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Banking & Finance Law Report

Tag Archives: IRS

Final IRS Regulations Issued on Restricted Stock Grants

Posted in Employment and Compensation Law, Tax Law

Restricted stock grants have been a popular executive compensation component for over a decade now. With a restricted stock grant, the employer gives shares of stock to the employee, but subject to two main conditions. One condition is a vesting condition, which generally requires the employee to remain continuously employed with the employer for a period of years, satisfy performance targets, or both. If the employee fails to satisfy the vesting requirements, the employee forfeits the stock. The other condition is that during the vesting period, the employee is prohibited from selling or otherwise transferring the stock.

Restricted stock is popular because it provides a link between the performance of the company and the compensation of the employee. At the same time, unless a complete disaster occurs, the employee generally is guaranteed of receiving some payment because the compensation is equal to the value of the stock, rather than only the appreciation in the value of the stock. In a turbulent economy, that protection is valued by employees.

With any executive compensation arrangement, however, it is important to consult the tax rules. Generally, the value of the stock to the employee who receives a restricted stock grant is not taxed until the earlier of when the stock becomes either no longer subject to a substantial risk of forfeiture (i.e., vested), or when the stock becomes transferable. The IRS and Treasury recently issued final regulations that “clarify” the types of conditions that the IRS will respect as imposing a substantial risk …


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Tax Treatment of OREO

Posted in Tax Law

The Internal Revenue Service has recently reversed course regarding federal income tax treatment for banks for certain costs associated with OREOs ("other real estate owned").  The newer guidance should liberalize the ability of banks to take immediate deductions with respect to certain costs associated with OREOS.  The IRS has released a Chief Counsel Memorandum stating that a bank that acquires OREOs through foreclosure or deed-in-lieu with respect to a loan originated by the bank is not considered to acquire the OREO for resale within the meaning of §263A of the Internal Revenue Code (which Code Section requires capitalization of certain costs).  This Chief Counsel Memorandum partially contradicts a memorandum issued last June.

This newer guidance means that, for OREOs acquired under the circumstances addressed in the new memorandum (that is, OREO acquired in connection with a loan originated by the bank), legal fees and other costs incurred to acquire the OREO through foreclosure as well as costs incurred while carrying the OREO prior to sale (including real estate taxes, insurance, repairs, maintenance, capital improvements, and utilities), should be fully deductible either when paid or incurred depending on the bank’s method of accounting.  This is in contrast to the previous guidance which held that such costs had to be capitalized in whole or in part under §263A and recovered only when computing gain or loss on the sale of the OREO.

The newer Chief Counsel Memorandum concludes that the foreclosure activities and subsequent sale of the OREO are an extension of …


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IRS Releases Additional FATCA Guidance, Although Many Questions Remain

Posted in Regulation and Compliance

In Notice 2011-34 issued April 8, 2011, the IRS provided supplemental guidance regarding foreign financial account reporting requirements under the Foreign Account Tax Compliance Act (“FATCA”). All businesses that makes payments to foreign financial institutions should be aware of these rules which take effect in 2013.  The recently released supplemental guidance, which is expected to be part of extensive future regulations, clarifies certain withholding, documentation, and reporting requirements under FATCA. Because many questions remain, it is expected that the IRS will continue to release additional FATCA guidance.

Background

Beginning on January 1, 2013, a 30% withholding tax will be imposed on certain U.S. source payments (“withholdable payments”) made to foreign financial institutions (“FFIs”). Withholding will be required on payments made to FFIs that do not enter into an agreement with the IRS to provide information on financial accounts held by certain U.S. persons. FATCA is another weapon in the IRS’s arsenal to track and monitor potentially abusive foreign account strategies, although FATCA applies to legitimate and routine business payments as well.…


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