Corporate Finance Law Blog : Corporate Finance Lawyer & Attorney : Davis Wright Tremaine Law Firm

In a major smart grid development, the Internal Revenue Service yesterday released guidance (Rev. Proc. 2010-20) providing a safe harbor under which the $3.4 billion in Smart Grid Investment Grants (SGIGs) made pursuant to the American Recovery and Reinvestment Act (ARRA) will not be taxable to corporate recipients. After months of uncertainty, this determination will allow corporate recipients to finalize their grant agreements with the Department of Energy (DOE) and launch their investments without concern that they will be subject to federal taxation.

This guidance provides that the IRS will not challenge a corporation’s treatment of an SGIG as a nonshareholder contribution to the capital of the corporation so long as the corporation properly reduces the tax basis of the property it acquires with the grant (or other property owned by the corporation). Nonshareholder contributions to capital are not included in a corporation’s gross income for federal income tax purposes. This guidance is effective immediately and will allow DOE to begin finalizing grant agreements with the various utilities, private companies, manufacturers and others who have been authorized to receive these grants.

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Check out this informative presentation by DWT partner Jim Wreggelsworth on carried interest:  STORM CLOUDS ON THE HORIZON: AN UNCERTAIN FUTURE FOR TAXATION OF CARRIED INTERESTS (PPP).

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By Patrick J. Green and John A. DiLorenzo, Jr.

With the Jan. 26, 2010, passage of Measure 67 in Oregon, taxes on corporations with sales in the state will increase retroactively to 2009. C corporations will pay a higher minimum tax and higher corporate income tax on income in excess of $250,000. Other business entities will pay an increased minimum tax regardless of profits.

This advisory provides a brief analysis of Measure 67's implications and describes a strategy for tax reduction for businesses operating as C corporations.

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By Dipa N. Sudra

Failure to comply with COBRA and other health and welfare plan rules can trigger heavy excise tax penalties. In the past, those penalties were rarely assessed and employers could quietly fix their own problems. Now, however, you may have to report your own problems and assess these taxes on yourself.

On Sept. 8, 2009, the Internal Revenue Service (IRS) issued final regulations regarding new reporting requirements. Starting in 2010, employers (and certain third parties) must self-report and pay excise taxes for failing to comply with the following:

1. COBRA
2. HIPAA portability, access, renewability and nondiscrimination rules
3. The Genetic Information Nondiscrimination Act (GINA)
4. Mental health parity rules
5. Minimum hospital stays under the Newborns’ and Mothers’ Health Protection Act
6. Continued group health plan coverage of postsecondary dependent children on a medically necessary leave of absence under Michelle’s Law
7. Health savings account (HSA) comparable employer contributions rules
8. Archer medical savings account (MSA) comparable employer contributions rules

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The Energy and Commerce Committee passed its health care bill today.  You can read a copy here.

The Joint Committee on Taxation wrote a helpful description of the tax provisions in the bill which was the precursor to this bill.  You can find that analysis here.

Under the proposed bill, employers will either have to provide health care insurance or pay a penalty equal to 8% of the wages paid to employees (not capped).  This 8% tax would be in addition to FICA taxes.

A good place to read H.R. 3200 is at Thomas.gov; link to bill here.

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"WASHINGTON, D.C. – The House Committee on Ways and Means today passed H.R. 3200, the America’s Affordable Health Choices Act of 2009, by a vote of 23-18....These provisions will be merged with provisions currently under consideration in the Committees on Energy and Commerce and Education and Labor for consideration by the full House of Representatives in the coming weeks."

The text of H.R. 3200, the America’s Affordable Health Choices Act of 2009.

The individual income tax surcharge provisions are quoted below.

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The U.S. House of Representatives released the text of its healthcare reform bill today.  You can find a copy of the bill at this link.  The bill is over 1,000 pages, and so it will take some time before it can be completely analyzed.  With respect to individual income taxes, the bill proposes a surcharge on taxpayers other than corporations as follows:

• 1% of so much of the modified adjusted gross income of the taxpayer as exceeds $350,000 but does not exceed $500,000;
• 1.5% of so much of the modified adjusted gross income of the taxpayer as exceeds $500,000 but does not exceed $1,000,000; and
• 5.4% of so much of the modified adjusted gross income of the taxpayer as exceeds $1,000,000.

For taxpayers other than those making joint returns or a surviving spouse, the above dollar amounts are adjusted as follows:

• to 50% of the dollar amount in the case of a married individual filing separately; and
• to 80% of the dollar amount in every other case.

The 1% surcharge goes to 2%, and the 1.5% surcharge goes to 3% for tax years after December 31, 2012, if certain health reform savings are not realized; but the 1% and 1.5% surcharges go away in their entirety and do not increase to 2% and 3% respectively after December 31, 2012, if savings in excess of $175 billion are realized.

 You can also find coverage of this at TaxProfBlog.  See also the New York Times ("Employers who don't provide coverage would be hit with a penalty equal to 8 percent of workers' wages with an exemption for small businesses. Individuals who decline an offer of affordable coverage would pay 2.5 percent of their incomes as a penalty, up to the average cost of a health insurance plan.")

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 We have previously blogged about the Obama administration's proposal to cap personal deductions for high income taxpayers at 28%.  According to the New York Times, this proposal did not make it into the budget.  Good news for high income taxpayers and charities.

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By Pamela Charles

 H.R. 1, the American Recovery and Reinvestment Act of 2009 was signed into law by President Obama on February 17, 2009

I.    Selected Business Provisions

A.   Bonus Depreciation Extended Through 2009

Prior law provided an additional depreciation deduction equal to 50% of the adjusted tax basis of qualified property placed in service in 2008 (or in 2009 for certain longer-lived and transportation property) in addition to the generally applicable depreciation deductions.  Qualified property is generally any property (1) to which the MACRS rules apply that has a recovery period of 20 years or less, certain computer software, water utility property and qualified leasehold improvements, (2) the original use of which begins with the taxpayer after December 31, 2007, and (3) that is acquired during 2008. Corporate taxpayers were provided with an election to increase their general business credit (including R&D credit) or AMT credit limitation by the bonus depreciation amount in lieu of claiming the additional bonus depreciation deduction.  The bonus depreciation amount is 20% of the amount by which the depreciation deduction calculated with bonus depreciation exceeds the depreciation deduction otherwise allowed.

The Act extended the placed-in-service date for property eligible for 50% bonus depreciation to 2009 (2010 for certain longer-lived and transportation property).  In addition, the Act extended the election to increase the general business credit or AMT credit limitation in lieu of claiming bonus depreciation to apply to property placed in service in 2009 (or 2010 for certain longer-lived and transportation property).

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From the Wall Street Journal: The Obama administration has proposed, beginning in 2011, to cap personal deductions for high income taxpayers (families with more than $250,000 in income) to 28%.

Yesterday, the Wall Street Journal reported that the Obama Administration appears flexible on this point and may in fact back be willing to back down on it or modify it.  We will keep you posted as we hear more.

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The Wall Street Journal is reporting that the Obama administration has proposed the following type of federal income tax increase to fund one of its health care proposals: A limit on the value of deductions to higher income tax bracket taxpayers based on a maximum tax rate of 28%.  For example, if you are in a tax bracket higher than 28%, your deduction would be limited to the amount of the deduction that you would have been entitled to had you been in the 28% tax bracket.   Usually the value of the deduction is the amount of the deductible items times your tax bracket.  So if you paid $1,000 in deductible interest and you were in the 35% tax bracket, your deduction would reduce your taxable income by $350.  Under the Obama proposal, the value of your deduction would be limited to $280.

More information on this in the Wall Street Journal.

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The Washington Post is reporting some details on what Obama's first budget will do with respect to taxes.  The current speculation is as follows:

• it will allow the temporary tax cuts of 2001 and 2003 to expire and not be re-enacted;
• families earning more than $250,000 per year will see their tax rates rise;
• the top individual income tax rate will rise from 35% to 39.6%;
• capital gains tax rates will increase to 20% for wealthy tax filers; and
• for hedge funds, carried interest will be taxed as ordinary income, not capital gains.

I have not heard anything yet with respect to the FICA wage base cap and whether that will be repealed entirely or in part.

Of course, this is preliminary.  We will report more as we learn more.

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Section 118 of the Internal Revenue Code excludes from gross income contributions to capital.  However, when is a government grant to a corporation in exchange for a promise to relocate or expand facilities a contribution to capital excluded from gross income rather than a taxable payment for services?

In Private Letter Ruling 200901018, the IRS provides guidance on this issue.  In that letter ruling, a corporation received a grant from a state in exchange for its commitment to expand its business by establishing a facility in a particular location, to begin and be completed by specified dates.

The IRS applied the requirements specified in United States v. Chicago, Burlington & Quincy Railroad Co., 412 U.S. 401 (1973), to conclude that in this case the grant was a nontaxable contribution to capital.  Those requirements are:

• the funds must become a permanent part of the transferee corporation's working capital;
• the contribution must not be compensation for specific, quantifiable service provided for the government by the transferee corporation;
• the contribution must be bargained for;
• the funds transferred must result in benefit to the transferee corporation in an amount commensurate with its value; and
• the contributed assets will ordinarily be employed in or contribute to the production of income.

Not all government grants fall within these guidelines.  The IRS recently issued guidance in which it determined that a state tax credit did not meet these guidelines.  You can review that guidance here.

See also IRS Notice 2003-18.

 

 

 

 

 

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I was recently asked if a company had to obtain an independent, third party appraisal in order to grant stock options in compliance with Internal Revenue Code Section 409A, which generally requires that stock options be granted at fair market value or be subject to a 20% excise tax.  The answer is no, a third party appraisal is not required. 

"The final regulations adopt the provisions in the proposed regulations relating to the valuation of stock not readily tradable on an established securities market, subject to the modifications discussed in this section III.C.4.c. Accordingly, a valuation of stock based upon a reasonable application of a reasonable valuation method is treated as reflecting the fair market value of the stock. To meet this standard, it is not necessary that a taxpayer demonstrate that the value was determined by an independent appraiser. Where the taxpayer can otherwise demonstrate that the valuation was determined by the reasonable application of a reasonable valuation method, the standard will be met."

See the Final Regulations. That is not to say that an independent appraisal may not be advisable or worthwhile.  In fact, if done in the manner specified in the final regulations, a valuation will create a presumption that the valuation of the stock reflects the fair market value of the stock, which presumption is only rebuttable by a showing that the valuation is grossly unreasonably.

 

"The final regulations adopt a presumption in specified circumstances that, for purposes of section 409A, a valuation of stock reflects the fair market value of the stock, rebuttable only by a showing that the valuation is grossly unreasonable. The presumption applies where the valuation is based upon an independent appraisal, a generally applicable repurchase formula (applicable for both compensatory and noncompensatory purposes) that would be treated as fair market value under section 83, or, in the case of illiquid stock of a start-up corporation, a valuation by a qualified individual or individuals applied at a time that the corporation did not otherwise anticipate a change in control event or public offering of the stock."

 

 

 

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"Notice 2008-113 gives taxpayers the ability to correct certain operational failures to comply with section 409A of the Internal Revenue Code, or to limit the amount of additional taxes due to the failure to comply with section 409A. Section 409A provides rules governing the taxation of nonqualified deferred compensation plans. The notice expands upon and clarifies the program announced last year in Notice 2007-100, 2007-52 IRB 1243. Notice 2008-113 will appear in IRB 2008-51, dated December 22, 2008."  

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Published by DWT's Employee Benefits Group

As noted in prior DWT advisory bulletins, the IRS has repeatedly extended the deadline for amending plan documents to comply with Section 409A. Although most employers have already completed any needed plan amendments, or are well on their way to completion, there is still time (but just barely) for those who may have delayed taking action. In short, if you have put off your 409A compliance until the last minute, it is now the last minute.

For a summary of steps that should be taken, see our prior advisory bulletin. If you need assistance, contact one the attorneys below without delay. 

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"Under current law, the interest on a car loan is not tax deductible. Senator Mikulski’s plan will change this, making interest payments on car loans and state sales/excise car tax-deductible for new cars purchased between November 12, 2008 and December 31, 2009. This deduction is “above-the-line” meaning it can be taken by both itemizing and non-itemizing tax payers. The plan is targeted so that only families making less than $250,000 a year, or individuals making less than $125,000 annually, qualify for the full deduction. Under this plan, a family would save about $1,553 on a $25,000 car, and about $2,500 on a $35,000 car. For more information on Senator Mikulski’s proposed legislation, go to: http://mikulski.senate.gov/_pdfs/Press/autoownershiptaxamendment.pdf."

You can read the Senator's press release here.  I just wish her plan didn't end after 1 year and didn't phase out for higher income taxpayers...but these are just my personal opinions...

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Speculation about this in U.S. News & World Report.

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From the New York Times:  "some people think that a carried-interest tax increase could be put back on the table."  See also this article in PEHUB.

What I haven't seen written about in the various tax articles that have been written recently is how state and local tax increases will affect contemplated federal tax hikes.  Both California and New York City are considering income tax hikes.  Since state and local income taxes are deductible for federal income tax purposes, if state and local governments across the country raise income taxes this could reduce the federal revenues expected to be derived from federal income tax hikes, which might necessitate higher federal income tax hikes than previously contemplated.

 

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It would appear that everyone is expecting that this tax "break" or "loophole" will be closed.

There were a number of articles to this effect written today, including one in CNNMoney, and another at GlobeSt.com.

It will be crucial to the venture capital industry and the real estate industry that any modification to the tax law to take away the carried interest tax "break" for larger institutions (where there is perceived executive compensation excesses) does not inadvertently or intentionally capture venture capital and real estate partnerships as well.

We will keep you posted.

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The Committee for a Responsible Federal Budget has released a helpful guide to current tax policy and how it might change depending on who is elected.  You can find the guide here.  Regardless of who is elected, taxes are going to be a top legislative priority next year.  The guide is helpful to understanding current law, including which tax rates are currently set to expire and when.

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"The question is whether the $ amount that Taxpayer paid to the three plaintiff states should be considered an ordinary business expense or a non-deductible penalty. The answer to this question turns on whether the payment was meant to cover the actual damages that the plaintiff states allegedly incurred through the defendant’s conduct, or if the payment is meant to be a punitive measure to discourage future anti-competitive behavior."

"The settlement document does not explicitly allocate the money into one category or the other. However, the Federal statute as well as the State X statute that the suit invoked speak only of fines, not of damages. Additionally, the amount that Taxpayer paid was below the maximum that either act allows for a penalty. Presumably, then, all settlement money that flowed to State X is non-deductible, all of it having been paid as penalty. State Y and State Z law are less clear about whether an anti-trust monetary judgment is a penalty or simple damages. However, the fact that those states also filed their complaint under federal anti-trust statutes, and the amount that Taxpayer paid was well within the penalty limits of that law, means that the payment can reasonably be treated as a penalty."

"Furthermore, the plaintiffs’ complaint specifically requests civil penalties, at paragraph 51, while it does not specifically request compensatory damages anywhere. It would be inconsistent with the relief requested to assume that the Taxpayer’s $ amount 1 payment constituted deductible damages."

"Taxpayer may argue that the payment was compensation for damages in the three states, or that it was an amount paid outside of anti-trust law to settle the suit. It may point to the fact that the settlement does not admit any wrongdoing on the company’s part. The admission of wrongdoing is not necessary for IRC 162(f) to apply; all that is necessary is that the payment be most properly characterized as a penalty. Here, Taxpayer paid $ amount 1 to settle anti-trust allegations, and had Taxpayer been found liable for these allegations, it would have been subject to a fine of up to $10 million."

You can read the guidance here.

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Section 201 of the Emergency Economic Stabilization Act of 2008 extends the life the state and local tax deduction for two years, until January 1, 2010. 

Section 201, in all its glory, reads as follows:  "(a) IN GENERAL.—Subparagraph (I) of section 164(b)(5) is amended by striking ‘‘January 1, 2008’’ and inserting ‘‘January 1, 2010’’.  (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2007."

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From the press release announcing this:

"Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) today announced an agreement with the Senate’s Democratic and Republican leadership to move legislation accomplishing the Finance panel’s remaining major objectives for the year: passage of clean energy tax incentives, the protection of millions of Americans from the alternative minimum tax (AMT), and extensions of expiring family and business tax cuts. Last week, Baucus and Grassley unveiled a $40 billion package of clean energy tax incentives for Senate consideration this month. Today, the Finance leaders combined key objectives of that legislation with an agreement to update alternative minimum tax rules and continue tax cuts for college tuition, state and local sales taxes, and research and development for U.S. businesses. Senators should vote this week on amendments to replace the current text of H.R. 6049, energy tax legislation approved in the House of Representatives earlier this year."

 

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"OLYMPIA, Wash., Sept. 8, 2008 — Purchases of new clean alternative fuel vehicles and hybrids that get at least 40 miles per gallon highway will be exempt from sales tax beginning Jan. 1, 2009.

The exemption was enacted by the Legislature in 2005 with a delayed effective date.  The exemption is effective through Dec. 31, 2010.  It includes the 0.3 percent motor vehicle sales tax."

This is good news.  You can find more information about this here.

For more information about electric cars in the Seattle area, see also the web site for the Seattle Electric Vehicle Association.  

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"With passage of Substitute Senate Bill 5089 (“Streamlined Sales Tax”), Washington changed from an origin-based system for local retail sales tax to a destination-based system effective July 1, 2008."

For more information on this, see here.

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"When a partner contributes property to a partnership which has increased or decreased in value, the property has an inherent built-in gain or built-in loss that arose during the period in which the partner owned the property outside of the partnership. Thus, at the time of contribution, the property has a tax basis to the partnership that differs from its fair market value (FMV). As was discussed in Chapter 1, the property’s FMV at the time of contribution is what is called the “book value.”  Where the “book value” (FMV at contribution) and the “tax basis” (basis carried over from the contributing partner) differ, the property is referred to as “section 704(c) property.”

"The goal of IRC section 704(c) is to prevent the shifting of tax consequences (gain, loss, and deductions) with respect to appreciated or depreciated property contributed by a partner to a partnership. It upholds the assignment of income principle by requiring the contributing partner to be taxed on the portion of the gain or loss that arose prior to the property’s contribution to the partnership."

http://www.irs.gov/businesses/partnerships/article/0,,id=134692,00.html

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Nice summary of a proposed California ballot initiative on TaxProf Blog today.  Text of the summary below. 

Wealth Tax. Constitutional Amendment and Statute.
Summary Date: 08/04/08 Circulation Deadline: 01/02/09 Signatures Required: 694,354

Proponent: Paul McCauley

Imposes one-time tax of at least 55% on property exceeding $20 million of a California resident or held in California by nonresident. Imposes one-time tax (between 36.5% - 54.3%) on income exceeding $10 million when resident dies or leaves California. Imposes additional 17.5% tax on total incomes of taxpayers with income exceeding $150,000 if single, $250,000 if married; 35% if incomes exceed $350,000 if single, $500,000 if married. Creates tax credits. Requires State to acquire shares of specified corporations to influence environmental practices. May exempt new revenues from education funding requirements. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: One-time increase in state revenues potentially in the low hundreds of billions of dollars from imposition of a wealth tax, and ongoing increase in state revenues potentially in the billions of dollars from imposition of the tax on certain people dying or leaving the state. This revenue would be allocated to accomplish various goals related to environmental protection. Potential annual net increase in personal income tax revenues in the tens of billions of dollars annually. The first $7.5 billion annually would be allocated to the state General Fund with additional revenue allocated for environmental protection. Unknown state and local revenue reductions – potentially in the tens of billions of dollars annually – due to changes in taxpayer behavior. (Initiative 08-0012.) (Full Text)

 

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You can find a text of this new law here.

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You can view the report here. 

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The potential effects of Senator Obama's tax proposals are now starting to be discussed in the mainstream media.  I thought this piece was especially interesting.

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June 26, 2008

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By Randy Gainer

The Washington Supreme Court ruled in a unanimous decision today that the City of Seattle may not tax Comcast's cable Internet service as a telephone business. The decision, Community Telecable of Seattle et al. v. City of Seattle, reverses a 2006 decision by the Washington Court of Appeals. The lower court had ruled that the City could tax Comcast's cable Internet service at the telephone business rate because cable Internet service includes a data transmission component and the definition of “telephone business” includes, among other things, data transmission over cable and telephone lines. The Supreme Court rejected the lower court's reasoning, observing that Comcast transforms and manipulates data rather then merely transmitting it and holding that the transmission component of Internet service cannot be separated from the other parts of the service. Continue reading...

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The State of New Jersey is now actively imposing the New Jersey Corporation Business Tax on software licensors with customers in New Jersey, but who otherwise have no other contacts in New Jersey.  The state's logic is that software licensors retain titles to the programs they license, including the copyright, and therefore employ or own capital or property in New Jersey.

The State of New Jersey has a long-standing regulation which subjects a foreign corporation to income tax in New Jersey if the corporation is doing business and employing property in New Jersey.  The New Jersey tax division does not believe that this violates the Commerce Clause of the U.S. Constitution and is not in conflict with Quill v. North Dakota, 504 U.S. 298 (1992).

The New Jersey tax division is relying on the Appellate Division of the Superior Court of New Jersey's decisions reversing the judgment of the New Jersey Tax Court in Lanco, Inc. v. Director, Division.  According to the New Jersey tax division, the physical presence requirement applicable to the sales and use tax is not applicable to the income tax and that the New Jersey Business Corporation Tax can be constitutionally applied to income derived from licensing fees attributable to New Jersey. 

In conclusion, according to the New Jersey tax division, software publishers who knowingly license software to New Jersey situs customers have nexus and are therefore required to file New Jersey Corporation Business Tax returns and remit tax based on their in-state activity, in accordance with the apportionment rules in N.J.S.A. 54:10A-6(B)(5) and N.J.A.C. 18:7-8.11.

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January 17, 2008

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By Kathleen Poole

Starting this year, the California Earned Income Tax Credit Information Act requires employers to notify all California employees that they may be eligible for the federal Earned Income Tax Credit (EITC). The purpose of the Act is to facilitate the ability of the working poor to claim EITCs—and, correspondingly, to increase the share of the federal money that California receives under the program. Continue reading...

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The President has signed the Internet Tax Freedom Act, extending the moratorium on Internet access taxes for 7 more years.

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The IRS has issued Notice 2007-86, which provides additional transition relief under Section 409A.  Notice 2007-86 will appear in IRB 2007-46 on November 13, 2007.  In general, the additional relief extends until December 31, 2008, the previous transition relief that was scheduled to expire at the end of this year.

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96 law firms have written another letter to the IRS asking for more time on 409A compliance, even after the IRS responded favorably (at least in some respects) to the first request.

Again, this demonstrates the complexity of this area.  We are happy to assist you with compliance.

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The Internet Tax Nondiscrimination Act, which as previously titled (the Internet Tax Freedom Act) originally became law in 1999, and has twice been extended, is set to expire on November 1 of this year.  The act prohibits taxes on Internet access and multiple or discriminatory taxes on Internet commerce.  Congress is considering a number of alternatives, from extending the act for another fixed period, to making it permanent, but it does not appear that Congress will act before the deadline (although they could act later and make whatever law passes effective as of November 1).  We will keep you updated on developments.

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By Stuart Harris

In newly issued Notice 2007-78 (see also the press release), the IRS sets Dec. 31, 2008 as the deadline for amending documents to comply with Section 409A; however, the extended deadline does not apply to a plan’s obligation to designate, in writing, the timing and form of payment of current benefits, which for existing deferred compensation amounts must be done no later than Dec. 31, 2007. Similarly, the Notice does not extend the requirement to operationally comply with the final 409A regulations beginning Jan. 1, 2008. Continue reading...

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This week the IRS issued:

• final regulations on partnerships and qualified small business stock; and
• final regulations on the treatment of qualified subchapter S subsidiaries and single-owner eligible entities that are disregarded from their owners for employment tax and certain excise tax reporting puproses.  These regulations generally treat disregarded entities as separate entities for employment tax reporting purposes.

 "The final regulations clarify that the separate entity is treated as a corporation for purposes of employment taxes and related reporting requirements. As provided in the proposed regulations, a disregarded entity continues to be disregarded for other Federal tax purposes. The final regulations clarify that an owner of a disregarded entity treated as a sole proprietorship is subject to taxes under the Self-Employment Contributions Act (SECA)...."

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Revenue Ruling 2007-49 resolves long standing uncertainties over whether a Section 83(b) election is required to be filed when restrictions are imposed on substantially vested stock causing that stock to become substantially nonvested.  This is not an uncommon situation in venture financing transactions in which the investors require that founders subject some of their founder shares to vesting.

The revenue ruling addresses 3 situations. In Situation 1, the restrictions are imposed in the absence of an exchange of stock.  In Situations 2 and 3, the restrictions are imposed in connection with a stock exchange.  In Situation 2, the exchange is a tax-free reorganization.  In Situation 3, the exchange is a taxable transaction. 

This revenue ruling holds that if the imposition of restrictions on substantially vested stock, which causes such stock to become substantially nonvested, occurs in the absence of an exchange of stock, the substantially nonvested stock is not subject to Section 83.  However, if substantially vested stock is exchanged for substantially nonvested stock, the nonvested stock is subject to Section 83."

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Effective July 1, 2007, persons engaged in business within the City of Seattle (the “City”) will have to start paying a new “employee hours tax” (also known as “The Business Transportation Tax”). The tax was imposed to “provide an equitable means of generating revenue to ensure that those who regularly utilize the City’s transportation system are supporting that system.” The proceeds of the tax are to be used strictly for transportation purposes. 

Continue Reading...

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