TARP investment: Change in control?

It kind of snuck out.

A little release from the IRS called Guidance under § 409A(a)(2)(A)(v) on certain transactions pursuant to the Emergency Economic Stabilization Act of 2008.

Doesn’t sound too sexy does it? Doesn’t even sound very interesting.

It’s just the IRS saying that when the U.S. Treasury buys up shares under a TARP investment, it doesn’t matter how many it buys, the transaction will not be classed as a change in control.

But what has it got to do with Section 409A?

Well, there’s the story.

The guidance says that a TARP investment isn’t a change in control and that therefore TARP companies can’t withdraw money from deferred compensation accounts. A change of control is one of the few situations where money can be withdrawn from these accounts early without a tax penalty.

Now why would anyone from a TARP company want to withdraw money from deferred compensation accounts?
Might it be about executive compensation…hmm, I wonder.

Might it be because there’s precious little money coming from anywhere else thanks to rotten performance and government pay caps?

Not a bad guess.

And someone must have asked the question, otherwise why did the IRS feel it necessary to answer it.
I wonder who it was….

I guess we’ll never know, but at least the IRS has closed that particular loophole. Just a few days and another will pop up, though, just you wait.

Paul Hodgson — Senior Research Associate