Section 409A and Nonqualified Deferred Compensation
The nonqualified deferred compensation landscape changed dramatically with the enactment of Section 409A of the Internal Revenue Code in October 2004 as part of the American Jobs Creation Act. This Web site provides a one-stop resource for section 409A-related materials, including statutory language, IRS guidance, Sutherland Legal Alerts and other relevant information.
Section 409A provides for immediate taxation and an additional 20% tax on nonqualified deferred compensation that does not conform with specified election, distribution and other requirements. On April 10, 2007, the IRS issued final regulations under Section 409A which become effective January 1, 2008. Sutherland's Legal Alert dated April 13, 2007 describes these regulations.
The IRS issued interim guidance in December of 2004 in Notice 2005-1 that provides transition rules. Although the IRS has extended most transition relief through the end of 2007 in Notice 2006-79, employers and others face a daunting list of tasks to accomplish before the end of 2007, including identifying problematic arrangements to ensure compliance, determining whether to take advantage of transition rules that expire at the end of 2007, and amending plans to reflect the new rules.
On October 22, 2007, the IRS released Notice 2007-86, generally extending until the end of 2008 the prior transition rules that were to expire at the end of 2007 (including the deadline for all aspects of documentary compliance) and allowing continued good-faith operational compliance in the interim. Sutherland's Legal Alert describes the effects of this new guidance.
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