Wednesday, February 11, 2009

IRS Undecided About 409A Document Correction Program

Persons will document failures would be in better position to amend that Persons in compliance.

"Catherine Creech, principal, Ernst & Young LLP, Washington, D.C., who moderated the program, noted that a plan failure is not technically a violation of Code Sec. 409A if all of the deferred amounts are nonvested. Tackney responded that there is technically a violation, but that nothing is included in income, so there are not tax consequences. He indicated that the plan could be corrected in the current year if the nonvested amounts will not vest until a later year.

Morrison contrasted Code Sec. 409A with Code Sec. 457A . Under the latter provision, deferred amounts are not taxable if the amount is not determinable, she said. For example, an amount payable under a formula based on future profits might be vested but not taxable until the formula is applied. However, under Code Sec. 409A , the taxable amounts have to be estimated, if necessary, in the case of a violation. She said that this treatment reflects a congressional stance that does not favor nonqualified deferred compensation plans and requires inclusion at the earliest time."

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