Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

TEACHERS GET 409A BREAK

July 03, 2008

The IRS issued a notice (Notice 2008-62) that will remove the threat of a 20% penalty tax on teachers who have their earnings for the school year paid over a 12-month period. The notice says that the punitive Sec. 409A rules will only apply to teachers with Ramona-like salaries:

For example, assume a school district employee works during a school year that begins on August 1, 2008 and ends on May 31, 2009 (a 10-month school year). Assume further that the employee is paid over the 12-month period beginning August 1, 2008 (either because the school system pays over a 12-month period or because the employee may elect to be paid over the 12-month period and has made such an election). Under these facts and circumstances, the arrangement would not provide for deferred compensation for purposes of § 457(f) unless the employee earns more than $186,000 for the school year.

That's all well and good, but it looks to me like the IRS can only come to this position by ignoring the actual legislation passed by Congress. Nobody is likely to complain, but it's too bad that the IRS has to clean up after 535 incompetents. And Sec. 409A still lurks to pummel anybody else who fails to negotiate its byzantine ways.

UPDATE: Oops. I forgot to point out that The TaxProf has more.

Tags: sec.

      Bookmark: del.icio.us • Digg • reddit