Nonqualified deferred compensation prop. regs.

• Author: Laffie, Lesli S.
• Position: FROM THE IRS

Treasury and the IRS issued Sec. 409A proposed regulations (REG-158080-04, 9/29/05), which define "nonqualified deferred compensation" and set forth requirements for avoiding immediate income taxation and penalties. Effective beginning in 2007, the proposed rules address: (1) plans and arrangements covered by Sec. 409A; (2) initial deferral elections; (3) permissible distributions; and (4) subsequent elections to change the time and form of payment.

Although Sec. 409A became effective starting in 2005, the proposed regulations offer transition relief. Some actions must have been undertaken by Dec. 31, 2005, while other actions may be postponed until the end of 2006.

Information reporting/withholding relief: Notice 2005-94 temporarily suspended employer and payer reporting and wage withholding requirements for calendar-year 2005 on Sec. 409A deferred compensation. However, the IRS warns...