The NASPP Blog

One More Year-End Action Item
It’s been over a year since Revenue Ruling 2008-13 went into effect, but because of the ruling’s generous transition provisions, calendar-year companies may not have amended their performance awards to comply with it. Time is running out to take care of this, so put it on your list of things to review with your comp committee now.

What the heck is Revenue Ruling 2008-13?
For compensation to be exempt from the limit on the corporate tax deduction imposed by Section 162(m), the compensation must be performance based. This is easy with stock options, which are considered inherently performance-based, so long as they aren’t granted at a discount. But awards of stock (not too mention cash compensation), are only performance based if they are payable solely upon achievement of performance goals.

Termination provisions in awards that allow for payout when the performance goals haven’t been met can be a problem, since the awards are potentially payable in the event of non-performance. IRS regs allow plans to permit payment in the event of death, disability, and a change-in-control. Actual payment upon the occurrence of one of these events would disqualify the payment in question from the performance-based exception under 162(m), but other awards under the plan would not be tainted.

Although the regs don’t address other types of terminations, private letter rulings had extended this treatment to involuntary terminations without cause and terminations for “good reason.” But a PLR released in early 2008 changed all this. The ruling stated that allowing payout upon termination without cause or for “good reason” would disqualify all awards (and other compensation) subject to this provision from being considered performance-based compensation under 162(m).

The ruling was particularly troublesome for stock award programs, which often include special provisions allowing full or partial payout for terminations without cause, terminations for “good reason,” and retirement, which ended up being included in the revenue ruling (see below).

The PLR immediately generated significant controversy–not too mention a whole slew of legal memos; see our alert “Surprise 162(m) Ruling from the IRS.” In response, the IRS codified the PLR in Revenue Ruling 2008-13, which also includes retirement among the terminations where payout cannot be allowed, and, more importantly, includes transitional provisions.

Why Now?
The ruling applies to performance periods that start after January 1, 2009. Most calendar year companies have performance periods that correspond with their fiscal year. Consequently, the performance period for this year’s awards would have started on January 1, 2009, grandfathering it under the ruling.

But next year’s awards will be subject to the ruling. So if you work for a calendar-year company that hasn’t addressed this issue (non-calendar year companies have probably already issued awards that are subject to the ruling), it’s time to get moving on it.  See our alert “Section 162(m) Year-End Action Items” for more information.

Vote for Broc and Dave!
Broc Romanek and David Lynn’s blog on TheCorporateCounsel.net was selected by the ABA Journal as one of the Top 100 Legal Blawgs. Readers can vote on their favorite blogs and we want Broc and Dave to win in the “Practice Specific” category, so we’re asking our readers to vote.  I know you all would vote for the NASPP Blog if you could, but we don’t count as a legal blog, so this is as close as you’ll come to voting for us. Come on, don’t make me beg!

Anyone can vote, you don’t have to be a member of the ABA, you just need to complete the free registration on the ABA Journal website. If you read and enjoy Broc and Dave’s blog–or even if you don’t–I hope you’ll vote for it.  BTW–if you have multiple email addresses, you can register and vote under each one. 

If you’ve never checked out the blog; it’s definitely worth a read. Unlike the lazy folks here at NASPP Blog, Broc and Dave manage to post an entry every day. And it’s free to anyone, whether you subscribe to TheCorporateCounsel.net or not. At a minimum, someone in your legal department should be reading it.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Don’t miss our Dec. 10 webcast, “Ask the Experts: Tax Reporting for Stock Compensation.”
• Complete this month’s Compliance-O-Meter quiz on Database Modifications.
• Purchase the NASPP Conference audio. 
• Attend your local NASPP chapter meetings in NY/NJ, Orange County, Phoenix, Sacramento, and the Twin Cities. 
• Renew your NASPP membership for 2010 (if you aren’t an NASPP member, join today). 

– Barbara