The Supreme Court of the United States’ recent decision prohibiting warrantless mobile phone searches incident to arrest underscores unique privacy concerns raised by modern technology. The decision has an immediate impact on an individual’s rights under the Fourth Amendment, and may also have an impact on evolving areas of white collar and employment law.
Revenue Ruling 2014-18 holds that stock options and stock-settled stock appreciation rights (stock rights) granted by offshore funds and other entities domiciled in tax-indifferent jurisdictions can be structured to avoid immediate taxation under Section 457A of the U.S. tax code. Among other things, this ruling allows an offshore fund to compensate its managers with stock rights that will only be subject to U.S. tax upon exercise, so long as the stock right is exempt from Section 409A and the manager has the same redemption rights with respect to acquired shares as other shareholders of the hedge fund.
In a highly anticipated decision, the Supreme Court recently ruled that ESOP fiduciaries are not entitled to a presumption of prudence under ERISA in connection with their decisions to buy, hold or sell the employer’s securities. While the elimination of this presumption is a loss for ESOP fiduciaries, the decision imposes additional burdens on plaintiffs that will make it easier for plan sponsors and fiduciaries to defend so-called “stock-drop” cases. It also requires plan sponsors to reevaluate plan language requiring that certain funds be invested in employer securities and to reconsider hiring an independent fiduciary to manage the employer stock fund.
On July 8, 2014, the Pension Benefit Guaranty Corporation (PBGC) issued a press release announcing a moratorium on its enforcement of Employee Retirement Income Security Act of 1974(ERISA) Section 4062(e) through the end of 2014. In general, ERISA Section 4062(e) allows PBGC to require that employers financially guarantee pension obligations in the form of plan contributions or a bond or escrow amount based on a plan’s unfunded termination liability when an employer with a pension plan shuts down operations at a facility and, as a result of the shutdown, more than 20 percent of the employer’s employees who are plan participants incur a separation from employment.
PBGC had recently been quite aggressive in its enforcement actions under ERISA Section 4062(e). As a result, ordinary business decisions, like asset deals and other business decisions impacting less than a facility’s full operations, were gaining PBGC’s attention. PBGC believes that the moratorium will enable it to target future enforcement efforts to those cases where employee pensions are genuinely at risk and allow it to continue to consult with businesses, labor and other stakeholders in developing a practical approach to enforcement. The moratorium runs through December 31, 2014, and applies to currently pending as well as new cases. Importantly, PBGC advised that companies must continue to report potential ERISA Section 4062(e) events to the PBGC during the period of the moratorium. Further, the moratorium does not preclude PBGC enforcing ERISA Section 4062(e) with respect to any reportable event that occurs during the moratorium period. The moratorium is not a safe harbor and there is no indication that it will continue past December 31, 2014.
The Supreme Court of the United States ruled 5–4 in its highly anticipated Hobby Lobby decision that closely held for-profit corporations do not have to comply with the contraception mandate under the Affordable Care Act if doing so would violate their religious beliefs. The Supreme Court based its decision on the Religious Freedom Restoration Act, which protects “persons” from government actions that substantially burden their exercise of religion, unless those government actions are the least restrictive means of furthering a compelling government interest, and determined that because the contraception mandate is not the least restrictive means available to the government, it cannot apply to closely held for-profit corporations that religiously object to the contraception mandate.
With effect from 30 June 2014, the right to request flexible working has expanded so that it now applies to any employee with at least 26 weeks’ service. Employers should amend their flexible working policy documents to reflect the changes to the regime and plan in advance how they will deal with a possible increase in the number of requests.
In March 2013, the Internal Revenue Service (IRS) issued the final version of Form W-8BEN-E Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting. This form allows certain non-U.S. retirement plans to claim exemption from the reporting and withholding requirement of the Foreign Account Tax Compliance Act (FATCA). However, the final version of the Form W-8BEN-E did not include instructions. On June 24, 2014, the IRS published the long-awaited instructions, which address many of the ambiguities inherent in completing the form. For additional information regarding the FATCA exemptions that may be claimed using Form W-8BEN-E, please click here.
The following post comes to us from Michael W. Peregrine, Partner at McDermott Will & Emery, Andrew C. Liazos, head of McDermott’s executive compensation practice, and Timothy J. Cotter, Managing Director at Sullivan, Cotter, and Associates, Inc.
Governing boards should consider compliance-based incentive compensation as a supplement to statutorily mandated “clawback” provisions, and as an alternative to more aggressive proposals to recoup past compensation from “culpable” executives. The general counsel is well situated to support the board in any evaluation of compensation-based executive accountability policies.
There is much public discourse concerning the function of clawback clauses, their structure, and their limitations. Much of this discourse is prompted by recent corporate scandals and associated calls for executive accountability. But there are other reasons. There is extensive discussion in anticipation of rulemaking from the Securities and Exchange Commission that is required under Dodd Frank Section 954. Notable governance commentators and shareholder advocates are encouraging boards to adopt clawback policies that go beyond the statutory requirements. Major public companies are adopting their own versions of clawback policies, including some who are doing so at the behest of investors. In addition, the boards of large, financially sophisticated nonprofit corporations are considering clawback policies as a demonstration of corporate responsibility. Indeed, how best to establish a “clawback” policy continues to be a hot topic!
2014 presents particular challenges with respect to FBAR, the Report of Foreign Bank and Financial Accounts, for certain U.S. persons with interests in or signature authority over assets exceeding $10,000 held outside the U.S. in foreign accounts. The deadline for calendar year 2013 reporting obligations is June 30, 2014, and by then all taxpayers must e-file completed forms using the Bank Secrecy Act (BSA) E-Filing System. Failure to file the FBAR can result in criminal sanctions. In addition, failure to file the FBAR can result in civil penalties exceeding 100 percent of the foreign account balance, as recently determined by the Federal District Court in the May 28, 2014, decision inU.S. v. Carl R. Zwerner.
The BSA requires any U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds to report the “maximum value of the account” yearly to the Internal Revenue Service (IRS). This requirement may now only be satisfied by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, FBAR, which replaces Form 90.22-1. An overview of the FBAR filing requirements is provided by the IRS. But in summary, an FBAR must be filed by any U.S. person who either owns or has signature authority over a foreign account that, at any point during the year, was valued at or greater than $10,000. For FBAR purposes, a foreign account includes any account that is held outside the United States, including those at foreign branches of U.S. banks. For more details regarding the specifics of which accounts must be reported, two prior On the Subject newsletters about FBAR reporting can be found here and here.
FinCEN is attempting to make the new e-filing user friendly. The mandatory e-filing requirement information, capability to register and to upload completed FBARs, and new Form 114 for those individuals and businesses that must file an FBAR is accessible through the BSA e-file website.
The BSA e-file website allows a taxpayer to either file the Form 114 directly as an “Individual” by uploading a completed file or, alternatively, to fill out Form 114a permitting another party, designated by the BSA system as an “Institution,” to file the Form 114 on his or her behalf. For example, the new Form 114a may be used by an employer company to file the FBAR as an Institution on behalf of any of its executives who are required to file an FBAR because of non-exempt signatory authority over the employer’s foreign bank accounts. (Note that FBAR filing by certain individuals with signatory authority but no ownership interest in a foreign account may be deferred until June 30, 2015, pursuant to FinCEN Notice 2013-1.) For its own FBAR, the employer company may register as an Institution and designate a “Supervisory User,” who has authority to file on behalf of the company and who, in turn, can designate other Supervisory Users. Taxpayers with 25 or more foreign accounts use a simplified process of reporting.
It is important to be prepared for the new e-file requirement as non-compliance can result in significant sanctions. Monetary penalties equal to the greater of $100,000 or 50 percent of the account balance for each year of violation can apply. Because taxpayers may have multiple years of violations on a single account, penalties can easily exceed the account balance. Criminal sanctions of up to 10 years in prison could be imposed for willful violations. However, the IRS offers a number of procedures, including the ongoing Offshore Voluntary Disclosure Program, that allow taxpayers to disclose and remedy past delinquent filings in order to avoid criminal prosecution and, in most cases, reduce civil penalties. In some cases, taxpayers may even be able to file late FBARs without incurring penalties. Each situation is highly dependent on the taxpayer’s individual circumstances and will require compliance with the specific procedures established by the IRS in order to qualify for relief.
Please do not hesitate to contact us if you have any questions on the best way to tackle the e-file requirements.
Proposed legislation introduced by Governor Patrick to eliminate most forms of non-competition agreement in Massachusetts may be enacted before July 31, 2014. This legislation creates significant risks for employers with employees in Massachusetts who are currently subject to non-competition agreements.