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The best way to fix it is to kill it

February 13, 2012

A North Carolina tax professor gets the Section 409A deferred compensation rules:

This [article] ... describes the legislative calamity that is § 409A of the Internal Revenue Code. Section 409A manages, all at once, to (i) fail to better neutralize the tax treatment of deferred compensation with that of current compensation, (ii) impose significant compliance costs on sophisticated taxpayers, and (iii) provide a dangerous trap for unsophisticated taxpayers.

Ideally, Congress should repeal § 409A and replace it with a system that taxes deferred compensation more neutrally vis-a-vis current compensation. Failing that, Congress should either replace § 409A with a broad grant of authority to the Treasury and IRS to strengthen the constructive receipt and economic benefit doctrines or amend § 409A to limit its scope to employee compensation paid by public companies.

It's a legislative calamity, all right, and one that nobody in Congress seems to have any interest in fixing.

Related: 409A: the worst single tax provision of the Bush era

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