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December 12, 2006 Is the IRS listening?
Just as the corporate governance issues of Enron and WorldCom seemed to extend on for years, backdating continues to morph. Today the WSJ extended the backdating discussion with a front page article titled "How Backdating Helped Executives Cut Their Taxes". The article details how there is "strong statistical evidence that executives manipulated the exercise dates of their options as part of a tax dodge". Basically claiming that part of the backdating intention was to defer tax obligations. It seems that the WSJ and now the SEC will do the IRS's dirty work. The same sort of risk scenario that we have been concerned about with IRC 409A. By not electing a safe harbor under IRC 409A, companies may well be greatly exposed as "low hanging fruit" for the IRS served up by the SEC. Watching how the backdating/tax avoidance issue plays out will provide some interesting parallels for IRC 409A enforcement.
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