Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued interim guidance indicating that
Code Sec. 457(f) will not apply to certain types of arrangements involving recurring part-year compensation, including common arrangements involving public school employees. The Treasury and the IRS expect this rule to be included in upcoming proposed regulations; however, effective July 1, 2008, arrangements in which an employee or independent contractor receives recurring part-year compensation do not provide deferred compensation for purposes of Code Sec. 457(f) if:

  (1) the arrangement does not defer payment of any of the recurring part-year compensation beyond the last day of the thirteenth month following the beginning of the service period; and

  (2) does not defer the payment of more than the applicable dollar amount under Code Sec. 402(g)(1)( from one tax year to the next tax year. For 2008, this amount is $15,500.

  Under Code Sec. 457(f), compensation deferred by participants under ineligible plans of tax-exempt entities and state and local governments, including public schools, is generally included in the participant's gross income for the first tax year in which the compensation is not subject to a substantial risk of forfeiture.

  The IRS intends to make a conforming change to Code Sec. 409A regulations. This change would provide that a part-year compensation arrangement is not a nonqualified deferred compensation plan for purposes of Code Sec. 409A.

Notice 2008-62, 2008FED ¶46,504

Other References:

 
Code Sec. 409A

  CCH Reference - 2008FED ¶18,960.0255

 
Code Sec. 457

  CCH Reference - 2008FED ¶21,536.033

  CCH Reference - 2008FED ¶21,536.21

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 15,056.30