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December 21, 2004 at 07:00 PM
The Internal Revenue Service has published its first batch of guidance for taxpayers who are interested in the new Internal Revenue Code Section 409A.[@@]
The section sets complicated new rules for determining when taxpayers can and cannot defer certain types of compensation from taxable income.
Congress included the section when it approved the new American Jobs Creation Act of 2004.
The IRS is emphasizing that the first round of guidance, which includes answers to 38 questions, is just the start of its effort to interpret and implement IRC Section 409A.
“The Treasury Department and the Internal Revenue Service ? intend to incorporate the principles of this notice into additional, more comprehensive guidance in 2005,” Stephen Tackney, an IRS tax-exempt entities specialist, writes in IRS Revenue Ruling 2005-1.
Tackney warns taxpayers against basing Section 409A positions on unrealistic expectations about what the IRS might decide in 2005.
When, for example, a taxpayer deals with questions about when a “service recipient” can accelerate payments due under a compensation plan subject to Section 409A, “a taxpayer position based on an expected exception that the taxpayer speculates that the Treasury Department and the [IRS] will adopt in future guidance is not a good faith, reasonable interpretation of the statutory language,” Tackney writes.
