IRS to Waive Code Y 2008 Reporting Mandate

October 27, 2008 ( - Treasury Deputy Benefits Tax Counsel Helen H. Morrison told attendees at a recent Webinar that the Internal Revenue Service (IRS) will waive the requirements for Code Y reporting in 2008 of amounts deferred under 409A for nonqualified deferred compensation plans (NQDC).

According to a BNA news report, Morrison said in a recent Clark Consulting Webinar that the IRS expects to issue a notice before the end of 2008 waiving the requirement for reporting this year “and until such time as we have issued regulations on how to calculate the amount that would be included in income.”

Morrison also said Treasury expects to soon the issue proposed regulations on how to calculate amounts that would be included in income due to a failure to meet 409A requirements. The proposed regulations will also “serve as a foundation for providing guidance as to what would be reported for compliant plans,” using Code Y on Form W-2, she said.

If a plan fails to comply with the regulations, the employer must report amounts includible in income on Form W-2 in Box 12, using Code Z. In the case of plan failure, the employee would be subject to immediate income inclusion and penalties, including an additional 20% tax and, in certain cases, an interest tax.

Addressing other year-end issues, Morrison said all plan documents and final elections as to time and form of payment must be completed and reduced to writing by the end of this year.

Regarding plan documents, Morrison said Section 409A imposes few requirements, “but they are important,” including:

  • the plan document need not be a single document;
  • the plan document must address time and form of payment and when payment will be made in accordance with the six permissible payment times;
  • elections must be made in accordance with the regulations and in writing; and
  • public companies must provide for a six-month delay in payment in connection with a separation from service.

More information is available here .