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IRS DELAYS SUBSTANTIVE REQUIREMENTS FOR 409A
October 23, 2007
The IRS has given taxpayers another year to comply with the substantive requirements of the misbegotten Section 409A deferred compensation rules. The extra year, announced in Notice 2007-86, was issued in response to complaints that existing transition relief was inadequate.
Section 409A applies a 20% penalty tax on employees if their deferred compensation fails to meet the detailed and complex requirements of the statute and regulations. For example, an employee might find himself with a 20% tax (plus regular income tax) on a deferred comp balance he has no right to, and may never receive, if the employer improperly pays an amount from a similar plan to another employee.
It's good that the IRS has granted the extra year for employees and employers to identify and fix the plans that fall under the broad reach of Section 409A. It would be far better for Congress to just repeal 409A, which it enacted in a frenzy of self-righteousness in the wake of the Enron scandals. To keep Ken Lay from ever looting his deferred comp plan just ahead of bankruptcy, 409A imposes brutal punishments on foot faults in anybody's deferred comp arrangements - even schoolteachers. That will show Ken Lay what for.
The Tax Prof has more.
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