Exec Comp "Armegeddon" for Public Corps

From Melbinger Exec Comp Blog: "Imagine a lawsuit brought in the weeks leading up to your company's annual shareholders' meeting, which seeks to postpone that meeting based on inadequate proxy disclosures on executive compensation matters up for a shareholder vote. Now imagine that the lawsuit is successful – and you are forced to decide between (a) paying the class action lawyers hundreds of thousands of dollars of attorneys' fees and issuing enhanced disclosures or (b) fighting the matter through a preliminary injunction hearing, which may have the effect of delaying your shareholder meeting (and create additional legal fees). Does that sound like Armageddon? Well, it happened earlier this year and the lawyers who brought the lawsuit are seeking to duplicate their success – or achieve a large attorneys' fees award – against other public companies in the current proxy season." Article Here

Firm says: "More 409A Headaches"

More 409A headaches: Existing arrangements containing employment release provisions may need to be amended before year-end for Section 409A compliance (and new arrangements with such provisions need to be carefully drafted). Carin C. Carithers, Christian Chandler, Margaret de Lisser, Kurt L.P. Lawson, Joseph R. Rackman, Martha N. Steinman Section 409A of the Internal Revenue Code (“Section 409A”) generally provides rules governing nonqualified deferred compensation arrangements with the main focus of such rules being limiting the ability of both the plan participant and his or her employer to manipulate the timing of payments under such nonqualified plans (although an employee/employer relationship is not required for Section 409A to apply). In order to accomplish this goal, Section 409A is extremely broad in scope and can also apply to employment agreements, change of control agreements.

verance plans as well as other similar agreements that provide for severance or other compensatory payments unless the agreement qualifies under some limited exemptions from Section 409A. HERE

IRS Not Enforcing Bad Options - Yet

From Teknos... No Sign of IRS Enforcement – Yet No one has seen any sign of the IRS moving to enforce the few provisions of IRC 409A which apply to issuing stock options (the sections pertaining to stock options fill only 6 of 138 pages in the final regulations). Why have we not heard anything about IRS enforcement? Because, like any new tax regulation, enforcement takes time. And it takes even more time for enforcement results to become visible to the community. Link Here

409A Changed the Way Business is Done in Hollywood

Causing "chaos." "

No more advances." No more "re-negotiations." Article from Venable Law Firm, here.

IRS Turns to 409A to Analyze Pension Retirement Tax Issues

A multiemployer pension plan, in an effort to permit employees to “retire” under an early retirement benefit before that benefit was eliminated, proposed to let eligible participants “retire” and then immediately return to work. In a private letter ruling, the IRS concluded these employees were not legitimately retired. In analyzing “retirement” for qualified pension plan purposes the IRS looked at Section 409A and other sources.

IRS Private Letter Ruling HERE

Article HERE

New App Brings Code and Regs to your Smart Phone

At long last, here is the link for bringing the Code and the Regs to your smartphone or tablet.

Prof. Polsky: 409A "Legislative Calamity"

Gregg D. Polsky (North Carolina), Fixing Section 409A: Legislative and Administrative Options, 55 Vill. L. Rev. ___ (2012):

This [article] ... describes the legislative calamity that is § 409A of the Internal Revenue Code. Section 409A manages, all at once, to (i) fail to better neutralize the tax treatment of deferred compensation with that of current compensation, (ii) impose significant compliance costs on sophisticated taxpayers, and (iii) provide a dangerous trap for unsophisticated taxpayers.
Ideally, Congress should repeal § 409A and replace it with a system that taxes deferred compensation more neutrally vis-a-vis current compensation. Failing that, Congress should either replace § 409A with a broad grant of authority to the Treasury and IRS to strengthen the constructive receipt and economic benefit doctrines or amend § 409A to limit its scope to employee compensation paid by public companies.

If Congress fails to act, the Treasury should interpret the term “compensation” as used in § 409A to include only compensation paid by public companies to their employees or directors. This arguably counter-textual interpretation of the statute creates the potential for whipsaw of the IRS by nonpublic companies and their employees, but this problem is outweighed by the benefits from cleaning up § 409A.

Article via Tax Prof Blog: Here

Roth CPA says "kill it" - Here

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

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

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

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

Article by EisnerAmper Here

Attorney Barker Shares the Roadmap for 409A Corrections

The secret recipe for 409A Corrections - HERE

Professor Lazar Urges Congress to Refrain from Regulating Executive Compensation

Buffalo Law Review Here

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

Article from Matt Armanino via AccountingToday.com

3rd Circuit Affirms Strange 409A Case

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

TV Show "Suits" Jokes about 409A

Hat Tip to xtreme Erisa blog.

New Regs on Deferred Comp for Non-Profits and Government

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

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

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

Article Here

409A Common Errors

Trucker Huss Article via Plansponsor.com

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

"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

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

Article by Greenstein, Rogoff, Olson & Co.

xtremErisa: Dividend Equivalent Rights and 409A

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."