It was seven years ago that the American Competitiveness and Corporate Accountability Act, commonly known as the Sarbanes-Oxley Act, was signed into law. In theory, SOX was supposed to provide for more transparency, accountability and responsibility concerning the actions of publicly held corporations in the United States.
Back then, too many corporate meeting professionals had become adept at justifying various corporate expenses for their events. Abuses had been dramatic, from million-dollar birthday parties for the spouses of CEOs to very limited incentives being awarded only to the top brass.
Jump forward to the adoption by Congress of the Temporary Asset Relief Program, or TARP, act of 2008, which contained provisions dealing with possible corporate abuses, including in the areas of incentives, meetings, conventions and travel. It would seem, had SOX worked in 2002, that the additional regulations of the past year might have been avoided. But, alas, not much has been learned.
The Real Regulator Let's go back pre-SOX and look at the granddaddy of all regulation for our industry: the Internal Revenue Code of 1986. Under this rule, to show that something is a deductible business expense, the preliminary requirements are that the expenses be "related to the trade or business" of the taxpayer. Following that, the taxpayer must demonstrate that the expense is "ordinary and necessary," not "lavish or extravagant."
Shouldn't such parameters have precluded the need for SOX and TARP?
Indeed, it is my proposition that had businesses been adhering to the fundamental rules of the Internal Revenue Code, demonstrating that expenses truly did relate to the legitimate trade or business of the taxpayer, and that they met the requirements for such things as incentive travel awards and the like, we would not be in the pickle we are in today.
Going Forward Here's something savvy meeting professionals can do to underscore their value to corporate America: First, remind everyone of the business deduction requirements, which, if properly applied, would also satisfy the basic requirements of the SOX and the TARP regulations.
TARP specifically outlines how boards of directors should adopt policies and what authorizations and verification are needed from CEOs. Failure to meet the fundamental requirements of the Internal Revenue Code could have both civil and criminal applicability to those executives who manage to squander assets and then attempt to use Uncle Sam as the reimburser or provider of those funds.
So, let's look at some things you can do, whether supplier or meeting planner.
1. Show in the meeting's collateral and in the program's agenda that the gathering truly does advance the purposes of the trade or business of the organization, and therefore the expenses are eligible for tax deduction.
2. Keep good records in order to have adequate accountability and transparency when it's time to demonstrate that expenses were ordinary and necessary for the legitimate business purpose of the activity in the first place.
The Tax Code, voluminous in size and implication, is relatively clear and straightforward when it comes to the deductibility of meetings and incentives.
Over the next few months, I'll offer a few tidbits of help to meet the ongoing onslaught of government regulation of our industry. In the meantime, remember that TARP regulations only apply to those organizations receiving federal funds; and for all publicly held corporations, the SOX rules still apply.