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SECTION 409A DEFERRED COMPENSATION TRANSITION RELIEF EXTENDED THROUGH 2007

October 04, 2006

Treasury press release issued today:

Treasury Issues Notice to Extend Existing Transition Relief for
Nonqualified Deferred Compensation

The Treasury Department and IRS issued Notice 2006-79 today, which provides an extension of existing transition relief for nonqualified deferred compensation arrangements that will be subject to the requirements of the regulations under section 409A. Final regulations under section 409A are expected to be published later this year. Under the Notice, good-faith operational compliance with the statutory requirements of Section 409A continues to be required.

The extension of transition relief generally applies to all affected arrangements under section 409A, except certain discounted stock options subject to backdating concerns, as specified in the Notice.

The Notice extends the deadline for many aspects of complying with section 409A from January 1, 2007 to January 1, 2008. Full compliance with the operational and documentary requirements of the Section 409A is delayed until January 1, 2008, at which time an adequate opportunity will have been provided for taxpayers to digest and comply with the final regulations.

Section 409A was a typically late and lame reaction to the Enron and WorldCom scandals. Because Andy Fastow pulled a fast one with his deferred compensation, businesses and employees across the country have to learn how to comply with incomprehensible rules or face potentially ruinous penalty taxes on deferred compensation - often with no guarantee that the deferred compensation will ever be paid.

Incomprehensible? Well, the transition relief applies because the Treasury has been trying to write rules for this law since it passed in 2004, and they still haven't figured it out. If they can't figure it out in two years, what chance do the rest of us have?

The section is so bad that the American Institute of Certified Public Accountants has come out for a straight repeal of Section 409A. They're right, but I see no interest in Congress in admitting a blunder.

Prior Tax Update Coverage:

GRASSLEY TO HOLD EXECUTIVE COMP HEARINGS

Complete Tax Update 409A links

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