January 18, 2007

Senate Finance Committee Approves Limits on Executive Compensation

To pay for certain small business tax relief, the Senate Finance Committee yesterday approved legislation that would severely limit nonqualified deferred compensation for executives. Specifically, the “Small Business and Work Opportunity Tax Act of 2007” would:

– Amend Section 409A to limit the annual accrual of nonqualified deferred compensation to $1 million (or if less, the executive’s average annual compensation determined over five years ). Going over the cap would trigger ordinary income tax plus a 20% additional tax.

– Amend Section 162(m) to treat any former executives as continuing to be covered by the Section 162(m) limits with the effect that payments made after termination of employment would no longer be deductible by the company.

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FASB Votes Not to Delay FIN 48; Considers Defining ‘Ultimate Settlement’

FIN 48 is proving to be quite a challenge for many people, as discussed during our “Accounting Reform: How the Latest Developments Impact You” webcast last month. Remember that we have resources on this topic in our “Tax Uncertainties” Practice Area.

From the FEI “Section 404″ Blog: At its board meeting yesterday, the FASB board voted unanimously (7-0) not to delay the effective date of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). However, FASB will consider potential implementation guidance to be drafted by its staff and presented for the board’s consideration at a future meeting, on one particular issue: the definition of “ultimate settlement.”

FASB received over 400 comment letters on FIN 48 in the past month. FASB staff said most of the letters were from preparers or organizations representing preparers, most were signed by tax executives, and many were form letters referencing an early letter sent by the Tax Executives Institute. FASB also received comment letters from users of financial statements who asked FASB not to delay FIN 48.

In reaching its decision not to delay the effective date of FIN 48 (effective fiscal years begininng after 12/15/06), FASB considered the 3 main calls for delay as summarized by the FASB staff:

– Implementation issues arising directly from provisions of FIN 48 (for which they decided to have staff draft guidance to be considered at future board meeting on the meaning of ‘ultimate settlement’)

– Other consequences not directly associated with FIN 48’s provisions (including documentation, internal control, timing constraints and available tools)

– Industry or other entity-specific concerns

As noted above, FASB decided the staff should draft implementation guidance for FASB to consider on the definition of ‘ultimate settlement’ but staff said other implementation issues raised in comment letters had been dealt with by staff or did not lend themselves to further general guidance because they were facts and circumstances based. Since FASB directed the staff to “burn the midnight oil” and work as quickly as possible on the “ultimate settlement” guidance, they did not believe a delay in the effective date of FIN 48 was required due to this particular implementation issue.

John White on FPI Deregistration and Other Global Issues

Earlier this week, Corp Fin Director John White delivered this speech at PLI’s 6th Annual European Securities Law Institute. John covered a number of international topics, including foreign private issuer deregistration and global accounting convergence.