Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

TEACHERS ESCAPE DEFERRED COMP TRAP AIMED AT ENRON EXECS

August 08, 2007

The IRS yesterday announced (IR 2007-142) that Section 409A, the misbeggoten deferred compensation rules enacted in the wake of the Enron scandal, will not cause teachers to be hit with a 20% excise tax in 2007:

Under the 2004 law, when teachers and other employees are given an annualization election -- that is, they are allowed to choose between being paid only during the school year and being paid over a 12-month period -- and they choose the 12-month period, they are deferring part of their income from one year to the next. For instance, a teacher who chooses to get paid over a 12-month period, running from August of one year through July of the next year, rather than over the August to May school year, falls under this law.

The IRS clarified that the new rules do not require school districts to offer teachers an annualization election. Thus, school districts that have not been offering teachers this election are not required to start.

That doesn't mean teachers are off the hook forever:

School districts that offer annualization elections may have to make some changes in their procedures. The IRS announced that the new deferred-compensation rules will not be applied to annualization elections for school years beginning before Jan. 1, 2008, so school districts and teachers will have time to make any changes that are needed.

In other words, every school district in the country has to review how teachers are paid because Congress didn't like Ken Lay's deferred comp plan. Nice work, Congresscritters.

The TaxProf has more.

      Bookmark: del.icio.us • Digg • reddit