Deferred Compensation: IRS Releases

IRS §409A Releases and Notices

Overview

This page indexes IRS releases and notices related to
IRC §409A (Deferred compensation)

Statutory authority for IRS rulemaking

IRC §409A(e)

IRS Notices

Notice 2007-38

Correcting amendments to adopting release

IRS website version

Notice 2007-34

Provides additional guidance regarding the application of §409A to split-dollar life insurance arrangements
Provides that certain amendments of such arrangements to comply with section 409A will not be treated as a material modification

Transition guidance notices

IRS has issued six notices dealing with transition issues

Notice 2007-78
Notice 2006-100
Notice 2006-79
Notice 2006-64
Notice 2006-33
Notice 2006-4
Notice 2005-94

See Effective Dates - Transition

IRS Final Release April 2007 T.D. 9321, 2007-19 I.R.B. 1123

Note: Correcting amendments to adopting release

Notice 2007-38 9.17.07

IRS website version

Introduction

Federal Register PDF 72 Fed Reg 19233 4.17.07
Top of hyperlinked release

Hyperlinked Index to Release

Structure and Format of Regulations I.

Definition of Nonqualified Deferred Compensation Plan II.

Excluded plans A.
Section 457 plans B.
Arrangements with independent contractors C.
Anti-abuse rule D.

Definition of Nonqualified Deferred Compensation Plan III.

In general A.
Legally binding right B.

Short-term deferrals C.

In general 1.
Application to event-based payments 2.

Stock options and stock appreciation rights D.

In general 1.
Statutory stock options 2.
Definition of service recipient stock 3.
- Classes of stock that may qualify as service recipient stock 3.a.
- Entities the stock of which may qualify as service recipient stock 3.b.
- Equity interests in certain non-corporate entities 3.c.
Valuation 4.
- In general 4.a.
- Valuation - stock readily tradable on an established
  securities market 4.b.
- Valuation stock not readily tradable on an established securities market 4.c.
Modification of a stock right 5.
Other stock right issues 6.

Restricted property E.
Section 402(b) trusts F.

Arrangements between partnerships and partners G.

Foreign plans H.

Plans covered by an applicable treaty 1.
Exclusion for benefits earned under a broad-based foreign retirement plan 2.
Tax equalization payments 3.
Certain Limited Deferrals by Nonresident Aliens 4.
Other Foreign Plans 5.

Indemnification arrangements I.
Separation pay plans J.

In general 1.
Separation pay due solely to involuntary separation from service or participation in a window program 2.
Definition of involuntary separation from service 3.
Collectively bargained plans 4.
Treatment as a separate plan 5.
Reimbursement and fringe benefit plans 6.
Limited payments of separation pay 7.

Non-taxable benefits K.

Legal settlements L.
Split-dollar life insurance arrangements M.
Educational benefits N.

Definition of Plan IV.

Plan aggregation rules A.
Written plan requirement B.

Definition of Substantial Risk of Forfeiture V.

In general A.
Election between vested and nonvested rights B

Initial Deferral Election Rules VI.

In general A.
Nonelective deferrals B.
Performance-based compensation C.
Initial eligibility D.
Initial deferral elections with respect to certain forfeitable rights E.
Initial deferral election with respect to fiscal year compensation F.
Initial deferral elections with respect to commissions G.
Involuntary and voluntary separations from service H.
Elections to annualize recurring part-year compensation I.
USERRA J.

Time and Form of Payment VII.

In general A.
Specified time or fixed schedule of payments B.

In general 1.
Reimbursement and in-kind benefit plans 2.
Payment schedules with fixed or formula payment limitations 3.
Tax gross-up payments 4.
Payment schedules based on payments to the service recipient 5.

Separation from service C.

In general 1.
Employees 2.
In general 2.a.
Identification of the service recipient 2.b.
Bona fide leave 2.c.
Salary continuation programs and terminal leave 2.d
Rehires and suspensions of benefits 2.e
Mergers and acquisitions 2.f
Directors 3.
Delay for specified employees 4.
Identification of specified employees 4.a.
Alternative methods for applying the six-month delay requirement 4.b.
Specified employee effective date issues 4.c.
Corporate transactions 4.d
Alternatives for the identification of specified
employees 4.e
Application of the six-month delay rule 4.f
Different times and forms of payment on separation from service under specified circumstances 5.

Disability D.
Death E.
Change in ownership or effective control of a corporation F.
Unforeseeable emergency G.
Multiple payment events H.
Delay in payment by the service recipient I.
Disputed payments and refusals to pay J.
Back-to-back arrangements K.

Prohibition of Accelerated Payments VIII.

In general A.
Plan termination and liquidation B.
Conflicts of interest and ethics rules C.
State and local taxes, RRTA tax and foreign taxes D.
Minimum distributions under section 280H(d) E.
Top hat plan rules F.
Settlements of bona fide disputes regarding the right to a payment G.
Cashout rules H.
Other acceleration issues I.

Subsequent Changes in the Time and Form of Payment IX.

In general A.
Annuities B.
Application to multiple payment events C.
Application to domestic relations orders D.

Application to nonqualified deferred compensation plans
linked to qualified plans and other arrangements X.

Plans linked to qualified plans and certain broad-based foreign retirement plans A.
Plans linked to cafeteria plans B.
Offsets C.

In general i.
Social security benefits and disability benefits ii.

Statutory Effective Dates XI.

Effective dates earned and vested amounts A.
Effective dates - calculation of grandfathered amount B.
Material modifications C.

Effective date of final regulations XII.

Existing transition relief A.
Application of final regulations B.
Stock rights C.
Initial deferral elections D.
Designation of time and form of payment E.
Service providers in pay status F.

Additional Transition Relief XIII.

Collectively bargained plans A.
Requirement to amend plans on or before 12.31.07 B.

Calculation and Timing of Income Inclusion Amounts,
Reporting and Withholding XIV.

In general A.
Operational violations during the transition period B.
Application of plan aggregation rules during the transition period C.
Failures to amend during the transition period to comply with the rules of section 409A D.

Offshore Trusts - Arrangements with Financial Triggers XV.

Miscellaneous

Applicability Date
Effect on Other Documents
Special Analyses
Drafting Information
Adoption of Amendments to the Regulations

IRS Proposal Release October 2005

Introduction

Federal Register PDF 70 Fed Reg 57929 10.04.05
Top of hyperlinked release
Background
Explanation of Provisions and Summary of Comments

Hyperlinked Index to Release

Definition of nonqualified deferred compensation plan I.

In general A.
Section 457 plans B.
Arrangements with independent contractors C.

Definition of nonqualified deferred compensation II.

In general A.
Short-term deferrals B.

Stock options C.

Definition of service recipient stock 1.
Valuation 2.
Modification 3.

Restricted property D.

Arrangements between partnerships and partners E.
Foreign arrangements F.

Separation pay arrangements G.

In general 1.
Treatment as a separate plan 2.
Application of the short-term deferral rule to separation pay arrangements 3.
Reimbursement arrangements 4.

Split-dollar life insurance arrangements H.

Definition of Plan III.

Plan aggregation rules A.
Written plan requirement B.

Definition of substantial risk forfeiture IV.

In general A.
Election between vested and nonvested rights B.

Initial deferral election rules V.

In general A.
Nonelective arrangements B.
Performance-based compensation C.
First year of eligibility D.
Initial deferral election with respect to short-term deferrals E.
Initial deferral election with respect to certain forfeitable rights F.
Initial deferral election with respect to fiscal year compensation G.
Deferral elections with respect to commissions H.

Time and form payment VI.

In general A.
Specified time or fixed schedule of payments B.

In general 1.
Reimbursement and in-kind benefit plans 2.
Payment schedules with fixed or formula payment limitations 3.
Tax gross-up payments 4.
Payment schedules based on payments to the service recipient 5.

Separation from service C.

Employees 1.
Independent contractors 2.
Delay for key employees 3.

Death or disability D.
Change of ownership or effective control of the corporation E.
Unforeseeable emergency F.
Multiple payment events G.
Delay in payment by the service recipient H.
Disputed payments and refusals to pay I.

Anti-acceleration provision VII.

In general A.
Payments upon income inclusion under section 409A B.
Plan terminations C.
Terminations of deferral elections following an unforeseeable emergency or a hardship distribution D.
Distributions to avoid a nonallocation year under section 409(p) E.

Subsequent changes in the time and form of payment VIII.

In general A.
Definition of payment B.
Application to multiple payment events C.

Application of rules to nonqualified deferred
compensation plans linked to qualified plans IX.

In general A.
Actions that do not constitute deferral elections or accelerations B.

Statutory effective dates X.

Effective dates-earned and vested amounts A.
Effective dates-calculation of grandfathered amount B.
Material modifications C.

Transition relief XI.

In general A.
Amendment and operation of plans adopted on or before 12.31.06 B.
Change in payment elections or conditions on or before 12.31.06 C.
Payments based upon an election under a qualified plan or periods ending on or before 12.31.06 D.
Initial deferral elections E.
Cancellation of deferrals and termination of participation in a plan F.
Terminations of grandfathered plans G.

Calculation and timing of income inclusion amounts XII.

Funding arrangements XIII.

IRS Notice 2005-1 12.20.04

Introduction

Issued by the IRS on 12.20.04 as Notice 2005-1
(2005-2 I.R.B. 274, published as modified on 1.06.05)
Provided initial guidance re: application of § 409A
Supplied transition guidance in accordance with the terms of the statute
Requested comments on all aspects of the application of Section 409A, including certain specified topics

Hyperlinked Index to Notice

Purpose and Overview I.

Definitions and Coverage A.
Nonstatutory Stock Options and Stock Appreciation Rights B.
Change in Control Events C.
Acceleration of Payments D.
Effective Dates and Transition Relief E.
Application of Information Reporting and Wage Withholding Requirements F.

Reliance on Transition Guidance; Good Faith,
Reasonable Interpretation II.

Request for Comments on Anticipated Guidance III.

Request for Comments A.
Submission of Comments B.

IV Guidance

Definitions and Coverage IV.A.

Q-1 What does § 409A provide, in general? general?
Q-2 What are the federal income tax consequences of a
failure to satisfy the requirements of § 409A?
Q-3 What is a nonqualified deferred compensation plan?
Q-4 What constitutes a deferral of compensation?
Q-5 Who is the service recipient?
Q-6 How Does § 409A apply to arrangements covered by § 457?
Q-7 How Does § 409A Apply to Arrangements Between a Partnership and a Partner of the Partnership?
Q-8 To Which Service Providers Does § 409A Apply?
Q-9 What constitutes a plan?

Change in Control Events IV.B.

Q-11 Under what circumstances will payments be permitted upon a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation?poration?
Q-12 What is a change in the ownership of a corporation?
Q-13 What is a change in the effective control of a corporation?

Acceleration of Payments IV.C.

Q-15 Under what conditions may a plan permit the acceleration of the time or schedule of any payment under the plan?

Effective Dates and Transition Guidance IV.D.

Q-16 When does section 409A become effective?ffective?
Q-17 For purposes of the effective date, how is the amount of compensation deferred under a nonqualified deferred compensation plan before 1.01.05 determined?
Q-18 When is a plan materially modified?
Q-19 Under what conditions may a plan adopted before 12.31.05 be operated and amended without violating the requirements of § 409A(a)(2), (3) and (4)?
Q-20 Under what conditions may a plan adopted before 12.31.05 provide a participant a right to terminate participation in the plan, or cancel an outstanding deferral election with regard to amounts subject to § 409A,
and receive a payment of amounts subject to the termination or cancellation, without violating the requirements of § 409A(a)(2), (3) and (4)?
Q-21 Under what conditions will deferral elections under a plan in existence on or before 12.31.04, made with respect to deferrals relating all or in part to services performed on or before 12.31..05, be exempt from the requirements of § 409A(a)(4)(B) relating to the timing of elections?
Q-22 Until additional guidance is issued, under what conditions may deferral elections be made with respect to bonus compensation?

Information Reporting Requirements ... IV.E.

Information Reporting Requirements for Deferred Amounts
Q-24 What information reporting requirements are imposed by § 885(b) of the Act?
Q-25 What constitutes deferrals for the year under a nonqualified deferred compensation plan for purposes of §§ 6041(g)(1) and 6051(a)(13)?
Q-26 Do the information reporting requirements imposed by §§ 6041(g)(1) and 6051(a)(13) apply with respect to amounts deferred under a nonqualified deferred compensation plan that is a nonaccount balance
plan?
Q-27 Is there a minimum amount of aggregate deferrals for the year with respect to an individual employee below which the information reporting requirement imposed by § 6051(a)(13) does not apply?
Q-28 What is the effective date for the information reporting requirements imposed by §§ 6041(g)(1) and 6051(a)(13)?
Q-29 How should an employer report to an employee the total amount of deferrals for the year under a nonqualified deferred compensation plan as required by § 6051(a)(13)?

Wage Withholding for Employees IV.F.

Q-31 What wage withholding requirements are imposed by § 885(b) of the Act? the Act?
Q-32 When are amounts that are includible in gross income under § 409A treated as a payment of wages for income tax withholding purposes?

Reporting Nonemployee Compensation IV.G.

Q-34 What reporting requirements relating to nonemployee compensation are imposed by § 885(b) of the Act? the Act?
Q-35 How should a payer report to a nonemployee amounts includible in gross income under § 409A and not treated as wages under § 3401(a) as required by § 6041(g)(2)?
Q-36 What are the SECA tax consequences of a failure to satisfy the requirements of § 409A?
Q-37 Does § 885 of the Act affect the imposition of the employee tax and the employer tax under the Federal Insurance Contributions Act (FICA) with respect to wages paid and received for employment under a nonqualifdeferred compensation plan within the meaning of
§ 409A(d)?

Interim Reporting for Expedited Form W-2 IV.H.

Q-38 What are an employers withholding and reporting obligations where an employee is terminated or a business files a final Form 941 prior to the issuance of further guidance providing methods for calculating the amounthe amoof deferrals for the year and the amounts includible in gross income under § 409A and in wages under § 3401(a)?

Drafting Information IV.

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