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Regulation and Compliance > Federal Regulation > IRS

IRS Extends 409A Compliance Deadline

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The Internal Revenue Service has pushed back the date when employers must comply with the new Section 409A deferred compensation plan regulations.

The IRS will be extending transition relief for affected taxpayers to Dec. 31, 2008, from Dec. 31, 2007.

The change, announced in IRS Notice 2007-86, will affect sponsors of nonqualified deferred comp plans and those plans advisors.

Section 409A of the Internal Revenue Code, added by the American Jobs Creation Act of 2004, imposes a variety of new requirements on executive compensation arrangements, including deferred comp plans that do not qualify for the same types of tax breaks that apply to 401(k) plans and other retirement plans.

The IRS released proposed 409A regulations in 2005 and final regulations earlier this year.

In 2008, under the terms of the new compliance extension, “taxpayers are not required to comply with the requirements of the final regulations,” IRS officials write in Notice 2007-86. “Instead, they are required to operate a nonqualified deferred compensation plan in compliance with the plan’s terms, to the extent consistent with Section 409A and the applicable guidance.”

When the original IRS guidance on Section 409A, IRS Notice 2005-1, conflicts with the final regulations, taxpayers can rely on either Notice 2005-1 or the final regulations.

If an issue is not addressed in Notice 2005-1 or other applicable guidance, “taxpayers must apply a reasonable, good faith interpretation of the statute,” officials write. “Reliance upon the final regulations is treated as applying a reasonable, good faith interpretation of the statute.”

The American Benefits Council, Washington, has welcomed the new transition relief notice.

“Employers will now have adequate time to prepare for the implementation of new rules governing nonqualified deferred compensation,” says James Klein, the council’s president. “If the earlier deadline had been allowed to stand, unavoidable errors and inconsistencies would have resulted in onerous and inappropriate penalties imposed on plan participants.”

A copy of Notice 2007-86 is available


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