The US Treasury Department and the Internal Revenue Service on Wednesday issued Notice 2006-79, which provides an extension of existing transition relief for nonqualified deferred compensation arrangements that will be subject to the requirements of the regulations under section 409A.
Final regulations under section 409A are expected to be published later this year. Under the Notice, good-faith operational compliance with the statutory requirements of Section 409A continues to be required.
The extension of transition relief generally applies to all affected arrangements under section 409A, except certain discounted stock options subject to backdating concerns, as specified in the Notice.
The Notice extends the deadline for many aspects of complying with section 409A from January 1, 2007 to January 1, 2008. Full compliance with the operational and documentary requirements of the Section 409A is delayed until January 1, 2008, at which time an adequate opportunity will have been provided for taxpayers to digest and comply with the final regulations.
Section 409A was added to the US tax code by section 885 of the American Jobs Creation Act of 2004.
Section 409A generally provides that unless certain requirements are met, amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.
Section 409A also includes rules applicable to certain trusts or similar arrangements associated with nonqualified deferred compensation, where such arrangements are located outside of the United States or are restricted to the provision of benefits in connection with a decline in the financial health of the sponsor.
The full text of Notice 2006-79 can be found in the Tax News Resources section.
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