Time Running Out to Obtain Maximum Relief for Correcting 409A Document Failures under IRS Notice 2010-6


With less than ten weeks remaining in 2010, companies should once again consider reviewing their compensatory plans and agreements to ensure that such agreements are in documentary compliance with Internal Revenue Code section 409A ("409A"). 409A is the federal tax statute governing the taxation of nonqualified deferred compensation arrangements. While all compensation agreements should be prepared either to be exempt from or in compliance with 409A, the Internal Revenue Service has provided additional impetus for companies to re-review their compensation plans and agreements.

First, the IRS announced in 2009 that it is randomly auditing 2,000 businesses each year from 2010 through 2012 under its Employment Tax National Research Project to determine if taxpayers are properly complying with employment tax laws. More specifically with respect to 409A, the IRS in January 2010 issued Notice 2010-6. Notice 2010-6 provides tax relief for certain 409A non-compliant plans or agreements that are timely corrected in accordance with Notice 2010-6 as generally discussed below.

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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.

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