Section 409A Document Correction Relief: Take the Final Bite of the Apple before December 31st


Background - Section 409A of the Internal Revenue Code (Section 409A) regulates the payment of non-qualified deferred compensation. If a plan or agreement is not otherwise exempt from Section 409A and does not comply with its provisions, the amounts payable under such plan or agreement are immediately includable in income and subject to an additional 20% penalty tax. Deferred compensation may also be subject to interest penalties if early taxation occurs and the required income tax is not paid on time. There may be adverse tax consequences under state law as well. For example, California also imposes a 20% penalty tax on non-compliant deferred compensation arrangements.

The Timing of Payments Conditioned Upon Execution of a Release May Not Comply with Section 409A -

Many deferred compensation arrangements, such as change of control plans and employment agreements providing for severance, require that the employee first execute a release of claims or return company property before receiving any of the payments under the agreement or plan. 1 The Section 409A regulations do not allow individuals receiving deferred compensation payments to choose the year in which the payments begin. Based on this provision in the regulations, the IRS has taken the position that without restrictions around the timing of the execution of the release, the employee may execute or delay execution of the release in order to select the calendar year in which the payments will be made and, therefore, the arrangement may not comply with Section 409A.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin - Employment Matters | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.