November 23, 2005

Senate Acts on Personal Use Of Corporate Aircraft

Last Thursday, the US Senate added an amendment to a broader tax bill approved by the Senate that would require all employees – not just officers – to pay tax on the company’s actual cost of providing them personal travel on corporate aircraft. This Dayton amendment isn’t part of a tax bill that is now pending in the House of Representatives. After the House passes its version, the two bills would go to a conference committee to be reconciled before being presented to the President for his approval.

Senator Dayton’s proposed amendment to the Code would require the inclusion in income to the employee of the greater of the fair market value or actual cost of such use (less any payment made by the executive, which is severely limited under Part 91 of the FARs). Senator Dayton’s amendment would presumably eliminate the non-commercial aircraft valuation rules of Treasury Regulation 1.61-21(g). [Interestingly, in arguing in favor of his amendment, Sen. Dayton cited this article from the WSJ, which showed a pattern of CEOs traveling on their company jets to play golf. This illustrates how the media plays a role here.]

In short, the days of using the “SIFL” rates to value personal use of employer-provided aircraft would come to an end – and the modest income attributable to personal use flights would grow significantly. The benefit to the company from this would be that, since a large number is being included in the executive’s compensation, it is likely that the entertainment disallowance to the company would be reduced, if not eliminated. Even if the proposed changes are not enacted into law, it seems likely that some Congressionally crafted changes will be passed eventually. Thanks to Stewart Lapayowker of Akerman Senterfitt for helping sort through this!

SEC Issues Draft RFP for EDGAR

Yesterday, the SEC issued a press release about a draft RFP that contemplates a significant, multi-year project to update EDGAR. The last RFP for EDGAR was back in 1998 – and even though the current EDGAR contract doesn’t expire until later next year, buying anything under federal procurement rules takes a long time.

The question is whether the SEC will select a new contract that places a large burden on companies or will they try to do something that can be done internally without issuer burden. As I blogged recently, I get a little nervous about constant talk about the need for “interactive data.” That suggests companies would have to create it.

One thing that could come out of this new contract is some sort of new “Financial Data Schedule.” This might be a template (perhaps with XBRL tags in the background) that would permit automated analytics of financial statements by both the SEC and analysts. Many of you will recall how a Financial Data Schedule was eliminated a few years back due to its uselessness – but one could be created with more value this time around.

One tension in all this is the differing needs of investors, analysts and regulators. I am not convinced that interactive data will help analysts much because they each seem to have their own approaches to normalizing and organizing corporate reports. Something like XBRL may help a bit, but it is far from an automated solution for them.

On the other hand, regulators need flags to go up or bells to ring that point them in a particular direction that allows them to better target their resources. They can dig in after the flag goes up and take it from there – more like the IRS. Again, XBRL might help – but it is not an automated solution for them either. If companies will be asked to bear most of the costs necessary to create interactive data, the benefits for the marketplace should be clearly shown.