E&Y Concerned Over Pending Discount Option Plan Regs
E&Y Concerned Over Pending Discount Option Plan Regs
- AuthorsKolan, James S.
- Institutional AuthorsErnst & Young LLP
- Code Sections
- Subject Area/Tax Topics
- Index Termsyear of inclusion, pension plan distributions, exempt organizationsproperty transferred for services
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2001-31140 (3 original pages)
- Tax Analysts Electronic Citation2001 TNT 245-16
=============== SUMMARY ===============
James S. Kolan of Ernst & Young LLP, Pittsburgh, Penn., has expressed concern over the pending regs under section 457 that will adversely deal with discounted option plans under section 83 for employees of exempt organizations. Treasury lacks the regulatory authority, says Kolan, to limit the ability of tax-exempt organizations to use discounted options. Additionally, he says, section 83 states the proper treatment of the transfer of options. Further, says Kolan, the issuance of the regs without the involvement of sponsoring entities would be premature and wrong. As a result any provisions that address discount options, he says, should be withdrawn pending further consideration.
=============== FULL TEXT ===============
December 10, 2001
Mr. William F. Sweetnam
United States Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20222-0001
PROPOSED SECTION 457 REGULATIONS
Dear Mr. Sweetnam;
[1] I am a senior manager in the Human Resource Services practice of Ernst & Young LLP. Ernst & Young is one of the largest human resource service practices in the United States. A significant part of our work involves working with tax-exempt entities in developing solid compensation programs that will help attract, retain and motivate key employees, which in turn will help clients gain or retain a competitive advantage in their marketplace or industry.
[2] The purpose of this letter is to express our deep concern regarding the possibility that pending regulations might soon be issued under Section 457 of the Internal Revenue Code (the "Code") dealing with discounted option plans under Code Section 83 for employees of tax-exempt organizations. We understand that the proposed regulations will be significantly adverse to such plans.
[3] We respectfully ask for your direct involvement in this matter. The issuance of any regulations in this area without the involvement of sponsoring entities and the professionals that implement them would be premature and wrong, given the popularity of these programs and the benefit they provide to the employees of not for profit organizations. We seek the withdrawal of any provisions from the proposed regulations that address discounted options pending further consideration of this issue. The principal reasons for this request are summarized as follows:
o Any attempt to limit the ability of tax-exempt organizations
to utilize discounted options oversteps the regulatory
authority under Code Section 457(f), since that section of the
Code specifically exempts Code Section 83 transfers including
options. Moreover, the regulations under Code Section 83
properly state the treatment of the transfer of options,
including those issued to the employees of tax-exempt
organizations.
o In today's challenging economic environment most tax-exempt
organizations are struggling. Tax-exempts have been called
upon repeatedly to help our nation throughout our history,
especially now during our most recent and ongoing national
challenges. By issuing regulations adverse to discounted option
plans, the Treasury would be taking upon itself to limit our
ability to attract, retain and reward valuable employees
necessary for us to provide service to the citizens of this
country. Tax-exempt organizations compete everyday against
for-profit organizations for highly trained and skilled
employees. If tax-exempts are denied the ability to offer
comparable pay for their skilled employee, then the
communities they serve shall suffer. We think it is important,
if not imperative that the Treasury consider the economic and
psychic cost to this nation if our tax-exempt organizations
falter due to our inability to attract and retain qualified
employees, before issuing regulations, especially those that
might contravene the statutes they regulate. Efforts to thwart
the efforts of our tax-exempt organizations to adequately
compensate its employees for their hard and important work --
especially by exercising extra-regulatory authority -- seems
ill-timed and inappropriate. It sends the wrong message at
the wrong time.
o We have undertaken great amounts of time and expense to
implement these programs, and to communicate them to our
employees. We have done so because we recognize the importance
of our employees. We have done so in good faith in reliance of
the plain language of the Code and the underlying regulations.
The employees now look to their options as an important part of
their compensation. To abruptly change well-established rules,
without the input of affected organizations is premature,
inequitable and unfair.
[4] Mr. Sweetnam, we know your reputation as a fair and reasonable man, which is why we call for your immediate and direct action to remove provisions that would adversely affect discount option plans from the pending regulations. We trust that you agree that the Treasury should be interpreting and clarifying the tax laws, but not creating new law. Thus, we look forward to working with you soon to reach a mutually favorable and look forward to the resolution of this matter [sic]. To this end, we would not consider satisfactory a result whereby existing plans are grandfathered without the ability to grant new options to current and future employees. The inequity of having similarly situated employees with materially different compensation arrangements is obvious.
[5] President Bush has repeatedly noted the important role of the not-for-profit community as a pan of this nation. And this matter is of great importance to us. The importance of the discounted option programs will necessarily compel to take whatever actions are available to preserve them in a viable manner -- including to request the intervention of both the Bush administration and Congress. We hope, however, that we can reach a satisfactory resolution at the regulatory level.
[6] We thank you for your consideration of this letter and the requests made herein. We look forward to arranging a meeting to discuss this matter with you.
Sincerely
James S. Kolan
Senior Manager
Ernst & Young
Pittsburg, Pennsylvania
- AuthorsKolan, James S.
- Institutional AuthorsErnst & Young LLP
- Code Sections
- Subject Area/Tax Topics
- Index Termsyear of inclusion, pension plan distributions, exempt organizationsproperty transferred for services
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2001-31140 (3 original pages)
- Tax Analysts Electronic Citation2001 TNT 245-16
