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IRS Eases 409A Letter Ruling Limit

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The Internal Revenue Service says it will resume providing private letter rulings for some types of compensation plans covered by Section 409A of the Internal Revenue Code.

Section 409A regulates the taxability of executives’ non-qualified deferred compensation plans.

The IRS said in Revenue Procedure 2008-3 that it would not rule on the tax consequences of Section 409A arrangements, or even on whether an arrangement is the type of arrangement described by Section 409A.

Since then, IRS officials write in IRS Revenue Procedure 2008-61, the IRS has discovered that the original no-rule policy keeps the IRS from “issuing private letter rulings with respect to estate and gift tax consequences of proposed inter vivos or testamentary transfers of rights under nonqualified deferred compensation plans, even though such issues do not directly involve the application of [Section] 409A,” officials write.

The policy also keeps the IRS from ruling on issues arising under the Federal Insurance Contributions Act with respect to nonqualified deferred compensation, officials write.

The IRS has decided to continue to refrain from ruling on the income tax consequences of establishing, operating, or participating in a Section 409A nonqualified deferred compensation plan, but the IRS “generally will rule on the application of certain other tax law provisions (such as FICA and estate and gift taxes) to taxpayers who participate in those plans,” officials write.


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