In 2004, Congress enacted Section 409A of the Internal Revenue Code, which places strict requirements on nonqualified deferred compensation plans. Since then, the IRS has issued numerous pieces of guidance. Most recently, on 22 June 2016, the IRS issued proposed revisions to the final regulations under Section 409A. Taxand USA shares a summary of the changes.
Under the final 409A regulations, a payment is deemed made on a specified date or event, even if it is delayed for one of several reasons. One permissible reason is a delay that is required in order to comply with federal securities laws and regulations or other applicable law. A similar exception, however, was not provided for “short-term deferrals” — payments that are made within a short period following the end of the taxpayer’s taxable year.
The proposed regulations will allow delay of short-term deferrals in order to comply with federal securities regulations without causing the payment to cease to qualify as a short-term deferral, therefore maintaining the exemption of such payments from 409A under those circumstances.
Although Section 409A of the Internal Revenue Code was passed almost 12 years ago, the law and regulations surrounding the statute continue to evolve.