409A Correction: IRS Chief Counsel Memorandum clarifies that correction of Section 409A failures …

Fulcrum Partners Executive Benefits News

409A Correction: IRS Chief Counsel Memorandum clarifies that correction of Section 409A failures in year of vesting will not shield income inclusion under 409A

Following up on a topic we blogged about recently, (see blog post “409A Corrections Clarified,” from May 6)  is this update from Poskauer’s ERISA Practice Center Blog, titled: IRS Chief Counsel Memorandum clarifies that correction of Section 409A failures in year of vesting will not shield income inclusion under 409A.

In this blog update regarding 409A correction, Partner Joshua Miller, (Tax Department, Employee Benefits, Executive Compensation & ERISA Litigation Tax) pointed out,

…more interesting, however, is that the Chief Counsel Memorandum guidance does not preclude correction of noncompliant nonqualified deferred compensation in a taxable year prior to the taxable year in which the compensation vests.”

Miller’s article continues, explaining, “Under the 2008 proposed income inclusion rules, Section 409A income inclusion does not appear to be required for the year that nonqualified deferred compensation ceases to be subject to a substantial risk of forfeiture (or any later years) to the extent that the applicable plan is amended to comply with Section 409A prior to the taxable year in which the compensation vests.  By not providing any indications to the contrary with regards to such a “prior year” correction, it appears the IRS has tacitly blessed the correction of unvested amounts in years prior to the year of vesting.”

You can read the full article by following the links above, as well as finding other insights on this topic here on Fulcrum Partners News.

An additional helpful resource is Internal Revenue Bulletin: 2008-51 from December 22, 2008. REG-148326-05: Notice of Proposed Rulemaking and Notice of Public Hearing Further Guidance on the Application of Section 409A to Nonqualified Deferred Compensation Plans