Tax News

CCH (cch.taxgroup.com) reports:

The IRS has extended for an additional year transition relief for compliance by nonqualified deferred compensation plans with the final regulations under Code Sec. 409A. Under previous guidance (Notice 2006-79, 2006-43 I.R.B. 307), nonqualified deferred compensation plans were required to comply with the final regulations beginning on January 1, 2008. The extended compliance date is now January 1, 2009. In addition, the IRS says it intends to issue guidance regarding a correction program as soon as possible.
In general, Code Sec. 409A, which is effective January 1, 2005, requires nonqualified deferred compensation plans to meet certain requirements. If those requirements are not met participants must include amounts deferred under the plan in income and pay additional taxes on the income.
As previously provided in Notice 2006-79, the plan must be operated in compliance with its terms to the extent consistent with Code Sec. 409A and Notice 2005-1. A taxpayer may rely on either Notice 2005-1 or the final regulations with respect to provisions in Notice 2005-1 that are inconsistent with the final regulations. If a provision is not addressed by Notice 2005-1 (or other applicable guidance with a pre-January 1, 2008, effective date other than the final regulations), the plan must be operated consistent with a good faith, reasonable interpretation of Code Sec. 409A.
For periods before January 1, 2008, compliance with the proposed or final regulations or the final regulations will be considered to constitute reasonable, good faith compliance. For periods after December 31, 2007, and before January 1, 2009, compliance with the final regulations (but not the proposed regulations) will constitute such good faith compliance. Compliance with the proposed and final regulations, however, are not the exclusive means to satisfy the good faith, reasonable interpretation standard.
Notice 2007-78 (I.R.B. 2007-41, TAXDAY, 2007/09/10, I.4) granted transition relief that was intended to facilitate compliance with written plan requirements set forth in Reg. §1.409A-1(c). Practitioners found the relief helpful but indicated that additional time was need to make informed changes to bring existing plans into compliance with the regulations. This latest notice addresses these concerns by extending the transition relief that was schedule to expire.
A one-year extension also applies to relief provided in section IV of Notice 2007-78 which relates to employment agreements.
Treasury Department News Release, TDNR HP-631, 2007FED ¶46,684
Notice 2007-86, 2007FED ¶46,685
Other References:
Code Sec. 409A
CCH Reference - 2007FED ¶18,960.01
CCH Reference - 2007FED ¶18,960.025
CCH Reference - 2007FED ¶18,960.028
CCH Reference - 2007FED ¶18,960.042
CCH Reference - 2007FED ¶18,960.043
CCH Reference - 2007FED ¶18,960.046
CCH Reference - 2007FED ¶18,960.05
CCH Reference - 2007FED ¶18.960.06
CCH Reference - 2007FED ¶18.960.061
CCH Reference - 2007FED ¶18,960.062
CCH Reference - 2007FED ¶18,960.075
CCH Reference - 2007FED ¶18.960.20
CCH Reference - 2007FED ¶18.960.22
Tax Research Consultant
CCH Reference - TRC COMPEN: 15,066