The Internal Revenue Service (IRS) has proposed new regulations and announced a related public hearing on the subject of taxation of benefits under deferred compensation plans run by state/local governments and other tax-exempt entities.
The new regulations would amend section 457 of the Internal Revenue Code, impacting the reporting and taxation of compensation deferred under qualified retirement plans established and maintained by state/local governments or other tax-exempt organizations. The proposed regulations include rules for “determining when amounts deferred under these plans are includible in income, the amounts that are includible in income, and the types of plans that are not subject to these rules.”
According to the IRS, the proposed rulemaking would directly impact taxes paid by “certain groups of participants, beneficiaries, sponsors, and administrators of certain deferred compensation plans.” For example, certain changes would impact military service members, while others would apply to small state-related businesses.
Summarizing the wide-ranging proposal, IRS says the proposed regulations will make necessary updates to a previous round of changes made in 2003 to sections 457(a), 457(b), and 457(g) of the code, “to reflect statutory changes to section 457 since the publication of those regulations … In addition, these proposed regulations provide guidance on certain issues under sections 457(e)(11) and 457(e)(12) that are not addressed in the 2003 final regulations and provide additional guidance under section 457(f).”
To discuss the changes, the agency is holding a public hearing on the regulations on October 18, 2016, during which stakeholders can voice concerns and suggest modifications to the proposed regulations. Written or electronic comments on the proposed regulations, as well as suggested discussion outlines for the October public hearing, must be received by September 20, 2016, IRS says.
The full text of the proposed regulation appears in the Federal Register here.