• IRS Postpones Deadline for Documentary Compliance with Section 409A
  • September 14, 2007 | Authors: Jonathan B. Dubitzky; David A. Guadagnoli; Amy E. Sheridan
  • Law Firm: Sullivan & Worcester LLP - Boston Office
  • The IRS has just issued Notice 2007-78, in which the deadline for amending nonqualified deferred compensation plan documents to reflect Internal Revenue Code Section 409A and the final regulations is postponed until December 31, 2008. Other transition rules are not, however, being extended. Thus, the substantive rules of the final regulations become operative on January 1, 2008. Furthermore, each plan subject to Section 409A must designate in writing permissible payment dates for deferred amounts by the end of 2007.

    Where the final regulations provide choices concerning how a permissible payment event, such as separation from service or change in control, is defined, an amended plan document adopted before the end of 2008 can spell out that choice, provided it is not inconsistent with actual plan operations before the date of the amendment. Thus, a writing could be adopted in 2007 simply specifying that a benefit will be paid upon the earlier of separation from service or change in control, and the final plan document adopted in December 2008 could then provide further detail as to how those terms will be defined and applied--provided of course the final document is consistent with the regulations and actual post-2007 operations.

    In another important Section 409A development, Notice 2007-78 announces that a voluntary compliance program will be created that will permit correction of certain unintentional operational violations of Section 409A without the imposition of the full range of Section 409A taxes and penalties.