Author: jfortenberry@fortenberrylaw.com

Sutherland reports here on the opinion issued in the Caterpillar case last week and notes that it is the eleventh ERISA revenue-sharing case that a district court has declined to dismiss on the pleadings.

Very interesting paper from the University of Chicago: The Intergenerational Transfer of Public Pension Promises. Abstract:

The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.

From the Wall Street Journal:

The Internal Revenue Service significantly relaxed the rules governing how U.S. corporations can repatriate cash parked overseas, in yet another government move to ease the credit crisis.

The ruling, issued late Friday, allows companies to bring back money for months at a time without incurring the 35% corporate income tax they normally would owe.

More from the New York Times here.

From Bloomberg: U.S. Eases Tax Rule to Open Offshore Cash `Spigots’

See Notice 2008-91 for more info.

AutoBlogGreen has some info about the credits here.

Instapundit asks: Do you get a credit if you do your own conversion to plug-in?

Joe Kristan has a good post on “How the refundable AMT credit works” in an example involving incentive stock options here. He discusses the dangers of ISOs and AMT in a volatile market:

The bottom line? Our reader has to do some thinking on whether the savings of having capital gain treatment of ISOs is worth both the market risk on his stock and the high possibility of having to wait until 2012 to recover taxes due in 2008 if he retains ISO treatment. If the stock goes to zero before he sells it, he has a $420,000 AMT liability and no cash.

(1) Executive Compensation Limitations for Troubled Asset Relief Program (“TARP”) Participants:

Direct Purchases—Where the Secretary determines that the purposes of the Act are best met through direct purchases from an individual financial institution where no bidding process or market prices are available and the Secretary receives a meaningful equity or debt position in the financial institution as a result of the transaction, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance. The standards under this section shall be effective for the duration of the holding by the Secretary of the equity position.

Criteria for Standards:

1. General rule: Limits on compensation to exclude incentives for executive officers to take unnecessary and excessive risks that threaten franchise value during such participation.

2. Clawback: A provision for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains , or other criteria that are later proven to be materially inaccurate; and

3. Golden parachute: A prohibition on the financial institution making golden parachute payment to its senior executive officers.

For participants in TARP auctions who sell $300 million in assets, or whose combined assistance from direct purchases and auctions reaches $300 million, there will be limits on golden parachutes and the tax deductibility of executive compensation:

1. Limits on tax deductions. Executive compensation in excess of $500,000 is not deductible, and the definition of executive compensation is expanded to include performance pay and stock options.

2. Golden parachutes tax penalties. Current golden parachute tax regime are expanded to apply to existing employee contracts—a 20% excise tax applies to parachute payments a (normal 3 times salary rule) triggered by termination other than by retirement of the employee, including involuntary termination of the employee, change in control or bankruptcy of the company. The employer would lose the corresponding deduction on the parachute payment.

3. Golden parachutes prohibition. Golden parachutes will be prohibited prospectively for the top 5 executives in the case of termination, or in the case of bankruptcy, insolvency, or receivorship of the financial institution

(2) Extension and Modification of AMT Credit Allowance Against Incentive Stock Options (ISOs):

Many companies offer ISOs as compensation. Under the regular tax, ISOs are not taxed upon exercise. Under the AMT, however, a taxpayer must pay tax on the stock value when the option is exercised. The economic downturn in 2000 resulted in many individuals having to pay tax on “phantom income” because the stock prices dropped dramatically since the date of exercise. In 2006, Congress provided relief for these situations, but additional relief is needed to correct this problem. Under current law, an individual is allowed a refundable AMT credit amount that is the greater of (1) the lesser of $5,000 or the unused AMT credit amount or (2) 20 percent of the unused AMT tax credit. The AMT credit amount is reduced for those with adjusted gross income (AGI) above $150,000 (joint filers) and $100,000 (single filers). The bill allows 50% of long-term unused minimum tax credits to be refunded over each of two years instead of 20% over each of five years, eliminate the income phase-out, and abates any underpayment of tax outstanding on the date of enactment related to ISOs and the AMT including interest.

(3) IRA Rollover Provision:

The Pension Protection Act of 2006 (PPA) created a provision allowing taxpayers to make tax-free contributions from their IRA plans to qualified charitable organizations. This tax benefit expired on December 31, 2007. The bill would extend the provision through 2009. The bill is effective for distributions after December 31, 2007.

(4) Easing of Loan Limits for Qualified Plans in Midwestern Disaster Area:

The bill effectively doubles the limitation on loans from a 401(k), 403(b), or a governmental 457(b) plan by allowing participants located in a Midwestern disaster area and who sustained economic loss by reason of the tornadoes and floods giving rise to the designation of the area as a disaster area to receive loans up to the lesser of $100,000, or 100 percent of the vested accrued benefit for loans made after the date of enactment and before January 1, 2010. In addition, outstanding loan payments due on or after the applicable declaration date and before January 1, 2010 may be deferred an additional 12 months, with appropriate adjustments for interest.

(5) Current Inclusion of Deferred Compensation Paid by Certain Tax Indifferent Parties under new Section 457A:

Section 457A would impose significant restrictions on techniques commonly used by managers of offshore hedge funds to defer fee income. The restrictions would generally apply to deferred compensation attributable to services rendered after 2008. Read about the provision in this Akin Gump Tax Alert.

(6) Mental Health Parity Provisions:

The bill does not mandate group health plans to provide mental health coverage. However, if a plan does offer mental health coverage, then, it requires:

Equity in financial requirements, such as deductibles, co-payments, coinsurance, and out-of-pocket expenses.

Equity in treatment limits, such as caps on the frequency or number of visits, limits on days of coverage, or other similar limits on the scope and duration of treatment.

Equality in out-of-network coverage.

Effective Date: The provisions apply to group health plans for plan years beginning after the date that is 1 year after the date of enactment regardless of whether regulations have been issued to carry out the amendments by the effective date (except that the amendments made by subsections (a)(5), (b)(5), and (c)(5) of the Act relating to striking of certain sunset provisions are to take effect on January 1, 2009).

Some comments on the bill here and here.

From MarketWatch: “Money funds struggled before Reserve fall: More than a dozen other funds needed rescue as credit crisis deepened.” Excerpt:

When money market fund provider The Reserve announced on Sept. 16 that its flagship Primary Fund had “broken the buck” and was worth less than $1 a share, the shock was so great that within days investors had pulled more than $120 billion from money funds.

But what investors most likely didn’t realize was that for the past year more than a dozen money funds have found themselves in similar situations, only to be rescued by their parent companies. . .

According to the SEC’s Web site, there have been 18 requests in the past year to bail out troubled money market funds.

Good article here from Pension & Investments: “DOL: Plan fiduciaries must value alts accurately.“

From the Wall Street Journal: “House Passes Bailout Bill.”

UPDATE: Already signed into law by President Bush.

The Tax Prof Blog has all the links here.

C-SPAN is streaming the debate online here. Also, there is a running blog on the debate here.