Sec. 409A's application deferred.

Notice 2006-79 extends the effective date and transition relief for most nonqualified deferred compensation arrangements under Sec. 409A from Jan. 1, 2007 to Jan. 1, 2008. This extension does not apply to certain discounted stock options subject to backdating concerns.

Sec. 409A final regulations are expected to be published by the end of 2006, and companies must meet the Sec. 409A requirements in good faith.

Initial guidance on Sec. 409A, which was enacted by the American Jobs Creation Act of 2004, was published in December 2004 as Notice 2005-1 (modified in January 2005); proposed rules were later issued (REG-158080-04, 10/4/05). (For coverage, see Singer, "Deferred Compensation for Executives under Sec. 409A," Part I, TTA, July 2006, p. 402, and Part II, TTA, August 2006, p. 476.)

Stock options and SARs relief: Notice 2006-79 states that the transition relief does not extend to stock options or stock appreciation rights (SAILs) that:

* Were granted for stock of companies that, as of the grant date, had issued common equity securities required to be registered under Section 12 of the Securities Exchange Act of 1934 ('34 Act);

* Were granted to a person who, as of the grant date, was subject to the issuer's disclosure requirements under '34 Act Section 16(a); and

* Includes stock rights in which a corporation either reported (or reasonably expects to report) a financial expense due to the issuance of a stock right with an exercise price lower than the fair market value of the underlying stock at the grant date that was not timely reported on financial statements or reports for the period.

Lesli S. Laffie J.D., LL.M.