ccording to an IRS webcast, the service has begun an initiative to assess compliance and target abuses related to executive compensation and benefits. CPAs who represent public companies should become familiar with this initiative.
AREAS OF INTEREST
For stock options the IRS may look at whether there has been proper income inclusion on option exercise (or on a disqualifying disposition of stock acquired from such exercise), participation rights in employee stock purchase plans and general statutory compliance. For the $1 million cap under IRC section 162(m) and golden parachute payments, the service will ensure proper compliance with statutory limits and regulations.
For split-dollar insurance arrangements, the IRS will check whether a company has included amounts in income when an insurance product has been transferred from an employer to an employee. When fringe benefits (such as the use of a corporate-owned aircraft or automobile or relocation benefits) have been provided to executives, the IRS will verify that the company properly treated the benefit as wages for employment taxes.
The service also will examine companies for tax schemes in which individuals use professional corporations or other taxable entities to attempt to avoid payroll and income taxes through the use of an employee-leasing arrangement in an offshore-tax-savings jurisdiction.
KEY EMPLOYEE FILINGS
For more information see the Tax Clinic, edited by Mark Garay, in the March 2004 issue of The Tax Adviser.
—Lesli Laffie, editor