September 2002

BRIEFS:

Corporate Reform

Congress passed sweeping corporate reform in July, 2002 and President Bush signed the Sarbanes-Oxley Act, which contains a host of measures intended to prevent corporate fraud and restore investor confidence in financial reports.

"It’s necessary, but we should have never come to this juncture" says Stephen N Langway, a Principal of Langway & Company, PC and further explains that the act includes some key components that create an SEC oversight board that has investigative and disciplinary powers, prevents companies from providing loans to their executives and raises the maximum penalty for securities fraud to 25 years and to 10 years for destroying key financial-audit documents and E-mails.

 

Split-dollar life insurance (i.e., another of the Executive-Compensation Plans)

The IRS recently proposed regulations that would tax executives more heavily on the benefits of such plans, which could make them obsolete. Basically, the employer and the executive share the cost and benefits of a whole life insurance policy on the executive, but in July the IRS announced new regulations that would tax executives more heavily on the "current economic benefits" of the plan than existing laws and would impose taxes on the cash value when the plan is fully transferred to them. Alternatively, executives will be able to own their plans from the outset, but will have to pay federally set interest rates on the premium payments they receive from their employers, since the payments will be treated as loans(although the new corporate-loan ban may affect the viability of this option). However, the IRS is accepting comments on the proposed rules until October and isn’t likely to finalize them until early next year. But notwithstanding this procedure, any arrangement made before the rules are enacted expect to be grand fathered under the current favorable tax rules, which have been relied upon for the past forty years.

 

Charitable gifts of Unmoved or Unsold Inventory

Wholesalers and distributors can turn unsold or unmoved inventory into valuable tax deductions. By donating dead stock to charity, in some cases the deduction may be as much as twice the donated products’ cost according to the National Ass’n for the Exchange of Industrial Resources. Contact the NAEIR at 800-562-0955 for more information and a step-by-step guide on the donation process and a formula for calculating potential tax savings. Also, refer to their website at www.naeir.org.

Return to previous page.