Backdating Returns to the Spotlight

Backdating Returns to the Spotlight - 7/27/2009

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2009 News and Press Releases

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News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Backdating Returns to the Spotlight, The IRS Released New Tax Guidance This Month Related To So-Called Backdated Stock Options. But Discounted Options Are Still Not Considered "Qualified Performance Based Compensation."
Robert Willens

CFO.com. July 27, 2009
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EXCERPT: In 2006, the Internal Revenue Service became aware of instances in which stock options were granted with exercise prices that were less than the fair market value of the stock on the date of grant. In many cases, this discount resulted from a discrepancy between the purported grant date (on which date the strike price of the option and the stock price were identical) and the actual grant date (on which date the strike price of the option was below the applicable stock price). In some cases, in which the executive had already exercised the option, the employer attempted to "reprice" the option by obtaining a "voluntary" repayment from the executive in the amount of the discount. In cases where the executive had not yet exercised the option, the executive agreed to an increased share price based upon the value of the stock on the actual grant date. 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. Applicable Employee Remuneration The tax code, specifically Section 162(m)(1), states that for any publicly-held corporation, no deduction is allowed for applicable employee remuneration with respect to any covered employee to the extent that the amount of such remuneration for the taxable year exceeds $1 million. However, under Section 162(m)(4)(C), applicable employee remuneration does not include remuneration payable solely on account of the attainment of one or more "performance goals."

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