IRS Explains How to Fix 409A Document Woes
January 5, 2010
(PLANSPONSOR.com) – The Internal Revenue Service (IRS) has released an in-depth
primer on how taxpayers can voluntarily better comply with regulations
governing documents for nonqualified deferred compensation plans.
Notice 2010-6 said the
program is intended to help taxpayers avoid or reduce the current income
inclusion and additional taxes under Section 409A.
“
This document correction program
is intended to encourage taxpayers to review
nonqualified deferred
compensation plans to identify provisions that fail to comply with
the requirements of Section
409A and Section 1.409A-1(c) of the Income Tax Regulations (a document
failure), and to correct those plan provisions promptly, while also not providing
an advantage to taxpayers participating in plans that initially fail to comply
with Section 409A over taxpayers participating in plans drafted in compliance
with Section 409A,” the IRS said in the document.
The tax agency said
the new notice includes:
- a clarification that
certain language commonly included in plan documents will not cause a document
failure;
-
relief allowing
correction of certain document failures without current income inclusion or
additional taxes under 409A, provided, in certain circumstances, that the
corrected plan provision does not affect the operation of the plan within a
year following the date of correction;
-
relief limiting the
amount currently includable in income and the additional taxes under 409A for
certain document failures if correction of the failure affects the operation of
the plan within one year following the date of correction; and
-
transition relief allowing
corrections of certain document failures without current income inclusion or
additional taxes under 409A, if the document failure is corrected by December
31, 2010, and any operational failures resulting from the document failure are
also corrected in accordance with Notice 2008-113, 2008-51 IRB 1305, by
December 31, 2010.
While the new notice is
intended to focus on document failures, the tax agency said Notice 2008-113
remains in effect to address voluntarily fixing 409A operational problems.
The new IRS notice is available here.
Fred Schneyer
editors@plansponsor.com