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IRS Issues Interim Guidance on Taxation of Deferred Compensation Maintained By Certain Partnerships and Foreign Corporations

January 22, 2009

By Eric R. Keller, J. Mark Poerio and Andrew M. Short

This month, the IRS issued Notice 2009-8 as interim guidance on Section 457A of the Internal Revenue Code (457A), which imposes immediate taxation, and in certain circumstances a 20-percent penalty plus interest, on deferred compensation arrangements maintained by certain partnerships and foreign corporations. The interim guidance basically elaborates on 457As statutory scheme, in much the same manner as IRS Notice 2005-1 established guidelines for interpreting Code Section 409A (409A) after its enactment. Taxpayers may rely on the interim 457A guidance until the IRS issues further guidance, with the IRS promising not to expand 457As scope other than prospectively after future guidance.