As previously summarized in our WSGR Alert dated October 8, 2010, the Internal Revenue Service (IRS) established a correction program in Notice 2010-6, providing the ability to correct certain documentary errors in deferred compensation plans and arrangements subject to Section 409A on favorable terms if such corrections are completed by December 31, 2010. If not corrected, such arrangements could result in early income inclusion, a 20 percent federal penalty tax, and a 20 percent state penalty for California taxpayers.

The IRS recently announced, in Notice 2010-80, additional relief for documentary errors in deferred compensation plans. An important advantage of the new guidance is that for corrections made before December 31, 2010, the only information reporting requirement is a filing by the employer stating that corrections were made. If corrections are made after December 31, 2010, affected employees must also attach a filing to their federal income tax return.

In addition to this helpful reporting relief, the IRS extended the deadline for correction of certain documentary errors and expanded the pre-approved methods of corrections.

Please see full alert below for more information.