with respect to amounts includible in gross income
under §409A of the Internal Revenue Code. This notice also provides interim guidance
to employers and payers on their reporting requirements with respect to all deferrals of compensation under §409A of the Internal Revenue Code. This notice does not affect the application of §3121(v)(2) or an employer’s reporting obligations under §31.3121(v)(2)-1 of the Employment Tax Regulations. In addition, this notice provides guidance to service providers on their income tax reporting and tax payment requirements with respect to amounts includible in gross income under §409A."
Sunday, December 7, 2008
IRS Issues Final 409A(a) Relief Procedures
From PlanAdvisor: IRS Issues Final 409A(a) Relief Procedures
The IRS Notice Here
"According to the IRS notice, the new procedures include:
Methods for correcting certain operational failures during the service provider's taxable year in which the failure occurs and, for certain service providers also during the subsequent taxable year, to avoid income inclusion under § 409A(a).
Relief limiting the amount includible in income under § 409A(a) for certain operational failures during a service provider's taxable year that involve only limited amounts.
Relief limiting the amount includible in income under § 409A(a) for certain operational failures regardless of whether the failure involves only limited amounts, but subject to further required actions to correct the failure.
Special transition relief for certain operational failures occurring before January 1, 2008."
The IRS Notice Here
"According to the IRS notice, the new procedures include:
Methods for correcting certain operational failures during the service provider's taxable year in which the failure occurs and, for certain service providers also during the subsequent taxable year, to avoid income inclusion under § 409A(a).
Relief limiting the amount includible in income under § 409A(a) for certain operational failures during a service provider's taxable year that involve only limited amounts.
Relief limiting the amount includible in income under § 409A(a) for certain operational failures regardless of whether the failure involves only limited amounts, but subject to further required actions to correct the failure.
Special transition relief for certain operational failures occurring before January 1, 2008."
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