Month: June 2003

CFO.com has this article–” Stock Option Standoff: Bill would place three-year moratorium on revising employee stock option accounting; angry Herz says the move could impair FASB’s independence“–by Craig Schneider. According to the article, HR 1372, “The Broad-Based Stock Option Plan Transparency Act” introduced by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.) in March has gained nine new co-sponsors, since the hearing on the subject (discussed here) last week, bringing the total backers for the bill to 44. The article reports FASB Chairman Robert Herz as saying that intervention by Congress would appear to be inconsistent with the language and intent of the Sarbanes-Oxley Act and the related SEC Policy Statement, both of which were intended to enhance the independence of FASB. It also reports SEC Chairman William Donaldson as opposing legislation by Congress.

What do you think about the whole subject? Smart Pros provides this article–“The Accounting Cycle Here They Go Again! More political attempts to thwart good accounting“–by Edward Kertz. You can take a poll at SmartPros by clicking here.

This article at SeattleTimes.com by Mark Schwanhausser–“Accounting rules threaten worker stock-buying plans“–highlights how FASB’s proposals to expense stock options might be the death knell for employee stock purchase plans (“ESPPs”). The article reports that 10 to 15 million workers could potentially lose their benefits under these types of plans, if FASB’s proposals are adopted, and that executives at companies are re-examining their ESPPs to determine the effect that ESPPs could have on profits. One bank executive apparently learned, according to the article, that the bank’s ESPP could potentially wipe out $20 million in profits under the proposed accounting changes.

Today’s Federal register is here and contains the proposed incentive stock option regulations.

A parallel tax universe? Fortune.com has posted this very good article by Shawn Tully: “Taxpayer, Beware! Washington will soon be taking back a good chunk of that new tax cut. How? By using the sneakiest trap it’s got: the Alternative Minimum Tax.” The article discusses how many taxpayers may, under tax changes brought about by the Jobs and Growth Tax Relief Reconciliation Act of 2003, find themselves falling into the Allternative Minimum Tax (“AMT”) world despite the tax cuts. According to a recent study by the Urban-Brookings Tax Policy Center, 95% of families and individuals with incomes from $100,000 to $500,000 will fall into the AMT zone by 2010.

I guess none of us are really surprised at what this article at GreenvilleOnline.com by Brian Tumulty for the Gannett News Service reports on IBM’s motives for converting to a cash balance pension plan in the 90’s: “Documents reveal IBM’s reason for pension-plan change: saving money.” The U.S. District Court for the Southern District of Illinois is expected to issue a ruling within weeks on charges that the new pension plan, instituted in mid-1999, and an earlier one that took effect in 1994, discriminates against workers based on age. However, here’s what U.S. District Judge G. Patrick Murphy is reported to have said at a hearing on the case: “I’m not a priest,” the judge observed at one of the hearings. “I’m not here to look into the souls of the IBM people . . .”

It’s great to read news like this that some companies are reinstating bonuses and benefits that were cut during hard times. The article–“Novel idea: Happy people–Worker retention back in the picture“–by Karin Rives is at NewsObserver.com.

The Society for Human Resource Management has posted this article online: “Helping Employees Work With Their 401(k)s–Employers have many resources for helping employees manage retirement assets.“

Regarding the Jobs and Growth Tax Relief Reconciliation Act of 2003, Kilpatrick & Stockton LLP has posted this article–“Tax Points”–and BusinessWeekOnline via Chanel4000.com has posted this article: “What The Cuts Mean To You:
The Tax Reform Bill May Require A Major Rethinking Of Your Investment Strategy. Here’s A Rundown Of What The Changes Could Bring.”

SunGard at Corbel.com has posted this article regarding what to do if you receive a letter from the IRS assessing penalties ($25 per day) for the late filing of IRS Form 5500. The article recommends filing immediately with the DOL’s Delinquent Filer Voluntary Compliance (“DFVC”) program and paying the fine under the DFVC program ($10/day to a maximum of $750 ($2,000 for a large plan)) and then filing an amended IRS Form 5500, telling the IRS you have filed under the DFVC program. By taking this action, a plan sponsor can limit the DOL penalties that could also be imposed (without the DFVC filing, up to $1100 per day) and eliminate the IRS penalties entirely. IRS Notice 2002-23, provides that, if an employer is eligible for the DFVC program and files under the DFVC program satisfying the requirements of the program, the IRS will not impose a penalty. Although not mentioned in the article, please note that the DFVC program is not available to plans not subject to Title I of ERISA.

The IRS has issued this press release via Benefitslink, announcing that it has issued new proposed regulations governing incentive stock options (“ISOs”). Under the ISO rules, employees have the ability to acquire employer stock without realizing income when the option is exercised. If the employee holds the stock for a required period, any gains on the sale of the stock are capital gains. In addition to restating the existing rules, the new proposed regulations include updated rules addressing current issues and practices, such as rules pertaining to ISOs issued by limited liability companies and other entities that elect corporate tax treatment. The proposed regulations which can be accessed here via Benefitslink will apply 180 days after publication of the final regulations. Taxpayers may rely on these proposed regulations for any ISO granted after June 9, 2003.

See also this article at myStockOptions.com which discusses the tax advantages of ISOs under the new Jobs and Growth Tax Relief Reconciliation Act of 2003: “How The Bush Tax Cuts Affect Your Stock Option Planning” by Tom Davison (free registration required).