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Technology Stocks : Silicon Graphics, Inc. (SGI)
SGI 88.98+11.8%3:59 PM EST
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To: MJ who wrote (14309)2/27/2006 12:34:03 AM
From: Wes  Read Replies (1) of 14451
 
Tax avoidance is the basic reason for these "loans" to executives.

Basically, the deal goes like this: if you give an executive a cash bonus/salary it is taxable in the year received and an expense to the company. On the other hand, if you give that same executive a "loan" that money is not taxable to the executive...it's a "loan." On the company books it's a "loan" secured by the executive's "note."

Now, let's take it one step further: say that executive's "pay back" of the "loan" to the company may be return or cancellation of some stock options which the executive holds (often at a nice premium to market)which discharges the company "debt." This then completes the cycle of a "loan" and "payoff" a non taxable event...if that "payback" ever takes place.

In my opinion it is nothing but a scam and now Sarbanes-Oxley* makes it illegal...much to the relief of the IRS which I don't believe ever accepted this loan/payback theory and now they don't have to.

And we wonder why normal people who don't have access to such "loans" and pay income tax on their wages might be upset with the our whole tax system.

* By the way, when companies "forgive" these "loans" they will claim an expense for the company and income to the executives upon which they must pay tax...that's why the many executives are crying now about how they have been mistreated by the whole deal...as the AP article mentions.
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