Treasury Delays Release of Section 409A Regulations

June 7, 2006 ( - A Treasury official said Tuesday that the government will not be able to complete the tax code Section 409A's final regulations by its original end-of-the-month deadline, but set a new release date for late summer, according to the Bureau of National Affairs.

Treasury official Daniel Hogans said he did not think it would be possible for many taxpayers to understand the final rules, make decisions, draft documents and get them approved by the current compliance deadline on January 1, 2007.

The IRS first warned that it needed extra time in March (See  409A Rules Not Expected Until Fall ). Hogans said officials are working on an “appropriate implementation schedule” for taxpayers, according to BNA.

The US Treasury Department released its second round of guidance under Section 409A of the Internal Revenue Code dealing with deferred compensation arrangements in September 2005 (See  Feds Pull Out 2nd Deferred Comp Guidance Document ), and Hogans said the Treasury will release a third round about measurement and inclusion of income and reporting requirements after it releases the final 409A regulations, according to BNA.

Under the final regulations, Hogans said guidance under  Notice 2005-1  is still valid, and 409A’s final plans will coordinate with the notice, according to BNA.  Notice 2005-94 Notice 2006-4 and  Notice 2006-33 are also still valid.

As well as notices, new regulations may also affect split dollar arrangements, BNA reported. Hogans said that though some rules from 2003 may still apply to arrangements, the Treasury will “try to provide some guidance” to help participants comply with both the grandfather rules of 2003 and the new 409A regulations, according to BNA.

Hogans said the proposed regulations would require employers to use a 50/20 rule to decide whether an employee has separated from service, meaning those who work on an “as-needed basis” usually work below 20%, and work from 20 to 50% “is a judgment call.” Hogans urged employers to be consistent in their judgment.

As for linked plans, Hogans said the new guidelines will specify on shifting benefits between the plans, according to BNA.