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This just makes me want to crawl under my desk and cry for a while. Can you imagine how much it would hurt if you threw that at a lawyer or an accountant and actually hit them with it?
(Via 409A Dismay.)
Now that one of our favorite IRS regs – Mr. 409a – has been around for a while, it’s still causing plenty of confusion, wasted time, energy, and money. The final regulations – issued in April – are to become effective on January 1, 2008. However, one 9/10/07, the IRS announced that they were extended the compliance deadline a year – it’s now 12/31/08 instead of 12/31/07. Thanks Uncle Sam – that’s nice.
The whole thing is still stupid for small companies where there should be some sort of exemption. Since this doesn’t seem like it’ll happen, it’d be nice if the IRS and the Financial Accounting Standards Board could get together and let the accountants be able to either accept the 409A valuation as part of FAS 123 or – even better – let the FAS 123 valuation be used for the 409A valuation.
Yeah – that would be too easy, logical, and would make the auditors job more straightforward, which would mean less work and billings for them.
Since you are going to get charged for it anyway, I suggest you send your auditors a copy of your 409A valuation report whenever you get them (many of our companies get them quarterly – once you get a rhythm established, it seems to be the least expensive and lowest risk approach to this absurdity.) By sending the 409A valuation report to your auditor whenever you get them, you can at least ask the question "do you support this valuation" on a regular basis. Most auditors won’t give you a straight answer, but at least they can’t say "hey – you never showed us the 409A valuations" during your annual audit when their FAS 123 valuations are coming out significantly different than your 409A valuations.
Jason and I have written extensively about 409A – a new tax regulation for pricing stock options in private companies that both of us think is fundamentally absurd. For the past 24 months we’ve been dealing with draft regulations which have made the problem of figuring out how to deal with pricing stock options in private companies both ambiguous, time consuming, and unnecessarily expensive (at least if you want to conform to the draft rules.)
The final regs have been released and Jason has sacrificed his brain by reading through him. His comments are over at AsktheVC.
On Wednesday, the IRS announced what it called “relief” extending the “transition period” of compliance with 409A through January 1, 2008 (unless you are a public company and you are involved in a back dating scandal, then you are still hosed.)
What the IRS really means (as translated by my trusty sidekick Jason) is “We still can’t figure out how to implement this puppy, so we are telling y’all to keep complying the best you can (in good faith) and we’ll get back with you fine folks once we figure out what we meant in the first place.”
Bottom Line: Act as if 409A is alive and well. Refer to our prior posts if you are curious about our take on it. We continue to hope that someone important in Washington DC will wake up one day and realize how completely absurd 409A and kill it. Oh well – it’s good to have fantasies.