409A Compliance Deadline Extended to End of 2008

An announcement was made today by the Treasury Department and the Internal Revenue Service that the taxpayer deadline to comply with final documentation regulations on nonqualified deferred compensation plans has been extended to December 31, 2008. This supersedes the original compliance deadline of December 31, 2007, but does not extend the January 1, 2008, effective date of the regulations.

The final 409A regulations provide guidance regarding the requirements for deferral elections and payment timing under section 409A. In general, the final regulations require that the material terms of a nonqualified deferred compensation plan be in writing. The Treasury Department and the IRS stated that the decision to extend the deadline was based on difficulties anticipated by taxpayers in formally amending existing plans to comply with the final regulations by the previous deadline.

Although the final compliance deadline is extended, certain transition relief under 409A will expire as of December 31, 2007, and taxpayers may still need to document designation of the time and form of payment by the end of this year. Accordingly, taxpayers should consider performing a full 409A compliance review by the end of the year.

In addition to the deadline extension, today’s announcement also stated that the Treasury Department and the IRS anticipate issuing guidance containing information on correcting certain unintentional operational violations of section 409A. The announcement, formally titled IRS Notice 2007-78, also provides responses to questions and concerns raised by taxpayers about compliance with the final regulations. Click here to read IRS Notice 2007-78.

For more information about today’s announcement and its implications, please contact Chuck Campbell at 512.236.2263 or ccampbell@jw.com, Jim Griffin at 214.953.5827 or jgriffin@jw.com, or Nathan Smithson at 214.953.5641 or nsmithson@jw.com.

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