Internal Revenue Code Section 409A

On Tuesday night, Senate Finance Committee Chairman Orrin Hatch (R-UT) released a new modified mark of the Senate version of the Tax Cuts and Jobs Act that modifies provisions related to Internal Revenue Code (Code) Sections 409A and 162(m).

The Chairman’s modification adds a transition rule for the elimination of employer deductions for payments over $1 million to certain executives under Code Section 162(m). The transition rule provides that elimination of the employer deduction does not apply to payments under a written and binding contract in effect on November 2, 2017, provided that the contract was not materially modified after that date.

In addition, the Chairman’s modification eliminates the provision that would have replaced Code Section 409A with a new Section 409B, which would have required payments under non-qualified deferred compensation plans to be taxed when they vested. Currently, Section 409A allows employees to defer taxation on such fully-vested payments, provided they meet other requirements under Section 409A. The proposed replacement of 409A with 409B would have had significant tax implications for those employees with non-qualified deferred compensation plans.

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On June 22, 2016, the Internal Revenue Service (IRS) issued proposed regulations to modify and clarify existing regulations under Section 409A of the Internal Revenue Code. The proposed changes were in response to practitioner comments and the IRS’s experience with Section 409A after the issuance of the final regulations in 2007. Overall, the proposed modifications are favorable to taxpayers and provide some planning opportunities. Plan sponsors have more flexibility to exempt arrangements from Section 409A and vary payment schedules under special circumstances. The IRS also made certain technical corrections to the existing regulations and warned taxpayers about certain practices that it considers to currently violate Section 409A. This article reviews the proposed changes, discusses available planning opportunities offered to employers, and addresses issues raised by the proposed regulations.

Read the full article here.

On June 22, 2016, the Internal Revenue Service (IRS) issued proposed changes to the regulations under the Internal Revenue Code (Code) §409A. The Code intends to clarify or modify a wide range of very restrictive rules pertaining to “nonqualified” deferred compensation plans as well as other types of compensation arrangements that may defer compensation. The proposed changes are designed to benefit taxpayers, with a few intending to close potential loopholes.

The following PowerPoint highlights key points from the proposed regulations and what employers and employees should know and can expect moving forward.

View the PowerPoint slides here.