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409A Newsflash; Practical Implications of Recent Relief

October 31, 2007

By Jamie Dvoretzky, Stephen Harris, Eric Keller, Ethan Lipsig and Mark Poerio

Last week, the IRS delayed until January 1, 2009 the effective date of virtually all of the requirements of Internal Revenue Code Section 409A final regulations. Although IRS Notice 2007-86 gives employers an extra year within which to amend plans to comply with Section 409A, we recommend that employers establish a general Section 409A compliance strategy by the end of this year if they have not already done so.

In separate Notice 2007-89, the IRS excused employers from reporting amounts deferred under nonqualified deferred compensation plans in 2007. Notice 2007-89 requires that employers report any Section 409A income on Form W 2 or Form 1099 (as applicable). Withholding is not required, however, for the 20 percent excise tax and other taxes on that income.