Exhibit 99.8
M E M O R A N D U M
TO: Douglas A. Pike, President
Illinois Community Bancorp, Inc. (the "Company")
DATE: July 24, 1996
FROM: J. Mark Poerio, Esq.
RE: Taxation of MRP Awards
________________________________________________________________________________
This memorandum concerns the taxation of the awards that will automatically
occur under the Bank's Management Recognition Plan (the "MRP") upon its receipt
of stockholder approval. To facilitate your review, the discussion below is
divided as follows:
Part I: General Tax Principles and Application to the MRP
Part II: Accelerated Taxation under Section 83(b)
* * * * * * * * * * * * * * * * *
THIS DOCUMENT CONSTITUTES PART OF
A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
* * * * * * * * * * * * * * * * *
Taxation of MRP Awards Memorandum
Page 2
Please understand that although this memorandum summarizes the tax rules
generally applicable to MRP awards, we are not in a position to provide
individual tax advice to the recipients of MRP awards ("Participants"). We
strongly recommend that each Participant consult his or her personal tax advisor
about the possibility of accelerating taxation pursuant to a Section 83(b)
election.
The deadline for making a Section 83(b) election is 30 days after the award
date -- or August 22, 1996 with respect to awards occurring on the MRP's receipt
of stockholder approval.
PART I:
GENERAL TAX PRINCIPLES
Section 83 -- Generally. Section 83 of the Internal Revenue Code (the
-----------------------
"Code") controls the federal income taxation of property that is transferred in
connection with the performance of services. In the absence of the Section 83(b)
election described in Part II, the recipient of restricted property (such as an
MRP award) recognizes income not on the date of the award but on the date that
--- ---
his or her interest vests. The amount of the recipient's taxable income will
equal the fair market value of the restricted property when vesting occurs. ***/
----
Subsequent gain or loss is treated as capital gain, with the amount that is
included in the recipient's ordinary income determining his or her basis in the
property.
Operation of the MRP. The Company's MRP will generally work as follows for
--------------------
Participants who do not make Section 83(b) elections:
---
Date Event
---- -----
Stockholder Approval of the MRP The MRP should provide a "Notice of Award"
to Participant. The notice will specify the
number of shares subject to the award.
Participants will not receive shares of the
Company's common stock, or be subject to
--
federal income taxation as the result of
receiving an award.
__________________
***/ This contrasts with the financial accounting treatment for MRP awards
- ---
(i.e., expense recognition is determined by the fair market on the date of the
award).
Taxation of MRP Awards Memorandum
Page 3
The First Five Anniversary Dates The MRP trust will transfer to each
of the MRP Award Participant a number of unrestricted shares
equal to one-fifth of the number of shares
subject to the award, plus any dividends
----
attributable to those shares (provided that
the Participant has not previously terminated
service).
As you may recall, vesting will accelerate to 100% upon a Participant's
termination of service due to death or disability, and that special rules apply
if a transfer of Common Stock would cause the Participant to own in excess of
10% of the Common Stock.
Tax Withholding. In the case of Participants who are non-employee
---------------
directors, federal income tax withholding is not required when their MRP awards
give rise to taxable income. On the other hand, Participants who are employees
must satisfy federal income tax withholding not only at the time their MRP
awards generate taxable income, but also before they may receive shares of
Common Stock from the MRP trust.
IRS Reporting. We understand that in the case of an employee, the
-------------
ordinary income arising from the vesting of MRP awards and from the payment of
tax bonuses is reportable on Form W-2, in Box 11, and that in the case of a
non-employee director, such income is reportable on Form 1099-MISC, in Box 7.
PART II:
ACCELERATED TAXATION UNDER SECTION 83(B)
Section 83(b) Generally. Within 30 days after receiving an MRP Award, a
-----------------------
Participant may make a special, irrevocable election under Code Section 83(b),
and thereby accelerate ordinary income taxation to the date that the property
transfer occurred. The amount of the Participant's ordinary income would equal
the fair market value of the Common Stock subject to the MRP award as of the
date on which the award occurred. Subsequent gain (or loss, if the award is
forfeited or depreciates) would be long or short term capital gain, not ordinary
income.
Procedural Requirements. Section 83(b) elections must include the
-----------------------
information set forth in the form of Section 83(b) election that we have
attached hereto. Further, Section 83(b) elections must be filed with the IRS
Service Center where the Participant files his or her return (both within 30
----
days after the transfer occurs, and as an attachment to his or her tax return
---
for the year to which the Section 83(b) election relates). A copy of the Section
83(b) election must also be filed with the Company.
Tax Caveat. In several recent private letter rulings (which, while not
----------
binding precedent, are indicative of current IRS policy), the Internal Revenue
Service has taken the position that, for purposes of Section 83 of the Code, no
"transfer" of property occurs when an individual receives an interest in an
Taxation of MRP Awards Memorandum
Page 4
employer's grantor trust. Because the trust associated with the MRP is a grantor
trust (by design, in order to secure deferred taxation of awards), these rulings
suggest that the IRS could question whether Section 83(b) elections may be made
with respect to MRP awards. While we do not believe that this theoretical
possibility involves a substantial tax risk for Participants, each Participant
should contact his or her personal tax counsel for independent advice about this
issue.
Tax Reporting and Withholding. The rules described in Part I would apply,
-----------------------------
as though vesting occurred on the date of the Participant's Section 83(b)
election.
CONCLUSION
Whether or not a Participant should make a Section 83(b) election depends
on a variety of factors, including the Participant's expectations as to (i) the
short-term and long-term future value of the Common Stock, (ii) the length of
time the Participant is likely to hold the Common Stock, (iii) future tax
rates --as to both income and capital gain, (iv) the risk of forfeiture, and (v)
the Participant's ability to pay the taxes associated with the MRP award.
ILLINOIS COMMUNITY BANCORP, INC.
MANAGEMENT RECOGNITION PLAN
________________________________________________________________
ELECTION TO INCLUDE VALUE OF RESTRICTED STOCK IN GROSS INCOME
IN YEAR OF TRANSFER UNDER CODE SECTION 83(B)
________________________________________________________________
* * * * * * * * * * * * * * * * *
THIS DOCUMENT CONSTITUTES PART OF
A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
* * * * * * * * * * * * * * * * *
The undersigned hereby makes the election permitted under Section 83(b) of
the Internal Revenue Code of 1986, as amended, with respect to the property
described below, and supplies the following information in accordance with the
regulations promulgated thereunder:
1. The name, address, and taxpayer identification or social security
number of the undersigned are:
Name: ________________________________
Address: _____________________________
_____________________________
I.D. No.: _____________________________
2. Description of the property with respect to which the election is
being made:
____________________( ) shares of common stock of Illinois
Community Bancorp, Inc. (hereinafter, the "Common Stock").
3. The date on which the Common Stock was transferred is ______________ ___,
1996. The taxable year to which this election relates is calendar year
1996.
4. The nature of the restrictions to which the Common Stock is subject is
as follows:
The Common Stock is forfeitable until it is earned in accordance with
Article VII of the Illinois Community Bancorp, Inc. Management
Recognition Plan (the "Plan"). Generally, the Common Stock becomes
earned and nonforfeitable by the undersigned at the rate of one-fifth
per year of service. For special rules
regarding the vesting of the undersigned's interest in the Common
Stock, see Section 7.01 of the Plan.
The Common Stock is non-transferable until the undersigned's interest
therein becomes vested and nonforfeitable, pursuant to Section 8.03 of
the Plan.
5. Fair market value:
The fair market value at the time of transfer (determined without
regard to any restrictions other then restrictions which by their
terms will never lapse) of the stock with respect to which this
election is being made is $_____ per share.
6. Amount paid for Common Stock:
The amount paid by taxpayer for said Common Stock is $0.00 per share.
7. Furnishing statement to employer:
A copy of this statement has been furnished to Illinois Community
Bancorp, Inc.
8. Notice:
Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions or conditions of the Plan, or the award made
thereunder to the undersigned.
Dated: ____________ __, 1996.
______________________________
Taxpayer/Plan Participant