1.409A-4 Still “(reserved)”
Posted on November 30th, 2008 by Chad De Groot | No Comments »Filed under: ., Employee Benefits, The Financial Crisis |
Although we generally prefer to report news, and not a lack thereof, it is worth mentioning that the IRS has still not published the income inclusion regulations under section 409A of the Internal Revenue Code. The word on the employee benefits street is that these regulations have been complete since July, and they have been expected since that time, but have yet to get the green light from the powers that be at the IRS. Undoubtedly, our current economic crisis has complicated matters, and the IRS likely is hesitant to provide such guidance when Treasury is in such a state of disarray. But, this guidance certainly would be appreciated as soon as possible in light of the pending effective date of the new rules.
Section 409A, which was a part of the American Jobs Creation Act of 2004, sets forth requirements limiting, among other things, elections, distributions, and accelerations of compensation that has been deferred under non-qualified deferred compensation arrangements. In other words, these rules generally do not apply to your 401(k) plans, but rather they apply to executive compensation arrangements under which an individual is deferring current income into future tax years. After a couple of extensions resulting from the sheer scope of the rules and their complicated and onerous nature, the effective date of 409A has been pushed to January 1, 2009, and nobody is anticipating any further extensions.
Benefits practitioners will continue to be perched on the edge of their seats, anxiously awaiting this next round of regulations regulations, which will be found under 1.409A-4. The new regulations will provide rules regarding the calculation of income inclusion for amounts subject to 409A. The IRS has provided guidance regarding withholding from amounts includible in income under 409A in the form of Notices, but that guidance does not provide any help in determining how to withhold penalties resulting from noncompliance with 409A. Until now, the IRS has only required good faith compliance with 409A, but as of January 1, 2009, all deferred compensation arrangements subject to 409A must be in compliance, or those deferred amounts will be included in current income and subject to a 20% excise tax. Hopefully, benefits practitioners will have some guidance as to withholding such amounts by that time.
We will be sure to provide an update and explanation as soon as the regulations are published.
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