Client Alert
Equity Plan Design Changes Required To Comply With Code Section 409A Proposed Regulations
January 25, 2006
Both public and private companies will need to review and in most cases amend their equity based plans in 2006 to comply with recently proposed regulations under Code Section 409A, which establishes a new federal income taxation scheme for any plan or arrangement deemed to involve "deferred compensation." Section 409A may apply to many types of equity-based awards, including stock options, stock appreciation rights ("SARs"), restricted stock awards, restricted stock units, performance awards and phantom stock awards, and will have a significant impact on the design and operation of many types of equity arrangements. Although companies have until December 31, 2006to amend their plans and arrangements to comply with Section 409A, good faith operational compliance was required beginning January 1, 2005. This client memorandum highlights key provisions of the Section 409A proposed regulations that companies should now be considering.
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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice within this client alert is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in a client alert.
