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US Treasury And IRS Issue Guidance On Deferred Compensation

by Leroy Baker, Tax-News.com, New York

22 December 2004


The Treasury Department and IRS has issued a new notice providing guidance concerning new tax legislation affecting deferred compensation plans brought in under the American Jobs Creation Act.

This legislation added a new section to the tax code known as 409A, under which, unless certain specified requirements are met, all amounts deferred under a non-qualified deferred compensation plan for all taxable years are currently includible in gross income.

Under sections 885(e) and 885(f) of the legislation, Congress directed the Secretary of the Treasury to issue guidance regarding the termination and amendment of certain non-qualified deferred compensation arrangements and to define a change in ownership or control for purposes of Section 409A, within 60 days and 90 days respectively of enactment of the legislation.

Notice 2005-1 addresses these guidance items. In addition, the guidance defines the arrangements that will be considered deferred compensation subject to the new rules.

Finally, the guidance outlines the new reporting and employment tax obligations of employers in connection with section 409A.

IRS Chief Counsel Donald Korb noted: "Given the significant changes that section 409A will require for non-qualified deferred compensation plans, we developed this guidance being mindful to avoid establishing rules that could become traps for the unwary."

Section 409A applies to amounts deferred on or after January 1, 2005, subject to several special effective date rules.

The full text of the US Treasury Guidance on Deferred Compensation can be found in the Tax News Resources section.

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