In Chief Counsel Advice 201518013 (May 1, 2015) (the "CCA"), the IRS addresses an executive retention bonus that originally vested after three years and was payable in equal installments on the first two anniversaries of the vesting date or, in the employer's discretion, in a lump sum on the first anniversary of the vesting date. Recognizing after the adoption of the bonus plan that the employer's unfettered discretion to accelerate the second installment payment causes the bonus plan to violate the deferred compensation timing rules of section 409A of the Internal Revenue Code ("section 409A"), the parties amended the bonus plan prior to the vesting date (but in the same year as the vesting date) to eliminate the employer's discretion.

Analysis -

Proposed Treasury Regulation section 1.409A-4 (the "proposed regulations") make clear that the failure of a plan document to comply with section 409A (a "document failure") may be corrected with respect to amounts that vest in future years. However, the proposed regulations do not address the situation where a document failure is corrected before the vesting date but in the year of vesting...