The U.S. Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) have published final regulations (the “Final Regulations”) under Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), which impose strict timing and form of payment requirements on all covered deferred compensation. The Final Regulations become applicable on January 1, 2008, but may be relied upon as early as April 17, 2007.
Treasury and IRS officials have stated that, currently, they do not intend to extend the January 1, 2008 deadline. As a result, prompt action is required to ensure timely operational and documentary compliance with Section 409A.
This Client Advisory summarizes some of the basic requirements of Section 409A and the Final Regulations by providing an outline of Section 409A, who may be impacted by these rules, and why compliance is important. In addition, this Client Advisory includes a checklist which may be useful to our clients in identifying many of the deferred compensation arrangements that need to be reviewed, and perhaps amended, in light of the Final Regulations. Because Section 409A covers such a broad range of compensation arrangements, this Client Advisory does not address every issue arising under Section 409A. Rather, we have focused on the areas of Section 409A that we believe may be of particular interest or concern to our clients. Due to the complexity of the Final Regulations, we encourage you to contact us for specific assistance both in working through the checklist and with compliance under Section 409A.