Are You Ready For Section 409A?The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. recently issued final regulations interpreting the requirements imposed on nonqualified deferred compensation arrangements by Section 409A of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. . The final regulations are effective January 1, 2008. All nonqualified deferred compensation arrangements must be in written compliance with the final regulations by December 31, 2007. All employers may be subject to Section 409A, including small businesses, public companies, private companies, non-profit entities, and governments and governmental units. Common types of arrangements that may be subject to Section 409A include: > 409A Recommended "To Do" List: Identify all arrangements, agreements, plans and policies that may constitute deferred compensation. In general, arrangements under which an employee or other service provider has a legally binding right during a taxable year Taxable year The 12-month period an individual uses to report income for income tax purposes. For most individuals, their tax year is the calendar year. to receive compensation that is (or may be) payable in a later taxable year may be subject to Section 409A. Do not overlook older arrangements. For example, an employment agreement entered into before January 1, 2005 and still in existence would need to be reviewed (particularly the severance provisions). Have legal counsel review each arrangement and, if necessary, amend the arrangement or, for an arrangement not in writing, prepare a written document to comply with Section 409A by December 31, 2007. If necessary, obtain approval from the board of directors or the compensation committee for new arrangements or amendments to existing arrangements. You may need to obtain approval from employees, officers, directors, or independent contractors A person who contracts to do work for another person according to his or her own processes and methods; the contractor is not subject to another's control except for what is specified in a mutually binding agreement for a specific job. to modify existing arrangements. In some cases, negotiations may be necessary. Communicate to employees, officers, directors, or independent contractors, as applicable, any changes in the terms of the arrangements that have been or need to be made. Have legal counsel review and revise employee communications, enrollment forms, election forms, etc. so that they comply with Section 409A and are consistent with the corresponding arrangement. Consider whether Securities and Exchange Commission ("SEC") reporting requirements apply to new or modified plans or agreements and make any necessary filings. If a plan is registered under a Form S-8 with the SEC, have legal counsel amend the plan prospectus, if necessary. Penalties for Non-Compliance The failure to comply with the applicable requirements of Section 409A can result in significant income tax consequences. Generally, vested deferred amounts of the employee or independent contractor will be immediately taxable and will be subject to an additional 20% tax, plus interest. The employer providing the deferred compensation could be subject to penalties if it fails to withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. taxes or report the income. For an in-depth review of various provisions of Section 409A, click on the following link to view "409A: Redefining the Approach to Compensation," a seminar presented by the Powell Goldstein Employee Benefits and Executive Compensation Group. http://www.eventstreams.com/pogo/027bap/ The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Powell Goldstein LLP LLP - Lower Layer Protocol One Atlantic Center One Atlantic Center, also known as the IBM Tower, is a skyscraper located in Midtown Atlanta. It is the third-tallest in Atlanta, reaching a height of 820 feet (250 m) with 50 stories of office space. Fourteenth Floor 1201. West Peachtree Street Peachtree Street is the main north-south street of Atlanta, Georgia. The city grew up around this one street, and many of its historical and municipal buildings are or were located along it. , NW Atlanta GA 30309 UNITED STATES United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Tel: 4045726700 Fax: 4045726999 E-mail: emeszaros@pogolaw.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.pogolaw.com Click Here for related articles (c) Mondaq Ltd, 2007 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
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