The IRS recently released proposed regulations regarding the application of Internal Revenue Code Section 409A to nonqualified deferred compensation plans (“NDCP”). The proposed regulations modify and clarify previous guidance. The proposed rules will not be applicable until issued as final, but the IRS explained that taxpayers may now rely on the proposed rules and the IRS will not assert positions that are contrary to the position set forth in them. This summary highlights many of the important issues raised in the proposed rules.

Background

Section 409A provides that, to the extent that certain requirements are not met, amounts deferred under a NDCP for current and prior tax years that are not subject to a substantial risk of forfeiture and were not previously included in income by the taxpayer are currently includible in gross income. Amounts deferred in violation of Section 409A are generally includible in the service provider’s income and subject to a 20 percent additional tax plus interest. Read More