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Total Articles: 17

IRS Issues Proposed Regulations Under Code Section 457 Affecting Deferred Compensation Plans of Tax-Exempt Organizations

The Internal Revenue Service recently issued proposed regulations under Section 457 of the Internal Revenue Code (the “Code”) that prescribe rules regarding deferred compensation plans sponsored by state and local governments and tax-exempt organizations. These regulations relate primarily to the taxes imposed (under Code Section 457(f)) on the organization at the time the individual’s right to compensation vests, without regard to actual time of payment.

IRS Announces Section 409A Compliance Initiative Project

Executive Summary: At the American Bar Association Section of Taxation 2014 May Meeting, an IRS official announced that the IRS has created a compliance initiative project (CIP) for Section 409A of the Internal Revenue Code (IRC). As part of the CIP, the IRS will review the deferred compensation plans of selected employers to evaluate their compliance with Section 409A requirements.

Employment Law Made Un-Scary: Section 409A

Everything you ever wanted to know about Section 409A in one handy post.

Internal Revenue Code Section 409A: Tax Relief for Non-Compliant Separation Pay Arrangements

Employers and employees routinely enter into arrangements guaranteeing employees separation benefits upon the employee’s termination of employment. Such agreements appear, for example, in employment agreements, severance plans, change of control agreements and separation agreements. Many of these arrangements are not covered by Section 409A of the U.S. Internal Revenue Code of 1986, as amended (“409A”), which governs nonqualified deferred compensation plans. A plan that is covered, however, must meet 409A’s strict rules, or employees under the plan may be immediately taxed on vested benefits under the plan, even if they have not yet been paid the benefits, and may have imposed on them an additional 20% tax on the benefits and premium interest taxes.

IRS Establishes Voluntary Correction Program.

Section 409A of the Internal Revenue Code generally provides that nonqualified deferred compensation plans must comply with certain complex rules regarding the timing of deferrals and distributions. Compliance must be in both form and operation. Failure to abide by section 409A's requirements will result in all amounts deferred under the plan for the current year and all previous years becoming immediately taxable to the employee, plus an additional 20% excise tax and interest penalty. As a result, a failure to comply with the requirements of section 409A can have severe adverse tax consequences to the executive.

Document Correction Program for Document Failures in Nonqualified Deferred Compensation Arrangements.

On January 5, 2010, the Internal Revenue Service (IRS) issued Notice 2010-6 providing employers and employees with long-awaited guidance (and relief) with respect to correction of certain document failures that otherwise would subject nonqualified deferred compensation arrangements to the punitive terms of Section 409A of the Internal Revenue Code. Although the IRS previously issued guidance in December 2008 relating to voluntary correction of operational failures, the earlier guidance did not provide relief for document failures. The new Notice provides relief for certain document failures and clarifies earlier guidance dealing with operational failures by nonqualified deferred compensation arrangements and reporting and withholding guidelines under Section 409A.

Don't Hand Your Employees a Lump of Coal This Holiday Season!

Many employers are now beginning their compensation planning for 2009. But this year, unlike others, brings a new holiday treat, namely required full compliance with Section 409A of the Internal Revenue Code which places significant limitations and conditions on so-called "deferred compensation" plans and agreements.

Important Deadline for Code Section 409A Compliance (pdf).

Non-qualified deferred compensation arrangements are now subject to a tough new tax regime under Internal Revenue Code Section 409A. Section 409A became effective on January 1, 2005, but, because of the complexity of the issues involved in applying the law, the IRS did not issue final regulations until 2007. As a result, employers have been given until December 31, 2008, to bring plans and agreements into full documentary compliance (i.e., to amend written plans and put unwritten plans into writing).

New IRS Guidance Complicates Both Executive Bonus Plans and Deferred Compensation Arrangements.

In Revenue Ruling 2008-13 (Feb. 21, 2008), the Internal Revenue Service (IRS) added an additional layer of complexity to drafting compensation arrangements for senior executives - an area of the law that already has been subjected to unprecedented changes as the result of Internal Revenue Code (IRC) Section 409A. The ruling adopts a new interpretation of IRC Section 162(m), which Congress enacted in 1993 to limit the amount publicly-traded companies and their affiliates can deduct for compensation paid to their highest-ranking executives. Rev. Rul. 2008-13 expands the scope of Section 162(m) so that an executive's performance-based compensation under a performance plan that satisfies all the criteria of Section 162(m) will be non-deductible solely because the executive also is covered by a severance provision that takes his or her targeted performance bonus into account in calculating severance pay.

Benefits Alert - Less Than 100 Days - That's How Long Your Company Has to Comply with Section 409A in Operation.

With open enrollment only weeks away, your new online system is still being tested. It's not going well. The latest merger, the largest yet, is closing at year-end, meaning thousands of new and wary employees must assimilate into your benefit programs. Your daughter wants to be who for Halloween? And isn't it your turn to host your spouse's family (all of them) for Thanksgiving?

Treasury and IRS Extend Deadline for 409A Document Compliance.

On Monday, September 10, 2007, the Treasury Department and the IRS issued Notice 2007-78, which provides limited transition relief and additional guidance on the application of Internal Revenue Code Section 409A to nonqualified deferred compensation plans. Notice 2007-78 extends the deadline for plan document compliance under 409A from December 31, 2007, to December 31, 2008. The notice allows a plan to be amended retroactively to January 1, 2008, if the plan contains all of the provisions required by the 409A final regulations and reflects the operation of the plan on or after January 1, 2008.

Are Teachers' Salaries Deferred Compensation?

An issue unique to the private school industry is for the school to pay ten-month teachers over a twelve-month period. This allows both the school and the teacher to budget throughout the year and allows the school to have money from which to make insurance payment deductions during the summer break.

Final Regulations Issued On Nonqualified Deferred Compensation Plans.

On April 10, 2007, the Internal Revenue Service (IRS) and the Department of the Treasury issued final regulations under Internal Revenue Code Section 409A. Section 409A was added to the Code by the American Jobs Creation Act of 2004 and is generally effective for compensation deferred on or after January 1, 2005, under certain nonqualified deferred compensation plans and arrangements ("nonqualified plans").

IRS Releases Final 409A Deferred Compensation Regulations -- Time for Action (pdf).

On April 10, 2007, the IRS issued its final regulations interpreting the nonqualified deferred compensation requirements.

Benefits Reminder: Action Needed By Year-End On Deferred Comp Plans.

On April 17, 2007, the Treasury Department released final regulations interpreting the nonqualified deferred compensation requirements of Section 409A of the Internal Revenue Code. Nonqualified deferred compensation that fails to satisfy the requirements of Section 409A is subject to punitive tax treatment and penalties.

New Regs Require Action By Year-End (pdf).

On April 17, 2007, the Treasury Department released final regulations interpreting the nonqualified deferred compensation requirements of Section 409A of the Internal Revenue Code. Nonqualified deferred compensation that fails to satisfy the requirements of Section 409A is subject to punitive tax treatment and penalties.

Final Regulations Issued Under Section 409A On Nonqualified Deferred Compensation Plans.

The IRS has issued the final regs under Section 409A, effecting deferred compensation.