Portland Chapter reports on fall meetings. (Chapter News).

September Meeting

The Portland Chapter kicked off its 2002-2003 fiscal year with Charles (Carl) Lewis and Margaret (Peggy) Note, attorneys with the law firm Stoel Rives LLP. The speakers discussed the Sarbanes-Oxley Act of 2002 and other corporate accountability reforms such as new and pending SEC rules and NYSE and Nasdaq corporate governance reforms.

Carl and Peggy discussed the creation of the accounting oversight board and auditor independence. In response to questions from the floor, much conversation focused on the kind of nonaudit services that a public company's audit firm will be allowed to provide. Among the prohibited services listed in Sarbanes-Oxley are appraisal and valuation assistance, actuarial services, human resource support, outsourcing assistance, and legal and investment advice. The membership was also interested in how to handle such practical issues as what to do about prohibited services already in process at the effective date of the Act.

Financial disclosures, prohibitions on personal loans to directors and executive officers, creation of the new public accounting oversight board, and other corporate responsibility issues were covered as well.

October Meeting

The response to the September discussion of the Sarbanes-Oxley Act was so successful that the chapter began its October meeting with a workshop on the same topic. The panel discussion, presented by KPMG and Steel Rives LLP, featured John Shepherd of KMPG as moderator, Bob Henarie, SEC Partner and David Evans, Tax Partner of KPMG, and Carl Lewis and John Thomas, Tax Partner and SEC Partner, respectively, of Stoel Rives LLP.

It was generally agreed that a primary objective of Sarbanes-Oxley is to shore up credibility of the accounting profession by eliminating opportunities for firms to check their own work. Consequently, "prohibited transactions" with auditors tend to be those that might interfere with the auditor's independence. The panel discussed application of the new rules, as well as the reaction of foreign countries to the new requirements. Also discussed was applicability of the Act to U.S. subsidiaries of publicly traded foreign parents.

The featured dinner speaker for the evening was Mark Garay of Deloitte & Touche's National Tax Group in Washington, D.C. Mr. Garay updated the chapter on recent and pending tax legislation. According to Mr. Garay, we are seeing the best of times and the worst of times in Congress. The best of times is embodied in a $1.35 trillion proposed tax cut and Democrats and Republicans in Congress working together for change. The worst of times is represented by Enron and Worldcom scandals that have resulted in stringent and confusing accounting reforms and even harsher penalties for tax shelters--penalties that would have the "evil doers" cast into the Bastille for any infraction.

Mr. Garay also provided some pointers for those who may want to influence tax policy. The process does not have to be expensive. Writing an article or a white paper can be very useful. He suggests analyzing your political strengths, playing ball across political aisles, understanding who is interested in your issue, heeding the arguments of opponents, and being patient and at the same time hurrying.

Mr. Garay remarked that the major legislative proposals, such as the American Competitiveness Act and the Tax Shelter Act, focus on penalties and disclosure. The amount of tax legislation that will actually pass before year-end, however, is debatable. Many non-tax bills, such as Homeland Security, may take precedence as Congress runs out of time.

November Meeting

The November meeting was a half-day seminar on mergers and acquisitions presented by Baker & McKenzie attorneys Federic J. Adam, Donette M. Dewar, and Marni K. Rosenblatt. Mr. Adam kicked off the program with a summary of recent developments in the M&A area including a discussion of 2001 proposed regulations which allow an "A" reorganization of a corporation into a disregarded entity, but not the other way around. Prior proposed regulations would not have recognized an "A" reorganization with a disregarded entity under any circumstances. Mr. Adam compared and contrasted FSA 200226004 and CCA 200235004. The FSA in this case is inclined to disallow a section 165 worthless stock deduction where a taxpayer continued to operate the business of a former subsidiary after a check-the-box election was filed and the loss claimed. The CCA disallowed a worthless stock deduction and a bad debt deduction by recharacterizing certain intercompany debt as equity, therefore determining that the subsidiary was not worthless.

Ms. Dewar discussed creative techniques in structuring and financing mergers and acquisitions. She discussed strategies using derivatives such as synthetic ownership, hedging, repatriation, and synthetic recapitalization. Other strategies presented included equity flavored debt, hybrids, virtual mergers, and foreign holding companies. Some due diligence implications of these strategies were also presented. Specific areas requiring close attention in the due diligence process were the asset/liability measurement tests, income acceleration, hedge identification, tax indemnities and gross ups, acceleration clauses, and rating triggers. Ms. Dewar finished her presentation with a discussion of the "peanut butter and jelly" transaction--a reverse Morris Trust transaction involving Procter & Gamble's Jif peanut butter business and J.M. Smucker.

The final presenter was Marni Rosenblatt whose topic was "Disposition of Domestic and Foreign Subsidiaries." Ms. Rosenblatt covered the rules of section 338(g), where target corporation shareholders are treated as having sold their stock to the buyer and target's attributes disappear. Under section 338(g), the purchaser must make an election no later than the 15th day of the ninth month after the acquisition occurs. Section 338(h)(10), on the other hand, is deemed to be an asset sale and liquidation. The new target gets a step up in basis. The section 338(h)(10) treatment should be agreed to in the purchase agreement and may influence the purchase price.

The featured dinner speaker for the November meeting was Mary (Handy) Hevener, also of Baker & McKenzie. Ms. Hevener discussed recent developments in stock options, deferred compensation, and fringe benefits, as well as the "Enron Effect" on tax legislation and regulations. Among other things, Ms. Hevener covered the CSX Corporation case where the Court of Federal Claims concluded that involuntary layoff payments are exempt from FICA taxes if the payments qualify as supplemental unemployment compensation benefits. She also discussed the filing of refund claims for companies who may have made such layoff payments.