IRS Extends Deadline for 409A Compliance

The Treasury Department and the Internal Revenue Service (IRS) on Monday gave plan sponsors until December 31, 2008 to bring documents into compliance with the final nonqualified deferred compensation regulations under section 409A of the Internal Revenue Code.

The final 409A regulations issued in April, which provided guidance regarding the requirements for deferral elections and payment timing under section 409A, required compliance by December 31, 2007 (See Final Deferred Compensation Regulations Issued).

Notice 2007-78 extends the document compliance deadline for one year and provides additional limited transition relief, but does not extend the January 1, 2008 effective date of the final regulations, the IRS said.

“The final regulations are applicable for taxable years beginning on or after January 1, 2008, and a nonqualified deferred compensation plan must meet the requirements set forth in the final regulations as of the first day of the taxable year,” the federal officials asserted. “…a nonqualified deferred compensation plan will not violate the requirements of § 409A on or before December 31, 2008 merely because the written provisions of the plan fail to meet the requirements of the § 409A guidance, provided that the plan is operated in accordance with the requirements of the§ 409A guidance and is amended on or before December 31, 2008 to comply with the§ 409A guidance retroactively to January 1, 2008.”

Issues covered in the notice also include:

  • How to designate the time and form of payment
  • How to designate a compliant time and form of payment
  • Retroactive adoption of permissible payment event definitions
  • How to designate a specified payment date or a fixed schedule of payments
  • Retroactive amendments and the six-onth delay on payments to specified employees

In Monday’s Notice, the Treasury and IRS announced they anticipate issuing guidance containing a limited voluntary compliance program that will permit corrections of certain unintentional operational violations of section 409A.

Last month a group of 92 large law firms asked the IRS for a one-year extension on compliance with the new regulations, stating that the deadline was imposing an “undue strain” on both companies and their advisers, including lawyers and accountants (See Law Firms Want More Time to Comply With 409A).

Federal officials signaled in their latest guidance release that they had heard the public protest.

“Commentators stated that taxpayers anticipate difficulties in formally amending existing plans to comply with the final regulations by the January 1, 2008 deadline. In addition, a number of commentators have raised questions regarding the application of the final regulations to certain types of plans,” an announcement indicated. “This notice is issued in response to these comments and questions.”