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A Lunch Hour Seminar, and articles on Internet Privacy, Section 83(b) Elections, and a New Novel
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ACBA Business Section Newsletter

ACBA Business Law Section
February 2016 Newsletter

Hot off the electronic presses

Quick links:
Lunch Hour Seminar – Stock Options, Profits Interests, and Contingent Bonuses:  A Quick Tax Guide to Providing Equity-Flavored Compensation Read more

Internet Privacy â€“ We Have a (Tentative) Deal with Europe Read More

Section 83(b) Elections â€“ Did Your Client Miss the 30-Day Deadline for Filing a Section 83(b) Election?  Here’s a Partial Fix for the Tax Problem Read More
Author in Our Midst – New Novel from Sheryl Sorrentino – Stop & Frisk Read More

Come Join Us!  The ACBA Business Law Section Executive Committee is Looking for New Members! Read More

2016 ACBA Business Section Executive Committee – Welcome Donald Lancaster Read More

Submit your articles! We welcome your contributions to the Newsletter! Read More

Upcoming Lunch Hour Seminar 

The Business Section will be sponsoring or co-sponsoring these seminars in the coming months:

Stock Options, Profits Interests, and Contingent Bonuses:  A Quick Tax Guide to Providing Equity-Flavored Compensation


Wednesday, March 2, 2016, at the ACBA from 12:00 p.m. - 1:00 p.m, light lunch served

The presenter for this program is Tom Maier. Tom is a partner in the San Francisco law firm of Futterman Dupree Dodd Croley Maier LLP and a member of this year’s Executive Committee for the ACBA's Business Section. His practice focuses on tax and business representation.
 
This seminar will provide a comparison of various compensation techniques intended to provide employees and other service providers with direct or indirect equity participation in the employer’s business. Topics will include incentive and nonqualified stock options, profits interests in LLCs and partnerships, and contingent bonuses, including stock appreciation rights and phantom stock.
 
Learn about the differences in these approaches, and gain new insights about the tax traps! Employees can cash in mightily from this kind of compensation, but they can also be severely stung by unexpected tax liabilities. 
 
Pricing is $35 for Section members, $50 for ACBA members and $65 for non-members. You will receive one hour of CLE credit.

Internet Privacy – We Have a (Tentative) Deal with Europe


On February 2, 2016, a day after the European Union (EU) deadline had passed, the US and the European Union announced a deal on the methods by which US businesses can gather personal customer information from across the Atlantic without violating EU regulations on internet privacy.
 
The new protocols of the “EU-US Privacy Shield” were not immediately released, but the announcement of a deal relieved a lot of tension and anxiety on the US side.  There had been fears that US companies involved in online commerce with European customers might be exposed to EU legal sanctions for failure to comply with EU privacy regulations.  The terms of the new arrangement still have to be fully approved, but the announcement of a deal prompted widespread hope that EU regulators will hold off on enforcement actions until the new framework is fully in place. 
Newman's Own

Did Your Client Miss the 30-Day Deadline for Filing a Section 83(b) Election?  Here’s a Partial Fix for the Tax Problem


A recurring issue for many business lawyers involves an employee who receives stock subject to vesting conditions. The normal approach is to have the employee file a “Section 83(b) election” with the IRS within 30 days of receiving the stock. The Section 83(b) election is an election to recognize any income associated with the stock grant immediately upon receipt of the stock. If the employee does not file the Section 83(b) election within 30 days of the grant date, the employee is generally forced to recognize the stock value as income as he or she satisfies the vesting conditions – which will often happen at a time when the stock has appreciated and the amount of taxable income has correspondingly increased.
 
An employee cannot file a late Section 83(b) election.The short 30-day leash is mandated by the Internal Revenue Code; the IRS has no discretion to extend the time period for filing.
 
So, what to do? If the stock grant was legally ineffective, due to lack of Board authorization or other failures in issuing formalities, it might be possible to argue that no real grant took place notwithstanding the employee’s intentions; a current, corrective grant of stock could restart the 30-day clock for filing the Section 83(b) election. But if the initial grant was legally effective, the employee will often seek some way of stopping future recognition of income as the vesting milestones are met.
 
Many practitioners are using a technique that will cause a current inclusion in the employee’s income, thereby cutting off the employee’s future exposure to additional tax liability as the stock appreciates. This technique would also allow the continuation of any vesting conditions that the employer wants to retain so as to ensure the continued loyalty of the employee.
 
Section 83 of the Internal Revenue Code states that stock value will become taxable to an employee when vesting conditions are satisfied or, if earlier, at the time the employee can transfer the stock to a third party with the third party not being bound by any risk of forfeiture. This has led lawyers to amend an employee’s stock restrictions to provide that the employee can transfer shares to a third party even if the shares are not vested, but that the employee (and not the employee’s transferee) will be obligated to reimburse the employer if the employee fails to satisfy the vesting conditions. The employee would take on the contractual obligation to pay the employer the excess of the value of any unvested shares over the employee’s purchase price for the shares if the employee fails to meet the relevant vesting conditions. Since the employee’s transferee would not face any forfeiture conditions, the shares would cease to be subject to further Section 83 overhang at the time this form of transfer is permitted, even if the employee does not actually transfer the shares to anyone.
 
This would not allow the employee to compute his Section 83 tax liability based on the date-of-grant value of the stock. But it would allow the employee to base tax liability on the stock value as of the date of the transferability amendment, stopping the tax bleeding. And the employer would retain any golden handcuffs effect of the original vesting restrictions, because the employee would remain economically committed to reimburse the employer if the employee does not meet the original vesting conditions.
 
The IRS occasionally talks about reversing the 83(b) election presumption, by assuming the election is made unless the employee affirmatively files a statement indicating that it does not wish to have the benefits of the election. That would be a welcome change in the law. But until that occurs, keep in mind the transferability-amendment approach if you have a client come to you after the 30-day election period has expired.

Author in Our Midst – New Novel from Sheryl Sorrentino – Stop & Frisk

 
Business Section member Sheryl Sorrentino has released her fifth novel, titled Stop & Frisk. From the author’s website:

Newly released Stop & Frisk is Sheryl's latest page-turner. Called "A million times better than Road House the movie!", Stop & Frisk exposes strip club life through the eyes of a street-smart "everyman" struggling for closure and kinship.
 
Sheryl is a gripping, vivid writer – living proof that attorneys don’t need to stop at drafting briefs and preparing contracts. Please visit her website at this link: http://sherylsorrentino.yolasite.com/.

Come Join Us!  The ACBA Business Law Section Executive Committee is Looking for New Members! 


The executive committee for the ACBA Business Law Section is seeking new members. The committee meets most months on the first Wednesday of the month at noon, normally for less than one hour. The meetings take place at the ACBA office at 1000 Broadway. 

As an ExComm Member, you will help shape the committee and develop and plan seminars and events for Business Law Section members. Equally as important, you will become acquainted with other East Bay business attorneys and expand your referral and resource network! Reach out to any member of the ExComm if you would like more information.

ACBA 2016 Business Law Section Executive Committee Welcomes Donald Lancaster


Donald Lancaster has joined the Executive Committee for the Business Section. Donald is general counsel for Vitargo Global Sciences, Inc.  As general counsel, Mr. Lancaster is responsible for corporate governance, management of the company’s intellectual property portfolio, and human resources. In addition to providing risk assessment for business transactions, he also has experience in reviewing, negotiating and drafting commercial agreements; as well as preparing equity and credit facilities for corporate financing.

Please join us in welcoming Donald to his new position on the Executive Committee.

The members and officers of the Business Law Section for 2016 are as follows: Please offer the 2016 ExComm your support, and feel free to drop in on any ExComm meetings, generally held on the first Wednesday of the month at noon in the ACBA conference room. Also, the ExComm is always interested in signing up new members, so let any of us know if you’d like to participate!

Newsletter Blurbs

We Welcome Your Contributions! 


Please send in any comments, tips, or interesting stories from your practice! We are looking for quick blurbs, from three to twelve sentences in length. We will credit the author by name and identify his or her firm or company. Please send any write-ups to Tom Maier at tmaier@fddcm.com
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