IRS Issues Limited Relief on Section 409A; Year End Action Still Required


The IRS recently issued Notice 2007-78, which provides additional guidance and limited transition relief on Section 409A of the Internal Revenue Code. There are still actions required by the end of 2007.


Section 409A has generally been in effect since 2005. Employers have been required to administer their nonqualified deferred compensation arrangements in accordance with Section 409A during a transition period that began in 2005. That transition period generally ends December 31, 2007, except as extended in Notice 2007-78. Noncompliant arrangements may subject an employee or

other service provider to income tax before any compensation is actually received, and they may

result in an additional 20% penalty tax (40% in California).

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