News Brief: SEC okays new rules on top exec pay
Under rules unanimously adopted, the Securities and Exchange Commission will require public companies to provide more information about the pay given to top executives. Companies will now have to report a single number for executive pay, and explain pay programs in narrative form on a new statement, "Compensation Discussion and Analysis." Annual filings will also have to display the total yearly compensation for a company's chief executive officers, chief financial officers and its next three highest-paid executives. All of the disclosures will have to be written in plain English.
Among the range of newly required stock-option grant information will be the recorded grant date; the fair value of the options on the grant date; the closing market price of the shares on the grant date, if higher than the strike price; and the date that company directors awarded the options, if that date differs from the recorded grant date.
Separately, in late July, SEC chair Christopher Cox told the Senate Banking Committee that he would ask the commission to adopt measures to regain some of the authority it lost in June, when a federal appeals court ruled that the SEC could not require hedge funds to register. Cox also said that he would recommend that the SEC change the rules on who can invest in hedge funds, increasing the net-worth threshold for an individual or couple to $1.5 million or more from $1 million today.
News Brief: IRS loses 'Son of Boss' case
A federal judge has ruled that the Internal Revenue Service went too far in retroactively banning the "Son of Boss" tax shelter. For the past six years, the IRS has been battling the tax shelters, which it says generated artificial tax losses that cost the federal government at least $6 billion in revenues through the late 1990s. In a judgment released in late July, Judge T. John Ward of the U.S. District Court for the Eastern District of Texas said that the regulations didn't apply to taxpayers who used the tax shelters before the IRS issued new rules targeting the shelters in August 2000. Ward wrote that retroactive application of the rules was an abuse of discretion.
The IRS considers tax shelters with no economic substance or business purpose to be invalid, and Ward did not rule on whether the shelter meets that test. Lawyers for the defendants have already argued in the press that no court has ever ruled any of the shelters in question to be illegal.
Ward's ruling could raise questions about IRS settlements in 2004 that raised $3.7 billion in unpaid taxes from more than 1,200 investors who had participated in similar tax shelters.
News Brief: Judge delays KPMG trial for 4 mos.
Blaming delays in information sharing, as well as a battle over who will pick up the tab for legal fees, a judge has delayed the trial over 16 former KPMG partners' sales of questionably legal tax shelters until Jan. 15. Judge Lewis Kaplan of Manhattan Federal District Court had originally scheduled the trial's start date for Sept. 11. The former partners are accused of selling the improper shelters; a New York federal grand jury charged each of the defendants with at least 39 counts of tax evasion and a single count of conspiracy to defraud the Internal Revenue Service in the fall of 2005.
Kaplan's top reason for the delay was the government's failure to hand over certain documents to the defendants' lawyers by an October 2005 deadline - some of those files were just turned over last month, after Kaplan threatened to impose sanctions if the material was not turned over by Nov. 15.
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